PROSPECTUS | February 15, 2000
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YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
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INVESCO STOCK FUNDS, INC.
INVESCO BLUE CHIP GROWTH FUND--CLASS C
INVESCO DYNAMICS FUND--CLASS C
INVESCO ENDEAVOR FUND--CLASS C
INVESCO GROWTH & INCOME FUND--CLASS C
INVESCO SMALL COMPANY GROWTH FUND--CLASS C
INVESCO VALUE EQUITY FUND--CLASS C
SIX MUTUAL FUNDS SEEKING LONG-TERM CAPITAL APPRECIATION. CLASS C SHARES ARE SOLD
PRIMARILY THROUGH THIRD PARTIES, SUCH AS BROKERS, BANKS, AND FINANCIAL PLANNERS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks...........2
Fund Performance.................................6
Fees And Expenses................................9
Investment Risks................................11
Risks Associated With Particular Investments....12
Temporary Defensive Positions...................18
Portfolio Turnover..............................18
Fund Management.................................19
Portfolio Managers..............................20
Potential Rewards...............................21
Share Price.....................................22
How To Buy Shares...............................23
How To Sell Shares..............................25
Taxes...........................................26
Dividends And Capital Gain Distributions........27
Financial Highlights............................28
No dealer, sales person, or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and you should not rely on such other information or
representations.
[INVESCO ICON]
INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of these Funds. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
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THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON} INVESTMENT GOALS & STRATEGIES
[ARROWS ICON] POTENTIAL INVESTMENT RISKS
[GRAPH ICON] PAST PERFORMANCE
[INVESCO ICON] WORKING WITH INVESCO
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[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
FACTORS COMMON TO ALL THE FUNDS
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the Funds.
Together with our affiliated companies, we at INVESCO direct all aspects of the
management of the Funds.
This Prospectus contains important information about the Funds' Class C shares,
which are sold primarily through third parties, such as brokers, banks, and
financial planners. Each Fund also offers one or more additional classes of
shares directly to the public through separate prospectuses. Those other classes
of shares have lower expenses, with resulting positive effects on their
performance. You can choose the class of shares that is best for you, based on
how much you plan to invest and other relevant factors discussed in How To Buy
Shares. To obtain additional information about other classes of shares, contact
INVESCO Distributors, Inc. ("IDI") at 1-800-328-2234 or your broker, bank, or
financial planner who is offering the Class C shares offered in this Prospectus.
FOR MORE DETAILS ABOUT EACH FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
The Funds attempt to make your investment grow. The Funds are actively managed.
The Funds invest primarily in equity securities that INVESCO believes will rise
in price faster than other securities, as well as in options and other
investments whose values are based upon the values of equity securities. They
can also invest in debt securities.
All of the Funds (except Value Equity Fund) are managed in the growth style. At
INVESCO, growth investing starts with research from the "bottom up," and focuses
on company fundamentals and growth prospects.
We require that securities purchased for the Funds meet the following standards:
o Exceptional growth: The markets and industries they represent are growing
significantly faster than the economy as a whole.
o Leadership: They are leaders -- or emerging leaders -- in these markets,
securing their position through technology, marketing, distribution or some
other innovative means.
o Financial validation: Their returns -- in the form of sales unit growth,
rising operating margins, internal funding and other factors -- demonstrate
exceptional growth and leadership.
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Value Equity Fund is managed in the value style. That means we seek securities,
particularly stocks, that are currently undervalued by the market -- companies
that are performing well, or have solid management and products, but whose stock
prices do not reflect that value. Through our value process, we seek to provide
reasonably consistent returns over a variety of market cycles.
In addition to the risks outlined in the following sections for each Fund, the
Funds are subject to other principal risks such as market, liquidity,
derivatives, options and futures, counterparty, interest rate, duration, foreign
securities, lack of timely information and credit risks. These risks are
described and discussed later in the Prospectus under the headings "Investment
Risks" and "Risks Associated With Particular Investments." An investment in a
Fund is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation ("FDIC") or any other government agency.
As with any mutual fund, there is always a risk that you can lose money on your
investment in a Fund.
[KEY ICON] INVESCO BLUE CHIP GROWTH FUND--CLASS C
The Fund tries to buy securities that will increase in value over the long-term;
current income is a secondary goal.
The Fund invests primarily in common stocks of large companies that, at the
time of purchase, have market capitalizations of more than $15 billion and that
have a history of consistent earnings growth regardless of business cycles. In
addition, INVESCO tries to identify companies that have--or are expected to
have-- growing earnings, revenues and strong cash flows. INVESCO also examines a
variety of industries and businesses, and seeks to purchase the securities of
companies that we believe are best situated to grow in their industry
categories. We also consider the dividend payment records of the companies whose
securities the Fund buys. The Fund also may invest in preferred stocks (which
generally pay higher dividends than common stocks) and debt instruments that are
convertible into common stocks, as well as securities of foreign companies. In
recent years, the core of the Fund's investments has been concentrated in the
securities of three or four dozen large, high quality companies.
Although the Fund is subject to a number of risks that could affect its
performance, its principal risk is market risk - that is, that the prices of the
securities in its portfolio will rise and fall due to price movements in the
securities markets, and that the securities held in the Fund's portfolio may
decline in value more than the overall securities markets.
[KEY ICON] INVESCO DYNAMICS FUND--CLASS C
This Fund attempts to make your investment grow. It primarily invests in
common stocks of mid-sized U.S. companies -- those with market capitalizations
between $2 billion and $15 billion at the time of purchase -- but also has the
flexibility to invest in other types of securities, including preferred stocks,
convertible securities and bonds.
The core of the Fund's portfolio is invested in securities of established
companies that are leaders in attractive growth markets with a history of strong
returns. The remainder of the portfolio is invested in securities of companies
that show accelerating growth, driven by product cycles, favorable industry or
sector conditions and other factors that INVESCO believes will lead to rapid
sales or earnings growth.
The Fund's strategy relies on many short-term factors including current
information about a company, investor interest, price movements of a
<PAGE>
company's securities and general market and monetary conditions. Consequently,
the Fund's investments are usually bought and sold relatively frequently.
While the Fund generally invests in mid-sized companies, the Fund sometimes
invests in the securities of smaller companies. The prices of these securities
tend to move up and down more rapidly than the securities prices of larger, more
established companies, and the price of Fund shares tends to fluctuate more than
it would if the Fund invested in the securities of larger companies.
[KEY ICON] INVESCO ENDEAVOR FUND--CLASS C
The Fund attempts to make your investment grow. It uses an aggressive strategy
and invests primarily in common stocks. The Fund invests in companies of all
sizes and also has the flexibility to invest in other types of securities,
including preferred stocks, convertible securities, warrants, bonds and other
debt securities.
The Fund's strategy relies on many short-term factors including current
information about a company, investor interest, price movements of a company's
securities and general market and monetary conditions. Consequently, the Fund's
investments are usually bought and sold relatively frequently.
The Fund's investments are not limited to companies of a particular size. It
invests in the securities of smaller companies, including companies just
entering the securities marketplace with initial public offerings. The prices of
these securities tend to move up and down more rapidly than the securities
prices of larger, more established companies. When the Fund concentrates its
investments in the securities of smaller companies, the price of Fund shares
tends to fluctuate more than it would if the Fund invested in the securities of
larger companies.
[KEY ICON] INVESCO GROWTH & INCOME FUND--CLASS C
The Fund attempts to obtain a high rate of total return. Income on investments
(dividends and interest), plus increases in the value of investments, make up
total return. The Fund invests most of its assets in common stocks, preferred
stocks and securities convertible into common stocks. The Fund's core
investments are in well-established, large growth companies with a strong record
of paying dividends. The Fund may also invest in securities which do not pay
dividends but that INVESCO believes have the potential to increase in value,
regardless of the potential for dividends.
The Fund's strategy relies on many short-term factors including current
information about a company, investor interest, price movements of a company's
securities and general market and monetary conditions. Consequently, the Fund's
investments are usually bought and sold relatively frequently.
The Fund's portfolio is presently concentrated in the stocks of approximately 50
companies. Although INVESCO believes that this level of diversification is
appropriate, the Fund is not as diversified as some other mutual funds.
<PAGE>
[KEY ICON] INVESCO SMALL COMPANY GROWTH FUND-- CLASS C
The Fund seeks long-term capital growth. Most holdings are in
small-capitalization companies -- those with market capitalizations under $2
billion at the time of purchase. We are primarily looking for companies in the
developing stages of their life cycles, which are currently priced below our
estimation of their potential, 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, and/or structural changes in the economy.
Investments in small, developing companies carry greater risk than investments
in larger, more established companies. Developing companies generally face
intense competition, and have a higher rate of failure than larger companies. On
the other hand, large companies were once small companies themselves, and the
growth opportunities of some small companies may be quite high.
[KEY ICON] INVESCO VALUE EQUITY FUND--CLASS C
The Fund seeks high total return from capital appreciation and current income.
The portfolio emphasizes high-quality, larger-capitalization companies which are
temporarily out of favor with investors. Our value-based process evaluates
numerous factors on a current and historical basis, seeking undiscovered values
in the market. The philosophy of value investing is based upon the belief that
certain securities are undervalued by the market. As such, when the market
"discovers" these securities, their value should increase.
Although the Fund is subject to a number of risks, its principal risk is market
risk. Undervalued stocks may not realize their perceived value for extended
periods of time. Value-oriented funds may underperform when another investing
style is in favor.
[GRAPH ICON] FUND PERFORMANCE
Since the Funds' Class C shares are not offered until February 15, 2000, the bar
charts below show the Funds' Investor Class shares' actual yearly performance
for the years ended December 31 (commonly known as their "total return") over
the past decade or since inception. Investor Class shares are not offered in
this Prospectus. INVESTOR CLASS AND CLASS C RETURNS WOULD BE SIMILAR BECAUSE
BOTH CLASSES OF SHARES INVEST IN THE SAME PORTFOLIO OF SECURITIES. THE RETURNS
OF THE CLASSES WOULD DIFFER, HOWEVER, TO THE EXTENT OF DIFFERING LEVELS OF
EXPENSES. IN THIS REGARD, THE BAR CHARTS DO NOT REFLECT CONTINGENT DEFERRED
SALES CHARGES OR ASSET BASED SALES CHARGES IN EXCESS OF 0.25% OF NET ASSETS; IF
THEY DID, THE TOTAL RETURNS SHOWN WOULD BE LOWER. The table below shows average
annual total returns for various periods ended December 31 for each Fund's
Investor Class shares compared to the relevant following indexes: S&P MidCap 400
Index, S&P 500 Composite Index and Russell 2000 Index. The information in the
charts and table illustrates the variability of each Fund's Investor Class
shares' total return and how its performance compared to a broad measure of
market performance. Remember, past performance does not indicate how a Fund will
perform in the future.
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<TABLE>
<CAPTION>
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BLUE CHIP GROWTH FUND - INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2)
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'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(1.18%) 42.05% 2.88% 18.01% (8.80%) 29.54% 20.96% 27.22% 41.72% 38.49%
Best Calendar Qtr. 12/99 31.17%
Worst Calendar Qtr. 9/90 (16.37%)
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DYNAMICS FUND - INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2)
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'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
(6.35%) 67.00% 13.15% 19.10% (1.95%) 37.55% 15.65% 24.09% 23.25% 71.80%
Best Calendar Qtr. 12/99 38.83%
Worst Calendar Qtr. 9/90 (19.61%)
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</TABLE>
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INVESCO Endeavor Fund--Investor Class
Actual Annual Total Return(1),(2),(3)
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'99
84.21%
Best Calendar Qtr. 12/9 39.80%
Worst Calendar Qtr. 9/99 4.52%
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Growth & Income Fund--Investor Class
Actual Annual Total Return(1),(2),(4)
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'99
43.48%
Best Calendar Qtr. 12/98 30.79%
Worst Calendar Qtr. 9/99 0.07%
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<PAGE>
<TABLE>
<CAPTION>
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SMALL COMPANY GROWTH FUND - INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2),(5)
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<S> <C> <C> <C> <C> <C> <C> <C>
'92 '93 '94 '95 '96 '97 '98 '99
25.27% 23.38% (3.74%) 30.02% 23.38% 11.62% 18.31% 81.64%
Best Calendar Qtr. 12/99 46.68%
Worst Calendar Qtr. 9/98 (16.94%)
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VALUE EQUITY FUND - INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2)
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'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
(5.80%) 35.84% 4.98% 10.43% 4.04% 30.60% 18.48% 28.00% 15.05% 1.12%
Best Calendar Qtr. 3/91 18.10%
Worst Calendar Qtr. 9/90 (15.24%)
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</TABLE>
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AVERAGE ANNUAL TOTAL RETURN(1)
AS OF 12/31/99
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10 YEARS OR
1 YEAR 5 YEARS SINCE INCEPTION
Blue Chip Growth Fund - Investor Class 38.49% 31.37% 19.78%
Endeavor Fund - Investor Class 84.21% N/A 121.45%(3)
Growth & Income Fund - Investor Class 43.48% N/A 60.83%(4)
Value Equity Fund - Investor Class 1.12% 18.17% 13.53%
S&P 500 Composite Index(6) 21.03% 28.54% 18.19%
Small Company Growth Fund
Investor Class 81.64% 29.08% 23.91%(5)
Russell 2000 Index(6) 21.26% 16.69% 13.40%
Dynamics Fund - Investor Class 71.80% 33.11% 24.06%
S&P MidCap 400 Index(6) 14.72% 23.05% 17.32%
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(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of each Fund's expenses.
<PAGE>
(2) The total returns are for Investor Class shares that are
not offered in this Prospectus. Total returns of Class C shares will differ only
to the extent that the classes do not have the same expenses.
(3) The Fund commenced investment operations on October 28, 1998.
(4) The Fund commenced investment operations on July 1, 1998.
(5) The Fund commenced investment operations on December 27, 1991.
(6) The S&P MidCap 400 Index is an unmanaged index indicative of domestic
mid-capitalization stocks. The S&P 500 Index is an unmanaged index considered
representative of the performance of the broad U.S. stock market. The Russell
2000 Index is an unmanaged index considered representative of the performance of
small capitalization stocks. Please keep in mind that the Indexes do not pay
brokerage, management, administrative or distribution expenses, all of which are
paid by the Funds and are reflected in their annual returns.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds:
SHAREHOLDER FEES PAID DIRECTLY FROM YOUR ACCOUNT
CLASS C SHARES
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) 1.00%*
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and Other Distributions None
Redemption Fee (as a percentage of amount redeemed) None
Exchange Fee None
* A 1% contingent deferred sales charge is charged on redemptions or exchanges
of shares held thirteen months or less, other than shares acquired through
reinvestment of dividends and other distributions.
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
BLUE CHIP GROWTH FUND--CLASS C
Management Fees 0.55%
Distribution and Service (12b-1) Fees(1) 1.00%
Other Expenses 0.26%
-----
Total Annual Fund Operating Expenses 1.81%
=====
DYNAMICS FUND--CLASS C
Management Fees 0.52%
Distribution and Service (12b-1) Fees(1) 1.00%
Other Expenses (2) 0.27%
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Total Annual Fund Operating Expenses(2) 1.79%
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ENDEAVOR FUND--CLASS C
Management Fees 0.75%
Distribution and Service (12b-1) Fees(1) 1.00%
Other Expenses(2) 0.49%
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Total Annual Fund Operating Expenses(2) 2.24%
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GROWTH & INCOME FUND--CLASS C
Management Fees 0.75%
Distribution and Service (12b-1) Fees(1) 1.00%
Other Expenses(2) 0.75%
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Total Annual Fund Operating Expenses(2) 2.50%
=====
<PAGE>
SMALL COMPANY GROWTH FUND--CLASS C
Management Fees 0.72%
Distribution and Service (12b-1) Fees(1) 1.00%
Other Expenses(2) 0.65%
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Total Annual Fund Operating Expenses(2) 2.37%
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VALUE EQUITY FUND--CLASS C
Management Fees 0.75%
Distribution and Service (12b-1) Fees(1) 1.00%
Other Expenses(2) 0.40%
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Total Annual Fund Operating Expenses(2) 2.15%
=====
(1) Because the Funds' Class C shares pay 12b-1 distribution and service fees
which are based upon each Fund's assets, if you own shares of a Fund for a
long period of time, you 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) Based on estimated expenses for the current fiscal year which may be more
or less than actual expenses. Actual expenses are not provided because the
Funds' Class C shares are not offered until February 15, 2000. Certain
expenses of the Funds will be absorbed by INVESCO in order to ensure that
expenses for Dynamics Fund--Class C, Endeavor Fund--Class C, Growth &
Income Fund--Class C, Small Company Growth Fund--Class C, and Value Equity
Fund--Class C will not exceed 1.95%, 2.25%, 2.25%, 2.25%, and 2.05%,
respectively, of each Fund's average net assets attributable to Class C
shares pursuant to an agreement between the Funds and INVESCO. These
commitments may be changed at any time following consultation with the
board of directors. After absorption, Growth & Income Fund--Class C shares
Other Expenses and Total Annual Fund Operating Expenses for the fiscal year
ending July 31, 2000 are estimated to be 0.50% and 2.25%, respectively, of
the Fund's average net assets attributable to Class C shares; Small Company
Growth Fund--Class C shares Other Expenses and Total Annual Fund Operating
Expenses for the fiscal year ending July 31, 2000 are estimated to be 0.53%
and 2.25%, respectively, of the Fund's average net assets attributable to
Class C shares; and Value Equity Fund--Class C shares Other Expenses and
Total Annual Fund Operating Expenses for the fiscal year ending July 31,
2000 are estimated to be 0.30% and 2.05%, respectively, of the Fund's
average net assets attributable to Class C shares.
EXAMPLES
These Examples are intended to help you compare the cost of investing in the
Funds to the cost of investing in other mutual funds.
The Examples assume that you invested $10,000 in Class C shares of a Fund for
the time periods indicated. The first Example assumes that you redeem all of
your shares at the end of those periods. The second Example assumes that you
keep your shares. Both Examples also assume that your investment had a
hypothetical 5% return each year and that a Fund's Class C shares' operating
expenses remained the same. Although the actual costs and performance of a
Fund's Class C shares may be higher or lower, based on these assumptions your
costs would have been:
IF SHARES ARE REDEEMED 1 year 3 years 5 years 10 years
Blue Chip Growth Fund--Class C $284 $569 $ 980 $2,127
Dynamics Fund--Class C $282 $563 $ 970 $2,105
Endeavor Fund--Class C $327 $700 $1,200 $2,575
Growth & Income Fund--Class C $353 $779 $1,331 $2,836
Small Company Growth Fund--Class C $340 $739 $1,265 $2,706
Value Equity Fund--Class C $318 $673 $1,154 $2,483
<PAGE>
IF SHARES ARE NOT REDEEMED 1 year 3 years 5 years 10 years
Blue Chip Growth Fund--Class C $184 $569 $ 980 $2,127
Dynamics Fund--Class C $182 $563 $ 970 $2,105
Endeavor Fund--Class C $227 $700 $1,200 $2,575
Growth & Income Fund--Class C $253 $779 $1,331 $2,836
Small Company Growth Fund--Class C $240 $739 $1,265 $2,706
Value Equity Fund--Class C $218 $673 $1,154 $2,483
[ARROWS ICON] INVESTMENT RISKS
You should determine the level of risk with which you are comfortable before you
invest. The principal risks of investing in any mutual fund, including these
Funds, are:
BEFORE INVESTING IN A FUND, YOU SHOULD DETERMINE THE LEVEL OF RISK WITH WHICH
YOU ARE COMFORTABLE. TAKE INTO ACCOUNT FACTORS LIKE YOUR AGE, CAREER, INCOME
LEVEL, AND TIME HORIZON.
NOT INSURED. Mutual funds are not insured by the FDIC or any other agency,
unlike bank deposits such as CDs or savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its performance, nor
assure you that the market value of your investment will increase. You may lose
the money you invest, and the Funds will not reimburse you for any of these
losses.
VOLATILITY. The price of your mutual fund shares will increase or decrease with
changes in the value of a Fund's underlying investments and changes in the
equity markets as a whole.
NOT A COMPLETE INVESTMENT PLAN. An investment in any mutual fund does not
constitute a complete investment plan. The Funds are designed to be only a part
of your personal investment plan.
<PAGE>
[ARROWS ICON] RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS
You should consider the special factors associated with the policies discussed
below in determining the appropriateness of investing in a Fund. See the
Statement of Additional Information for a discussion of additional risk factors.
MARKET RISK
Equity stock prices vary and may fall, thus reducing the value of a Fund's
investments. Certain stocks selected for any Fund's portfolio may decline in
value more than the overall stock market. In general, the securities of large
businesses with outstanding securities worth $15 billion or more have less
volatility than those of mid-size businesses with outstanding securities worth
more than $2 billion, or small businesses with outstanding securities worth less
than $2 billion.
LIQUIDITY RISK
A Fund's portfolio is liquid if the Fund is able to sell the securities it owns
at a fair price within a reasonable time. Liquidity is generally related to the
market trading volume for a particular security. Investments in smaller
companies or in foreign companies or companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.
DERIVATIVES RISK
A derivative is a financial instrument whose value is "derived," in some manner,
from the price of another security, index, asset or rate. Derivatives include
options and futures contracts, among a wide range of other instruments. The
principal risk of investments in derivatives is that the fluctuations in their
values may not correlate perfectly with the overall securities markets. Some
derivatives are more sensitive to interest rate changes and market price
fluctuations than others. Also, derivatives are subject to counterparty risk as
described below.
OPTIONS AND FUTURES RISK
Options and futures are common types of derivatives that a Fund may occasionally
use to hedge its investments. An option is the right to buy or sell a security
or other instrument, index or commodity at a specific price on or before a
specific date. A future is an agreement to buy or sell a security or other
instrument, index or commodity at a specific price on a specific date.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the transaction with a
Fund.
INTEREST RATE RISK
Changes in interest rates will affect the resale value of debt securities held
in a Fund's portfolio. In general, as interest rates rise, the resale value of
debt securities decreases; as interest rates decline, the resale value of debt
securities generally increases. Debt securities with longer maturities usually
are more sensitive to interest rate movements.
DURATION RISK
Duration is a measure of a debt security's sensitivity to interest rate changes.
Duration is usually expressed in terms of years, with longer durations usually
more sensitive to interest rate movements.
<PAGE>
FOREIGN SECURITIES RISKS
Investments in foreign and emerging markets carry special risks, including
currency, political, regulatory and diplomatic risks. Each Fund may invest up to
25% of its respective assets in securities of non-U.S. issuers. Securities of
Canadian issuers and American Depository Receipts are not subject to this 25%
limitation.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of a Fund's investment in a security
valued in the foreign currency, or based on that currency value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than those
in the U.S. may permit trading practices that are not allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. and a
foreign country could affect the value or liquidity of investments.
EUROPEAN ECONOMIC AND MONETARY UNION. 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") which as of January 1, 1999, adopted the euro as a common currency.
The national currencies will be sub-currencies of the euro until July 1,
2002, at which time these 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, which could adversely affect the value of securities held by the
Funds.
EMU countries, as a single market, may affect future investment decisions
of the Funds. 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 affect the fiscal and monetary levels
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.
LACK OF TIMELY INFORMATION RISK
Timely information about a security or its issuer may be unavailable, incomplete
or inaccurate. This risk is more common to securities issued by foreign
companies and companies in emerging markets than it is to the securities of
U.S.-based companies.
CREDIT RISK
The Funds may invest in debt instruments, such as notes, bonds and commercial
paper. There is a possibility that the issuers of these instruments will be
unable to meet interest payments or repay principal. Changes in the financial
strength of an issuer may reduce the credit rating of its debt instruments and
may affect their value.
----------------------------------------
<PAGE>
The Funds generally invest in equity securities of growing companies. However,
in an effort to diversify their holdings and provide some protection against the
risk of other investments, the Funds also may invest in other types of
securities and other financial instruments, as indicated in the chart below.
These investments, which at any given time may constitute a significant portion
of a Fund's portfolio, have their own risks.
- --------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS
(ADRs)
These are securities issued Market, Information, Blue Chip Growth
by U.S. banks that represent Political, Regulatory, Dynamics
shares of foreign corporations Diplomatic, Liquidity Endeavor
held by those banks. and Currency Risks Growth & Income
Although traded in U.S. Small Company Growth
securities markets and valued Value Equity
in U.S.dollars, ADRs carry
most of the risks of investing
directly in foreign securities.
- --------------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by private Market, Credit, Blue Chip Growth
companies or governments Interest Rate Dynamics
representing an obligation and Duration Risks Endeavor
to pay interest and to Growth & Income
repay principal when the Small Company Growth
security matures. Value Equity
- --------------------------------------------------------------------------------
DELAYED DELIVERY OR WHEN-ISSUED
SECURITIES Market and Interest Blue Chip Growth
Ordinarily, the Fund purchases Rate Risks Dynamics
securities and pays for them Endeavor
in cash at the normal trade Growth & Income
settlement time. When the Small Company Growth
Fund purchases a delayed Value Equity
delivery or when-issued
security, it promises to
pay in the future for example,
when the security is actually
available for delivery to the
Fund. The Fund's obligation to
pay and the interest rate it
receives, in the case of debt
securities, usually are fixed
when the Fund promises to pay.
Between the date the Fund
promises to pay and the date
the securities are actually
received, the Fund receives
no interest on its investment,
and bears the risk that the
market value of the when-
issued security may decline.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY
CONTRACTS
A contract to exchange an Currency, Political, Blue Chip Growth
amount of currency on a Diplomatic, Counter- Dynamics
date in the future at an party and Regulatory Endeavor
agreed-upon exchange rate Risks Growth & Income
might be used by the Fund Small Company Growth
to hedge against changes in Value Equity
foreign currency exchange
rates when the Fund invests
in foreign securities.
Does not reduce price
fluctuations in foreign
securities, or prevent
losses if the prices of
those securities decline.
- --------------------------------------------------------------------------------
FUTURES
A futures contract is an Market, Liquidity Blue Chip Growth
agreement to buy or sell and Options and Dynamics
a specific amount of a Futures Risks Endeavor
financial instrument Growth & Income
(such as an index option) Small Company Growth
at a stated price on a Value Equity
stated date. The Fund may
use futures contracts to
provide liquidity and to
hedge portfolio value.
- --------------------------------------------------------------------------------
JUNK BONDS
Debt securities that are Market, Credit, Dynamics
rated BB or lower by S&P or Interest Rate and Endeavor
Ba or lower by Moody's. Duration Risks Growth & Income
Tend to pay higher interest Small Company Growth
rates than higher-rated
debt securities, but carry
a higher credit risk.
- --------------------------------------------------------------------------------
OPTIONS
The obligation or right Credit, Information, Blue Chip Growth
to deliver or receive a Liquidity and Options Dynamics
security or other and Futures Risks Endeavor
instrument, index or Growth & Income
commodity, or cash payment Small Company Growth
depending on the price of Value Equity
the underlying security or
the performance of an
index or other benchmark.
Includes options on specific
securities and stock indices,
and options on stock index
futures. May be used in the
Fund's portfolio to provide
liquidity and hedge portfolio
value.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
- --------------------------------------------------------------------------------
OTHER FINANCIAL INSTRUMENTS
These may include forward Counterparty, Credit, Blue Chip Growth
contracts, swaps, caps, floors Currency, Interest Dynamics
and collars. They may be used Rate, Liquidity, Endeavor
to try to manage the Fund's Market and Growth & Income
foreign currency exposure and Regulatory Risks Small Company Growth
other investment risks, which Value Equity
can cause its net asset value
to rise or fall. The Fund
may use these financial
instruments, commonly known
as "derivatives," to increase
or decrease its exposure to
changing securities prices,
interest rates, currency
exchange rates or other
factors.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
A contract under which the Credit and Counter- Blue Chip Growth
seller of a security agrees party Risks Dynamics
to buy it back at an agreed- Endeavor
upon price and time in the Growth & Income
future. Small Company Growth
Value Equity
- --------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not Liquidity Risk Blue Chip Growth
registered, but which are Dynamics
bought and sold solely by Endeavor
institutional investors. Growth & Income
The Fund considers many Rule Small Company Growth
144A securities to be Value Equity
"liquid," although the
market for such securities
typically is less active
than the public securities
markets.
- --------------------------------------------------------------------------------
[ARROWS ICON] TEMPORARY DEFENSIVE POSITIONS
When securities markets or economic conditions are unfavorable or unsettled, we
might try to protect the assets of a Fund by investing in securities that are
highly liquid, such as high quality money market instruments like short-term
U.S. government obligations, commercial paper or repurchase agreements, even
though that is not the normal investment strategy of any Fund. We have the right
to invest up to 100% of a Fund's assets in these securities, although we are
unlikely to do so. Even though the securities purchased for defensive purposes
often are considered the equivalent of cash, they also have their own risks.
Investments that are highly liquid or comparatively safe tend to offer lower
returns. Therefore, a Fund's performance could be comparatively lower if it
concentrates in defensive holdings.
<PAGE>
[ARROWS ICON] PORTFOLIO TURNOVER
We actively manage and trade the Funds' portfolios. Therefore, the Funds may
have a higher portfolio turnover rate compared to many other mutual funds. The
Funds' portfolio turnover rates for the period ended July 31, 1999 were:
Blue Chip Growth Fund 134%(a)
Dynamics Fund 23%(b)
Endeavor Fund 47%(b)
Growth & Income Fund 46%(b)
Small Company Growth Fund 41%(c)
Value Equity Fund 22%(a)
(a) From September 1, 1998 to July 31, 1999
(b) From May 1, 1999 to July 31, 1999
(c) From June 1, 1999 to July 31, 1999
A portfolio turnover rate of 200%, for example, is equivalent to a Fund buying
and selling all of the securities in its portfolio two times in the course of a
year. A comparatively high turn- over rate may result in higher brokerage
commissions and taxable capital gain distributions to a Fund's shareholders.
[INVESCO ICON] FUND MANAGEMENT
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $291 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESTMENT ADVISER
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Funds. INVESCO was founded in 1932 and manages over $31 billion
for more than 960,478 shareholders of 45 INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative and
transfer agency functions (the processing of purchases, sales and exchanges of
Fund shares).
INVESCO Capital Management, a division of INVESCO, Inc. ("ICM"), located at 1360
Peachtree Street, N.E., Suite 100, Atlanta, Georgia, is the sub-adviser to Value
Equity Fund.
A wholly owned subsidiary of INVESCO, IDI is the Funds' distributor and is
responsible for the sale of the Funds' shares.
INVESCO, ICM and IDI are subsidiaries of AMVESCAP PLC.
The following table shows the fees the Funds paid to INVESCO for its advisory
services in the period ended July 31, 1999:
- --------------------------------------------------------------------------------
ADVISORY FEE AS A PERCENTAGE OF
FUND AVERAGE ANNUAL NET ASSETS UNDER MANAGEMENT
- --------------------------------------------------------------------------------
INVESCO Blue Chip Growth Fund 0.55% (Annualized)
INVESCO Dynamics Fund 0.52% (Annualized
<PAGE>
INVESCO Endeavor Fund 0.75% (Annualized)
INVESCO Growth & Income Fund 0.75% (Annualized)
INVESCO Small Company Growth Fund 0.72% (Annualized)
INVESCO Value Equity Fund 0.75% (Annualized)
- --------------------------------------------------------------------------------
Since the Funds' Class C shares are not offered until February 15, 2000, Class C
shares paid no fees to INVESCO for its advisory services in the period ended
July 31, 1999.
[INVESCO ICON] PORTFOLIO MANAGERS
The following individuals are primarily responsible for the day-to-day
management of their respective Fund's or Funds' portfolio holdings:
FUND PORTFOLIO MANAGER(S)
Blue Chip Growth Trent E. May
Douglas J. McEldowney
Dynamics Timothy J. Miller
Thomas Wald
Endeavor Timothy J. Miller
Growth & Income Trent E. May
Fritz Meyer
Small Company Growth Stacie Cowell
Timothy J. Miller
Trent E. May
Value Equity Michael E. Harhai
Terrence Irrgang
STACIE COWELL, a vice president of INVESCO, is the lead portfolio manager of
Small Company Growth Fund. Before joining INVESCO in 1997, Stacie was senior
equity analyst with Founders Asset Management and a capital markets and trading
analyst with Chase Manhatten Bank in New York. She is a Chartered Financial
Analyst. Stacie holds an M.S. in Finance from the University of Colorado and a
B.A. in Economics from Colgate University.
MICHAEL C. HARHAI, executive vice president of ICM, is the portfolio manager of
Value Equity Fund. Before joining ICM in 1993, Michael was a senior vice
president and portfolio manager with Sovran Capital Management Corp., C&S/Sovran
Capital Management and a vice president with Citizens & Southern Investment
Advisors, Inc. He is a Chartered Financial Analyst. Michael holds an M.B.A. from
the University of Central Florida and a B.A. from the University of South
Florida.
TERRENCE IRRGANG, a vice president of ICM, is the co-portfolio manager of Value
Equity Fund. Before joining ICM in 1992, Terrence was a consultant for Towers,
Perrin, Forster & Crosby. He holds an M.B.A. from Temple University and a B.A.
from Gettysburg College.
TRENT E. MAY, a vice president of INVESCO, is the lead portfolio manager of Blue
Chip Growth and Growth & Income Funds and a co-portfolio manager of Small
Company Growth Fund. Before joining INVESCO in 1996, Trent was a senior equity
analyst with Munder Capital Management and a research assistant with SunBank
Capital Management. He is a Chartered Financial Analyst. Trent holds an M.B.A.
from Rollins College and a B.S. in Engineering from Florida Institute of
Technology.
<PAGE>
DOUGLAS J. MCELDOWNEY, a vice president of INVESCO, is the co-portfolio manager
of Blue Chip Growth Fund. Before joining INVESCO in 1999, Doug was a senior vice
president and portfolio manager with Bank of America Investment Management, Inc.
and an investment officer and portfolio manager with SunTrust Banks, Inc. He is
a Chartered Financial Analyst and a Certified Public Accountant. He holds an
M.B.A. from the Crummer Graduate School at Rollins College and a B.B.A. in
Finance from University of Kentucky.
FRITZ MEYER, a vice president of INVESCO, is the co-portfolio manager of Growth
& Income Fund. Before joining INVESCO in 1996, Fritz was an executive vice
president and portfolio manager with Nelson, Benson & Zellmer, Inc. He holds an
M.B.A. from Amos Tuck School--Dartmouth College and a B.A. with a distinction in
Economics from Dartmouth College.
TIMOTHY J. MILLER, a director and senior vice president of INVESCO, is the lead
portfolio manager of Dynamics and Endeavor Funds and co-portfolio manager of
Small Company Growth Fund. Before joining INVESCO in 1992, Tim was a portfolio
manager with Mississippi Valley Advisors. He is a Chartered Financial Analyst.
Tim holds an M.B.A. from the University of Missouri-- St. Louis and a B.S.B.A.
from St. Louis University.
THOMAS WALD, a vice president of INVESCO, is the co-portfolio manager of
Dynamics Fund. Before joining INVESCO in 1997, Tom was an analyst with Munder
Capital Management, Duff & Phelps and Prudential Investment Corp. He is a
Chartered Financial Analyst. Tom holds an M.B.A. from the Wharton School at the
University of Pennsylvania and a B.A. from Tulane University.
Stacie Cowell, Trent May, Doug McEldowney, Fritz Meyer and Tom Wald are members
of the INVESCO Growth Team, which is led by Tim Miller.
[INVESCO ICON] POTENTIAL REWARDS
NO SINGLE FUND SHOULD REPRESENT YOUR COMPLETE INVESTMENT PROGRAM NOR SHOULD YOU
ATTEMPT TO USE THE FUNDS FOR SHORT-TERM TRADING PURPOSES.
The Funds offer shareholders the potential to increase the value of their
capital over time; Blue Chip Growth, Growth & Income and Value Equity Funds also
offer the opportunity for current income. Like most mutual funds, each Fund
seeks to provide higher returns than the market or its competitors, but cannot
guarantee that performance. Each Fund seeks to minimize risk by investing in
many different companies in a variety of industries.
SUITABILITY FOR INVESTORS
Only you can determine if an investment in a Fund is right for you based upon
your own economic situation, the risk level with which you are comfortable and
other factors. In general, the Funds are most suitable for investors who:
o are willing to grow their capital over the long term (at least five years).
o understand that shares of a Fund can, and likely will, have daily price
fluctuations.
o are investing tax-deferred retirement accounts, such as traditional and Roth
Individual Retirement Accounts ("IRAs"), as well as employer-sponsored
qualified retirement plans, including 401(k)s and 403(b)s, all of which
have longer investment horizons.
You probably do not want to invest in the Funds if you are:
o primarily seeking current dividend income.
o unwilling to accept potentially significant changes in the price of Fund
shares.
o speculating on short-term fluctuations in the stock markets.
<PAGE>
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- --------------------------------------
/ NUMBER OF SHARES
= YOUR SHARE PRICE (NAV).
The value of your Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in each Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of the regular trading day on that
exchange (normally 4:00 p.m. Eastern time). Therefore, shares of the Funds are
not priced on days when the NYSE is closed, which generally is on weekends and
national holidays in the U.S. NAV is calculated by adding together the current
market price of all of a Fund's investments and other assets, including accrued
interest and dividends; subtracting the Fund's debts, including accrued
expenses; and dividing that dollar amount by the total number of the Fund's
outstanding shares.
All purchases, sales and exchanges of Fund shares are made by INVESCO at the NAV
next calculated after INVESCO receives proper instructions from you to purchase,
redeem or exchange shares of a Fund. Your instructions must be received by
INVESCO no later than the close of the NYSE to effect transactions at that day's
NAV. If INVESCO hears from you after that time, your instructions will be
processed at the NAV calculated at the end of the next day that the NYSE is
open.
Foreign securities exchanges, which set the prices for foreign securities held
by the Funds, are not always open the same days as the NYSE, and may be open for
business on days the NYSE is not. For example, Thanksgiving Day is a holiday
observed by the NYSE and not by overseas exchanges. In this situation, the Funds
would not calculate NAV on Thanksgiving Day (and INVESCO would not buy, sell or
exchange shares for you on that day), even though activity on foreign exchanges
could result in changes in the value of investments held by the Funds on that
day.
[INVESCO ICON] HOW TO BUY SHARES
TO BUY SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE THE CLOSE
OF THE NYSE, NORMALLY 4:00 P.M. EASTERN TIME.
The Funds offer multiple classes of shares. Each class represents an identical
interest in a Fund and has the same rights, except that each class bears its own
distribution and shareholder servicing charges, and other expenses. 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, and the other expenses 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
provisions of the distributions plan applicable to that class, if any, (iii)
the eligibility requirements that apply to purchases of a particular class, and
(iv) any services you may receive in making your investment determination. Your
investment representative can help you decide. Contact your investment
representative for several convenient ways to invest in the Funds. Class C
shares are available only through your investment representative.
There is no charge to invest directly through INVESCO. However, with respect to
Class C shares, upon redemption or exchange of Class C shares held thirteen
months or less (other than Class C shares acquired through reinvestment of
dividends or other distributions, or Class C shares exchanged for Class C shares
of another INVESCO Fund), a contingent deferred sales charge of 1% of the
current net asset value of the Class C shares will be assessed. If you invest in
<PAGE>
a Fund through a securities broker, you may be charged a commission or
transaction fee for either purchases or sales of Fund shares. For all new
accounts, please send a completed application form, and specify the fund or
funds you wish to purchase.
INVESCO reserves the right to increase, reduce or waive each Fund's minimum
investment requirements in its sole discretion, if it determines this action is
in the best interests of that Fund's shareholders. INVESCO also reserves the
right in its sole discretion to reject any order to buy Fund shares, including
purchases by exchange.
MINIMUM INITIAL INVESTMENT. $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans, including IRAs.
MINIMUM SUBSEQUENT INVESTMENT. $50 (Minimums are lower for certain retirement
plans.)
EXCHANGE POLICY. You may exchange your Class C shares in any of the Funds for
Class C shares in another INVESCO mutual fund on the basis of their respective
NAVs at the time of the exchange.
FUND EXCHANGES CAN BE A CONVENIENT WAY FOR YOU TO DIVERSIFY YOUR INVESTMENTS, OR
TO REALLOCATE YOUR INVESTMENTS WHEN YOUR OBJECTIVES CHANGE.
Before making any exchange, be sure to review the prospectuses of the funds
involved and consider the differences between the funds. Also, be certain that
you qualify to purchase certain classes of shares in the new fund. An exchange
is the sale of shares from one fund immediately 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, you or your
account qualifies as tax-deferred under the Internal Revenue Code). If the
shares of the fund you are selling have gone up in value since you bought them,
the sale portion of an exchange may result in taxable income to you.
We have the following policies governing exchanges:
o Both fund accounts involved in the exchange must be registered in exactly the
same name(s) and Social Security or federal tax I.D. number(s).
o You may make up to four exchanges out of each Fund per 12-month period, but
you may be subject to the contingent deferred sales charge, described below.
o Each Fund reserves the right to reject any exchange request, or to modify or
terminate the exchange policy, if it is in the best interests of the Fund and
its shareholders. Notice of all such modifications or terminations that affect
all shareholders of the Fund will be given at least 60 days prior to the
effective date of the change, except in unusual instances, including a
suspension of redemption of the exchanged security under Section 22(e) of the
Investment Company Act of 1940.
In addition, the ability to exchange may be temporarily suspended at any time
that sales of the fund into which you wish to exchange are temporarily stopped.
Please remember that if you pay by check, Automated Clearing House ("ACH"), or
wire and your funds do not clear, you will be responsible for any related loss
to a Fund or INVESCO. If you are already an INVESCO funds shareholder, the Fund
may seek reimbursement for any loss from your existing account(s).
CONTINGENT DEFERRED SALES CHARGE (CDSC). If you redeem or exchange Class C
shares of any Fund after holding them thirteen months or less (other than shares
acquired through reinvestment of dividends or other distributions), a CDSC of 1%
<PAGE>
of the current net asset value of the shares being redeemed or exchanged will be
assessed. The fee applies to redemptions from a Fund and exchanges (other than
exchanges into Class C shares) into any of the other mutual funds which are also
advised by INVESCO and distributed by IDI. We will use the "first-in, first-out"
method to determine your holding period. Under this method, the date of
redemption or exchange will be compared with the earliest purchase date of
shares held in your account. If your holding period is less than thirteen
months, the CDSC will be assessed on the current net asset value of those
shares.
The CDSC for Class C shares generally will be waived:
o to pay account fees;
o for IRA distributions due to death, disability or periodic distributions based
on life expectancy;
o to return excess contributions (and earnings, if applicable) from retirement
plan accounts; or nfor redemptions following the death of a shareholder or
beneficial owner.
DISTRIBUTION EXPENSES. We have adopted a Master Distribution Plan and Agreement
(commonly known as a "12b-1 Plan") for the Funds' Class C shares. The 12b-1 fees
paid by each Fund's Class C shares are used to pay distribution fees to IDI for
the sale and distribution of the Fund's shares and fees for services provided to
shareholders, all or a substantial portion of which are paid to the dealer of
record. Because the Funds' Class C shares pay these fees out of their assets on
an ongoing basis, these fees increase the cost of your investment.
HOUSEHOLDING. To save money for the Funds, INVESCO will send only one copy of a
prospectus or financial report to each household address. This process, known as
"householding," is used for most required shareholder mailings. It does not
apply to account statements. You may, of course, request an additional copy of a
prospectus or financial report at any time by calling or writing INVESCO. You
may also request that householding be eliminated from all your required
mailings.
[INVESCO ICON] HOW TO SELL SHARES
Contact your investment representative for several convenient ways to sell your
Fund shares. Shares of the Funds may be sold at any time at the next NAV
calculated after your request to sell in proper form is received by INVESCO.
Depending on Fund performance, the NAV at the time you sell your shares may be
more or less than the price you paid to purchase your shares.
TO SELL SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE 4:00 P.M.
EASTERN TIME.
If you own shares in more than one INVESCO fund, please specify the fund whose
shares you wish to sell. Remember that any sale or exchange of shares in a
non-retirement account will likely result in a taxable gain or loss.
While INVESCO attempts 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.
INVESCO usually mails you the proceeds from the sale of Fund shares within seven
days after we receive your request to sell in proper form. However, payment may
be postponed under unusual circumstances -- for instance, if normal trading is
not taking place on the NYSE, or during an emergency as defined by the
Securities and Exchange Commission. If your INVESCO fund shares were purchased
by a check which has not yet cleared, payment will be made promptly when your
purchase check does clear; that can take up to 15 days.
If you participate in EasiVest, the Funds' automatic monthly investment program,
and sell all of the shares in your account, we will not make any additional
EasiVest purchases unless you give us other instructions.
Because of the Funds' expense structure, it costs as much to handle a small
account as it does to handle a large one. If the value of your account in a Fund
falls below $250 as a result of your actions (for example, sale of your Fund
<PAGE>
shares), each Fund reserves the right to sell all of your shares, send the
proceeds of the sale to you and close your account. Before this is done, you
will be notified and given 60 days to increase the value of your account to $250
or more.
[GRAPH ICON] TAXES
Everyone's tax status is unique. We encourage you to consult your own tax
adviser on the tax impact to you of investing in the Funds.
TO AVOID BACKUP WITHHOLDING, BE SURE WE HAVE YOUR CORRECT SOCIAL SECURITY OR
TAXPAYER IDENTIFICATION NUMBER.
Each Fund customarily distributes to its shareholders substantially all of its
net investment income, net capital gains and net gains from foreign currency
transactions, if any. You receive a proportionate part of these distributions,
depending on the percentage of each Fund's shares that you own. These
distributions are required under federal tax laws governing mutual funds. It is
the policy of each Fund to distribute all investment company taxable income and
net capital gains. As a result of this policy and each Fund's qualification as a
regulated investment company, it is anticipated that none of the Funds will pay
any federal income or excise taxes. Instead, each Fund will be accorded conduit
or "pass through" treatment for federal income tax purposes.
However, unless you are (or your account is) exempt from income taxes, you must
include all dividends and capital gain distributions paid to you by a Fund in
your taxable income for federal, state and local income tax purposes. You also
may realize capital gains or losses when you sell shares of a Fund at more or
less than the price you originally paid. An exchange is treated as a sale, and
is a taxable event. Dividends and other distributions usually are taxable
whether you receive them in cash or automatically reinvest them in shares of the
distributing Fund(s) or other INVESCO funds.
If you have not provided INVESCO with complete, correct tax information, the
Funds are required by law to withhold 31% of your distributions and any money
that you receive from the sale of shares of the Funds as a backup withholding
tax.
We will provide you with detailed information every year about your dividends
and capital gain distributions. Depending on the activity in your individual
account, we may also be able to assist with cost basis figures for shares you
sell.
[GRAPH ICON] DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Funds earn ordinary or investment income from dividends and interest on
their investments. The Funds expect to distribute substantially all of this
investment income, less Fund expenses, to shareholders annually, with respect to
Blue Chip Growth, Dynamics, Endeavor and Small Company Growth Funds, and
quarterly, with respect to Growth & Income and Value Equity Funds, or at such
other times as the Funds may elect.
NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS ARE DISTRIBUTED TO
SHAREHOLDERS AT LEAST ANNUALLY. DISTRIBUTIONS ARE TAXABLE WHETHER REINVESTED IN
ADDITIONAL SHARES OR PAID TO YOU IN CASH (EXCEPT FOR TAX-EXEMPT ACCOUNTS)
A Fund also realizes capital gains or losses when it sells securities in its
portfolio for more or less than it had paid for them. If total gains on sales
exceed total losses (including losses carried forward from previous years), a
Fund has a net realized capital gain. Net realized capital gains, if any, are
distributed to shareholders at least annually, usually in December.
<PAGE>
Under present federal income tax laws, capital gains may be taxable at different
rates, depending on how long a Fund has held the underlying investment.
Short-term capital gains which are derived from the sale of assets held one year
or less are taxed as ordinary income. Long-term capital gains which are derived
from the sale of assets held for more than one year are taxed at up to the
maximum capital gains rate, currently 20% for individuals.
Dividends and capital gain distributions are paid to you if you hold shares on
the record date of the distribution regardless of how long you have held your
shares. A Fund's NAV will drop by the amount of the distribution on the day the
distribution is declared. If you buy shares of a Fund just before a distribution
is declared, you may wind up "buying a distribution." This means that if the
Fund declares a dividend or capital gain distribution shortly after you buy, you
will receive some of your investment back as a taxable distribution. Most
shareholders want to avoid this. And, if you sell your shares at a loss for tax
purposes and purchase a substantially identical investment within 30 days before
or after that sale, the transaction is usually considered a "wash sale" and you
will not be able to claim a tax loss.
Dividends and capital gain distributions paid by each Fund are automatically
reinvested in additional Fund shares at the NAV on the ex-distribution date,
unless you choose to have them automatically reinvested in another INVESCO fund
or paid to you by check or electronic funds transfer. If you choose to be paid
by check, the minimum amount of the check must be at least $10; amounts less
than that will be automatically reinvested. Dividends and other distributions,
whether received in cash or reinvested in additional Fund shares, may be subject
to federal income tax.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of Investor Class shares of each Fund for the past five years (or,
if shorter, the period of the Fund's operations). Certain information reflects
financial results for a single Investor Class share. Since Class C shares are
new, financial information is not available for this class as of the date of
this Prospectus. The total returns in the table represent the annual percentages
that an investor would have earned (or lost) on an investment in an Investor
Class share of a Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the Company's financial
statements, are included in INVESCO Stock Funds, Inc.'s 1999 Annual Report to
Shareholders, which is incorporated by reference into the Statement of
Additional Information. This Report is available without charge by contacting
IDI at the address or telephone number on the back cover of this Prospectus.
<TABLE>
<CAPTION>
PERIOD
ENDED
JULY 31 YEAR ENDED AUGUST 31
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BLUE CHIP GROWTH FUND-- 1999(a) 1998 1997 1996 1995 1994
INVESTOR CLASS
PER SHARE DATA
Net Asset Value--
Beginning of Period $5.15 $ 6.06 $ 5.44 $ 5.33 $ 5.34 $ 5.28
- -------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS 0.00 0.02 0.01 0.03 0.05 0.03
Net Investment Income(b)
Net Gains on Securities
(Both Realized and Unrealized) 2.11 0.69 1.39 0.95 0.49 0.11
- -------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.11 0.71 1.40 0.98 0.54 0.14
- -------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment
Income(c) 0.00 0.02 0.01 0.03 0.05 0.03
Distributions from Capital Gains 0.51 1.60 0.77 0.84 0.50 0.05
- -------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.51 1.62 0.78 0.87 0.55 0.08
- -------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 6.75 $ 5.15 $ 6.06 $ 5.44 $ 5.33 $ 5.34
=================================================================================================
TOTAL RETURN 42.06%(d) 13.42% 28.14% 20.23% 12.05% 2.52%
RATIOS
Net Assets--End of Period
($000 Omitted) $1,232,908 $747,739 $709,220 $596,726 $501,285 $488,411
Ratio of Expenses to Average
Net Assets 1.03%(e)(f) 1.04%(e) 1.07%(e) 1.05%(e) 1.06% 1.03%
Ratio of Net Investment Income
to Average Net Assets (0.08%)(f) 0.37% 0.22% 0.64% 1.07% 0.47%
Portfolio Turnover Rate 134%(d) 153% 286% 207% 111% 63%
</TABLE>
(a) From September 1, 1998 to July 31, 1999, the Fund's current fiscal year end.
(b) Net Investment Income for the period ended July 31, 1999, aggregated less
than $0.01 on a per share basis.
(c) Distributions in excess of net investment income for the period ended July
31, 1999 and for the year ended August 31, 1995, aggregated less than $0.01
on a per share basis.
(d) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(e) Ratio is based on Total Expenses of the Fund, which is before any expense
offset arrangements.
(f) Annualized
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD
ENDED
JULY 31 YEAR ENDED APRIL 30
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DYNAMICS FUND--
INVESTOR CLASS 1999(a) 1999 1998 1997 1996 1995
PER SHARE DATA
Net Asset Value--
Beginning of Period $18.15 $16.41 $12.02 $13.61 $11.38 $10.15
- --------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss)(b) 0.00 0.00 (0.05) (0.04) 0.02 0.03
Net Gains or Losses on
Securities (Both Realized
and Unrealized) 1.24 3.04 6.39 (0.19) 3.94 1.34
- --------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT 1.24 3.04 6.34 (0.23) 3.96 1.37
OPERATIONS
- --------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (c) 0.00 0.00 0.00 0.00 0.02 0.03
Distributions from Capital
Gains 0.00 1.30 1.95 1.36 1.71 0.11
- --------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 1.30 1.95 1.36 1.73 0.14
- --------------------------------------------------------------------------------------------------
Net Asset Value--End
of Period $19.39 $18.15 $16.41 $12.02 $13.61 $11.38
==================================================================================================
TOTAL RETURN 6.83%(d) 20.83% 56.42% (2.34%) 36.32% 13.57%
RATIOS
Net Assets--End of Period
($000 Omitted) $2,471,482 $2,044,321 $1,340,299 $762,396 $778,416 $421,600
Ratio of Expenses to
Average Net Assets 1.03%(e)(g) 1.05%(e) 1.08%(e) 1.16%(e) 1.14%(e) 1.20%(f)
Ratio of Net Investment
Income
(Loss) to Average
Net Assets (0.32%)(g) (0.41%) (0.43%) (0.31%) 0.16% 0.33%(f)
Portfolio Turnover Rate 23%(d) 129% 178% 204% 196% 176%
</TABLE>
(a) From May 1, 1999 to July 31, 1999, the Fund's current fiscal year end.
(b) Net Investment Income (Loss) aggregated less than $0.01 on a per share basis
for the period ended July 31, 1999 and for the year ended April 30, 1999.
(c) Distributions in excess of net investment income for the year ended April
30, 1996, aggregated less than $0.01 on a per share basis.
(d) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(e) Ratio is based on Total Expenses of the Fund, which is before any expense
offset arrangements.
(f) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
year ended April 30, 1995. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.22% and
ratio of net investment income to average net assets would have been 0.31%.
(g) Annualized
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED PERIOD ENDED
JULY 31 APRIL 30
- --------------------------------------------------------------------------------
INVESCO ENDEAVOR FUND--
INVESTOR CLASS 1999(a)(b) 1999(c)
PER SHARE DATA
Net Asset Value--Beginning of Period $16.32 $10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.03) (0.03)
Net Gains on Securities (Both Realized
and Unrealized) 0.32 6.35
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.29 6.32
- --------------------------------------------------------------------------------
Net Asset Value End of Period $16.61 $16.32
================================================================================
TOTAL RETURN 1.78%(d) 63.20%(d)
RATIOS
Net Assets--End of Period ($000 Omitted) $109,532 $72,592
Ratio of Expenses to Average Net Assets(e) 1.49%(f) 1.43%(f)
Ratio of Net Investment Loss to Average
Net Assets (0.83%)(f) (0.55%)(f)
Portfolio Turnover Rate 47%(d) 107%(d)
(a) From May 1, 1999 to July 31, 1999, the Fund's current fiscal year end.
(b) The per share information was computed using average shares.
(c) From October 28, 1998, commencement of investment operations, to April 30,
1999.
(d) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(e) Ratio is based on Total Expenses of the Fund, which is before any expense
offset arrangements.
(f) Annualized
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED PERIOD ENDED
JULY 31 APRIL 30
- -------------------------------------------------------------------------------
GROWTH & INCOME FUND--
INVESTOR CLASS 1999(a) 1999(b)
PER SHARE DATA
Net Asset Value--Beginning of Period $14.54 $10.00
- -------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss(c) 0.00 0.00
Net Gains on Securities (Both Realized
and Unrealized) 0.83 5.22
- -------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.83 5.22
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from Capital Gains 0.00 0.68
- -------------------------------------------------------------------------------
Net Asset Value--End of Period $15.37 $14.54
===============================================================================
TOTAL RETURN 5.71%(d) 53.07%(d)
RATIOS
Net Assets--End of Period ($000 Omitted) $61,316 $53,994
Ratio of Expenses to Average Net
Assets(e)(f) 1.52%(g) 1.52%(g)
Ratio of Net Investment Loss to Average
Net Assets(f) (0.45%)(g) (0.25%)(g)
Portfolio Turnover Rate 46%(d) 121%(d)
(a) From May 1, 1999 to July 31, 1999, the Fund's current fiscal year end.
(b) From July 1, 1998, commencement of investment operations, to April 30, 1999.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the
periods ended July 31, 1999 and April 30, 1999.
(d) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(e) Ratio is based on Total Expenses of the Fund, less expenses absorbed by
INVESCO, which is before any expense offset arrangements.
(f) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
periods ended July 31, 1999 and April 30, 1999. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would
have been 1.75% (annualized) and 1.71% (annualized) respectively, and ratio
of net investment loss to average net assets would have been (0.68%)
(annualized) and (0.44%) (annualized), respectively.
(g) Annualized
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD
ENDED
JULY 31 YEAR ENDED MAY 31
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SMALL COMPANY GROWTH
FUND--INVESTOR CLASS 1999(a) 1999 1998 1997 1996 1995
PER SHARE DATA
Net Asset Value--Beginning
of Period $12.08 $11.90 $12.82 $14.38 $9.37 $11.40
- ---------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss)(b) 0.00 0.00 (0.06) (0.07) (0.06) 0.04
Net Gains or (Losses) on
Securities (Both Realized and
Unrealized) 1.53 1.35 2.56 (0.96) 5.25 0.46
- ---------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.53 1.35 2.50 (1.03) 5.19 0.50
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.00 0.00 0.00 0.00 0.00 0.04
Distributions from Capital Gains 0.00 1.17 3.42 0.53 0.18 2.49
- ---------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 1.17 3.42 0.53 0.18 2.53
- ---------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $13.61 $12.08 $11.90 $12.82 $14.38 $9.37
===================================================================================================
TOTAL RETURN 12.67%(c) 12.91% 22.65% (7.08%) 55.78% 4.98%
RATIOS
Net Assets--End of Period
($000 Omitted) $452,861 $318,109 $272,619 $294,259 $370,029 $153,727
Ratio of Expenses to Average
Net Assets(d) 1.50%(e)(f) 1.51%(e) 1.48%(e) 1.52%(e) 1.48%(e) 1.49%
Ratio of Net Investment Income
(Loss) to Average Net
Assets(d) (0.69%)(f) (0.58%) (0.42%) (0.55%) (0.78%) 0.41%
Portfolio Turnover Rate 41%(c) 203% 158% 216% 221% 228%
</TABLE>
(a) From June 1, 1999 to July 31, 1999, the Fund's current fiscal year end.
(b) Net Investment Income (Loss) for the period ended July 31, 1999 and the year
ended May 31, 1999 aggregated less than $0.01 on a per share basis.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(d) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
period ended July 31, 1999 and for the years ended May 31, 1999, 1997 and
1995. If such expenses had not been voluntarily absorbed, ratio of expenses
to average net assets would have been 1.62% (annualized), 1.59%, 1.54% and
1.52%, respectively, and ratio of net investment income (loss) to average
net assets would have been (0.81%) (annualized), (0.66%), (0.57%), and 0.38%
respectively.
(e) Ratio is based on Total Expenses of the Fund, less expenses absorbed by
INVESCO, which is before any expense offset arrangements.
(f) Annualized
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD
ENDED
JULY 31 YEAR ENDED AUGUST 31
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
VALUE EQUITY FUND--
INVESTOR CLASS 1999(a) 1998 1997 1996 1995 1994
PER SHARE DATA
- --------------------------------------------------------------------------------------------------
Net Asset Value--
Beginning of Period $25.68 $28.30 $22.24 $19.53 $18.12 $17.79
- --------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.17 0.26 0.35 0.35 0.39 0.36
Net Gains or (Losses) on
Securities (Both Realized and
Unrealized) 6.25 (0.43) 6.62 3.09 2.58 1.20
- --------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 6.42 (0.17) 6.97 3.44 2.97 1.56
- --------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment
Income 0.17 0.26 0.35 0.35 0.39 0.31
In Excess of Net Investment
Income(b) 0.00 0.00 0.00 0.00 0.00 0.04
Distributions from Capital Gains 2.32 2.19 0.56 0.38 1.17 0.88
- --------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 2.49 2.45 0.91 0.73 1.56 1.23
- --------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $29.61 $25.68 $28.30 $22.24 $19.53 $18.12
==================================================================================================
TOTAL RETURN 25.41%(c) (1.06%) 32.04% 17.77% 17.84% 9.09%
RATIOS
Net Assets End of Period
($000 Omitted) $369,982 $349,984 $369,766 $200,046 $153,171 $111,850
Ratio of Expenses to Average
Net Assets(d) 1.27%(e)(f) 1.15%(e) 1.04%(e) 1.01%(e) 0.97% 1.01%
Ratio of Net Investment Income
to Average Net Assets(d) 0.63%(f) 0.86% 1.35% 1.64% 2.17% 1.80%
Portfolio Turnover Rate 22%(c) 48% 37% 27% 34% 53%
</TABLE>
(a) From September 1, 1998 to July 31, 1999, the Fund's current fiscal year end.
(b) Distributions in excess of net investment income for the period ended July
31, 1999 and for the year ended August 31, 1998, aggregated less than $0.01
on a per share basis.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(d) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
period ended July 31, 1999 and the year ended August 31, 1998. If such
expenses had not been voluntarily absorbed, ratio of expenses to average net
assets would have been 1.38% (annualized) and 1.19%, respectively, and ratio
of net investment income to average net assets would have been 0.52%
(annualized) and 0.82%, respectively.
(e) Ratio is based on Total Expenses of the Fund, less expenses absorbed by
INVESCO, if applicable, which is before any expense offset
arrangements.
(f) Annualized
<PAGE>
FEBRUARY 15, 2000
INVESCO STOCK FUNDS, INC.
INVESCO BLUE CHIP GROWTH FUND--CLASS C
INVESCO DYNAMICS FUND--CLASS C
INVESCO ENDEAVOR FUND--CLASS C
INVESCO GROWTH & INCOME FUND--CLASS C
INVESCO SMALL COMPANY GROWTH FUND--CLASS C
INVESCO VALUE EQUITY FUND--CLASS C
You may obtain additional information about the Funds from several sources:
FINANCIAL REPORTS. Although this Prospectus describes the Funds' anticipated
investments and operations, the Funds also prepare annual and semiannual reports
that detail the Funds' actual investments at the report date. These reports
include discussion of each Fund's recent performance, as well as market and
general economic trends affecting each Fund's performance. The annual report
also includes the report of the Funds' independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated February 15, 2000 is a
supplement to this Prospectus and has detailed information about the Funds and
their investment policies and practices. A current SAI for the Funds is on file
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus of the Funds may be accessed through the
INVESCO Web site at www.invesco.com. In addition, the Prospectus, SAI, annual
report and semiannual report of the Funds are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; or call 1-800-328-2234. Copies of these materials are also
available (with a copying charge) from the SEC's Public Reference Section at 450
Fifth Street, N.W., Washington, D.C., 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 202-942-8090. The SEC file numbers for the
Funds are 811-1474 and 002-26125.
811-1474
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INVESCO STOCK FUNDS, INC.
INVESCO Blue Chip Growth Fund - Investor Class and Class C
INVESCO Dynamics Fund - Investor Class and Class C
INVESCO Endeavor Fund - Investor Class and Class C
INVESCO Growth & Income Fund - Investor Class and Class C
INVESCO Small Company Growth Fund - Investor Class and Class C
INVESCO S&P 500 Index Fund - Investor Class and Institutional Class
INVESCO Value Equity Fund - Investor Class and Class C
Address: Mailing Address:
7800 E. Union Ave., Denver, CO 80237 P.O. Box 173706, Denver, CO 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
February 15, 2000
- ------------------------------------------------------------------------------
A Prospectus for the Investor Class shares of INVESCO Blue Chip Growth, INVESCO
Dynamics, INVESCO Endeavor, INVESCO Growth & Income, INVESCO Small Company
Growth, INVESCO S&P 500 Index and INVESCO Value Equity Funds dated August 31,
1999, a Prospectus for INVESCO S&P 500 Index Fund - Institutional Class dated
August 31, 1999, and a Prospectus for the Class C shares of INVESCO Blue Chip
Growth, INVESCO Dynamics, INVESCO Endeavor, INVESCO Growth & Income, INVESCO
Small Company Growth, and INVESCO Value Equity Funds dated February 15, 2000,
provide the basic information you should know before investing in a Fund. This
Statement of Additional Information ("SAI") is incorporated by reference into
the Funds' Prospectuses; in other words, this SAI is legally part of the Funds'
Prospectuses. Although this SAI is not a prospectus, it contains information in
addition to that set forth in the Prospectuses. It is intended to provide
additional information regarding the activities and operations of the Funds and
should be read in conjunction with the Prospectuses.
<PAGE>
You may obtain, without charge, the current Prospectuses, SAI and annual and
semiannual reports of the Funds by writing to INVESCO Distributors, Inc., P.O.
Box 173706, Denver, CO 80217-3706 , or by calling 1-800-525-8085. The
Prospectuses of the Investor Class and Class C shares of the Funds are also
available through the INVESCO Web site at www.invesco.com.
<PAGE>
TABLE OF CONTENTS
The Company... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investments, Policies and Risks . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Management of the Funds . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Other Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . . . . . .59
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Tax Consequences of Owning Shares of a Fund . . . . . . . . . . . . . . . . . 64
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
<PAGE>
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. ("FDF"), which was
incorporated in Colorado on February 17, 1967. All financial and other
information about the Company for periods prior to July 1, 1993 relates to FDF.
On June 26, 1997, the Company changed its name to INVESCO Capital Appreciation
Funds, Inc. and designated two series of shares of common stock of the Company
as the INVESCO Dynamics Fund and the 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 the 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
INVESCO Blue Chip Growth Fund, a series of INVESCO Growth Fund, Inc.; INVESCO
Small Company Growth Fund, a series of INVESCO Emerging Opportunity Funds, Inc.;
INVESCO S&P 500 Index Fund, a series of INVESCO Specialty Funds, Inc.; and
INVESCO Value Equity Fund, a series of INVESCO Value Trust.
The Company is an open-end, diversified, management investment company currently
consisting of seven portfolios of investments: INVESCO Blue Chip Growth Fund -
Investor Class and Class C, INVESCO Dynamics Fund - Investor Class and Class C,
INVESCO Endeavor Fund - Investor Class and Class C, INVESCO Growth & Income Fund
- - Investor Class and Class C, INVESCO Small Company Growth Fund - Investor Class
and Class C, INVESCO S&P 500 Index Fund - Investor Class and Institutional Class
and INVESCO Value Equity Fund - Investor Class and Class C (each a "Fund" and
collectively the "Funds"). Additional funds may be offered in the future.
"Open-end" means that each Fund issues an indefinite number of shares which it
continuously offers to redeem at net asset value per share ("NAV"). A
"management" investment company actively buys and sells securities for the
portfolio of each Fund at the direction of a professional manager. Open-end
management investment companies (or one or more series of such companies, such
as the Funds) are commonly referred to as mutual funds. The Funds do not charge
sales fees to purchase their shares. However, the Investor Class shares of each
Fund pay a 12b-1 distribution fee which is computed and paid monthly at an
annual rate of 0.25% of average net assets attributable to Investor Class
shares. The Class C shares of each Fund pay a 12b-1 distribution/ service fee
which is computed and paid monthly at an aggregate annual rate of 1.00% of
average net assets attributable to Class C shares.
Although S&P 500 Index Fund attempts to mirror the performance of the S&P 500
Composite Stock Price Index ("S&P 500"), the Fund is not affiliated in any way
with Standard & Poor's ("S&P"). S&P is not involved in the determination of the
prices and amount of the securities bought by the Fund, the sale of Fund shares
or the calculation of the equation by which Fund shares are to be converted into
cash.
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, shareholders of the Fund or any
<PAGE>
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 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.
INVESTMENTS, POLICIES AND RISKS
The principal investments and policies of the Funds are discussed in the
Prospectuses of the Funds. The Funds also may invest in the following securities
and engage in the following practices.
ADRs -- American Depository Receipts, or ADRs, are securities issued by American
banks. ADRs are receipts for the shares of foreign corporations that are held by
the bank issuing the receipt. An ADR entitles its holder to all dividends and
capital gains on the underlying foreign securities, less any fees paid to the
bank. Purchasing ADRs gives a Fund the ability to purchase the functional
equivalent of foreign securities without going to the foreign securities markets
to do so. ADRs are bought and sold in U.S. dollars, not foreign currencies. An
ADR that is "sponsored" means that the foreign corporation whose shares are
represented by the ADR is actively involved in the issuance of the ADR, and
generally provides material information about the corporation to the U.S.
market. An "unsponsored" ADR program means that the foreign corporation whose
shares are held by the bank is not obligated to disclose material information in
the United States, and, therefore, the market value of the ADR may not reflect
important facts known only to the foreign company. Since they mirror their
underlying foreign securities, ADRs generally have the same risks as investing
directly in the underlying foreign securities.
CERTIFICATES OF DEPOSIT IN FOREIGN BANKS AND U.S. BRANCHES OF FOREIGN BANKS --
The Funds may maintain time deposits in and invest in U.S. dollar denominated
CDs issued by foreign banks and U.S. branches of foreign banks. The Funds limit
investments in foreign bank obligations to U.S. dollar denominated obligations
of foreign banks which have more than $10 billion in assets, have branches or
agencies in the U.S., and meet other criteria established by the board of
directors. Investments in foreign securities involve special considerations.
There is generally less publicly available information about foreign issuers
since many foreign countries do not have the same disclosure and reporting
requirements as are imposed by the U.S. securities laws. Moreover, foreign
issuers are generally not bound by uniform accounting and auditing and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Such investments may also entail the risks of possible
imposition of dividend withholding or confiscatory taxes, possible currency
blockage or transfer restrictions, expropriation, nationalization or other
adverse political or economic developments, and the difficulty of enforcing
obligations in other countries.
The Funds may also invest in bankers' acceptances, time deposits and
certificates of deposit of U.S. branches of foreign banks and foreign branches
of U.S. banks. Investments in instruments of U.S. branches of foreign banks will
be made only with branches that are subject to the same regulations as U.S.
<PAGE>
banks. Investments in instruments issued by a foreign branch of a U.S. bank will
be made only if the investment risk associated with such investment is the same
as that involving an investment in instruments issued by the U.S. parent, with
the U.S. parent unconditionally liable in the event that the foreign branch
fails to pay on the investment for any reason.
COMMERCIAL PAPER -- Commercial paper is the term for short-term promissory notes
issued by domestic corporations to meet current working capital needs.
Commercial paper may be unsecured by the corporation's assets but may be backed
by a letter of credit from a bank or other financial institution. The letter of
credit enhances the paper's creditworthiness. The issuer is directly responsible
for payment but the bank "guarantees" that if the note is not paid at maturity
by the issuer, the bank will pay the principal and interest to the buyer.
INVESCO Funds Group, Inc. ("INVESCO"), the Funds' investment adviser, will
consider the creditworthiness of the institution issuing the letter of credit,
as well as the creditworthiness of the issuer of the commercial paper, when
purchasing paper enhanced by a letter of credit. Commercial paper is sold either
as interest-bearing or on a discounted basis, with maturities not exceeding 270
days.
DEBT SECURITIES -- Debt securities include bonds, notes and other securities
that give the holder the right to receive fixed amounts of principal, interest,
or both on a date in the future or on demand. Debt securities also are often
referred to as fixed-income securities, even if the rate of interest varies over
the life of the security.
Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that the
market value of the security may decline for a variety of reasons, including
changes in interest rates. An increase in interest rates tends to reduce the
market values of debt securities in which a Fund has invested. A decline in
interest rates tends to increase the market values of debt securities in which a
Fund has invested.
Moody's Investor Services, Inc. ("Moody's") and S&P ratings provide a useful
guide to the credit risk of many debt securities. The lower the rating of a debt
security, the greater the credit risk the rating service assigns to the
security. To compensate investors for accepting that greater risk, lower-rated
debt securities tend to offer higher interest rates. Growth & Income Fund may
invest up to 25% of its portfolio in lower-rated debt securities, which are
often referred to as "junk bonds." Increasing the amount of Fund assets invested
in unrated or lower-grade straight debt securities may increase the yield
produced by the Fund's debt securities but will also increase the credit risk of
those securities. A debt security is considered lower grade if it is rated Ba or
less by Moody's or BB or less by S&P. Lower-rated and non-rated debt securities
of comparable quality are subject to wider fluctuations in yields and market
values than higher-rated debt securities and may be considered speculative.
Although a Fund may invest in debt securities assigned lower grade ratings by
S&P or Moody's, at the time of purchase, the Funds are not permitted to invest
in bonds that are in default or are rated CCC or below by S&P or Caa or below by
Moody's or, if unrated, are judged by INVESCO to be of equivalent quality. Debt
securities rated lower than B by either S&P or Moody's are usually considered to
be speculative. At the time of purchase, INVESCO will limit Fund investments to
debt securities which INVESCO believes are not highly speculative and which are
rated at least B by S&P and Moody's.
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A significant economic downturn or increase in interest rates may cause issuers
of debt securities to experience increased financial problems which could
adversely affect their ability to pay principal and interest obligations, to
meet projected business goals, and to obtain additional financing. These
conditions more severely impact issuers of lower-rated debt securities. The
market for lower-rated straight debt securities may not be as liquid as the
market for higher-rated straight debt securities. Therefore, INVESCO attempts to
limit purchases of lower-rated securities to securities having an established
secondary market.
Debt securities rated Caa by Moody's may be in default or may present risks of
non-payment of principal or interest. Lower-rated securities by S&P (categories
BB and B) include those which are predominantly speculative because of the
issuer's perceived capacity to pay interest and repay principal in accordance
with their terms; BB indicates the lowest degree of speculation and B a higher
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are usually outweighed by large uncertainties
or major risk exposures to adverse conditions.
Although bonds in the lowest investment grade debt category (those rated BBB by
S&P, Baa by Moody's or the equivalent) are regarded as having adequate
capability to pay principal and interest, they have speculative characteristics.
Adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case for
higher-rated bonds. Lower-rated bonds by Moody's (categories Ba, B or Caa) are
of poorer quality and also have speculative characteristics. Bonds rated Caa may
be in default or there may be present elements of danger with respect to
principal or interest. Lower-rated bonds by S&P (categories BB, B or CCC)
include those that are regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with their terms; BB indicates the lowest degree of speculation and
CCC a high degree of speculation. While such bonds likely will have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions. Bonds having equivalent ratings from
other ratings services will have characteristics similar to those of the
corresponding S&P and Moody's ratings. For a specific description of S&P and
Moody's corporate bond rating categories, please refer to Appendix A.
The Funds, except for S&P 500 Index Fund, may invest in zero coupon bonds and
step-up bonds. Zero coupon bonds do not make regular interest payments. Zero
coupon bonds are sold at a discount from face value. Principal and accrued
discount (representing interest earned but not paid) are paid at maturity in the
amount of the face value. Step-up bonds initially make no (or low) cash interest
payments but begin paying interest (or a higher rate of interest) at a fixed
time after issuance of the bond. The market values of zero coupon and step-up
bonds generally fluctuate more in response to changes in interest rates than
interest-paying securities of comparable term and quality. A Fund may be
required to distribute income recognized on these bonds, even though no cash may
be paid to the Fund until the maturity or call date of a bond, in order for the
Fund to maintain its qualification as a regulated investment company. These
required distributions could reduce the amount of cash available for investment
by a Fund.
DOMESTIC BANK OBLIGATIONS -- U.S. banks (including their foreign branches) issue
certificates of deposit (CDs) and bankers' acceptances which may be purchased by
the Funds if an issuing bank has total assets in excess of $5 billion and the
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bank otherwise meets the Funds' credit 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"). Bankers' acceptances 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. Both types of securities are subject
to the ability of the issuing bank to meet its obligations, and are subject to
risks common to all debt securities. In addition, banker's acceptances may be
subject to foreign currency risk and certain other risks of investment in
foreign securities.
EQUITY SECURITIES -- The Funds may invest in common, preferred and convertible
preferred stocks, and securities whose values are tied to the price of stocks,
such as rights, warrants and convertible debt securities. Common stocks and
preferred stocks represent equity ownership in a corporation. Owners of stock,
such as the Funds, share in a corporation's earnings through dividends which may
be declared by the corporation, although the receipt of dividends is not the
principal benefit that the Funds seek when they invest in stocks and similar
instruments.
Instead, the Funds seek to invest in stocks that will increase in market value
and may be sold for more than a Fund paid to buy them. Market value is based
upon constantly changing investor perceptions of what the company is worth
compared to other companies. Although dividends are a factor in the changing
market value of stocks, many companies do not pay dividends, or pay
comparatively small dividends. The principal risk of investing in equity
securities is that their market values fluctuate constantly, often due to
factors entirely outside the control of the Funds or the company issuing the
stock. At any given time, the market value of an equity security may be
significantly higher or lower than the amount paid by a Fund to acquire it.
Owners of preferred stocks are entitled to dividends payable from the
corporation's earnings, which in some cases may be "cumulative" if prior
dividends on the preferred stock have not been paid. Dividends payable on
preferred stock have priority over distributions to holders of common stock, and
preferred stocks generally have a priority 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 holders of a company's debt securities generally
are entitled to be paid by the company before it pays anything to its
stockholders.
Rights and warrants are securities which entitle the holder to purchase the
securities of a company (usually, its common stock) at a specified price during
a specified time period. The value of a right or warrant is affected by many of
the same factors that determine the prices of common stocks. Rights and warrants
may be purchased directly or acquired in connection with a corporate
reorganization or exchange offer.
The Funds also may purchase convertible securities including 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.
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Until conversion, the owner of convertible securities usually receives the
interest paid on a convertible bond or the dividend preference of a preferred
stock.
A convertible security has an "investment value" which is a theoretical value
determined by the yield it provides in comparison with similar securities
without the conversion feature. Investment value changes are based upon
prevailing interest rates and other factors. It also has a "conversion value,"
which is the market value the convertible security would have if it were
exchanged for the underlying equity security. Convertible securities may be
purchased at varying price levels above or below their investment values or
conversion values.
Conversion value is a simple mathematical calculation that fluctuates directly
with the price of the underlying security. However, if the conversion value is
substantially below the investment value, the market value of the convertible
security is governed principally by its investment value. If the conversion
value is near or above the investment value, the market value of the convertible
security generally will rise above the investment value. In such cases, the
market value of the convertible security may be higher than its 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. 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.
EUROBONDS AND YANKEE BONDS (ALL FUNDS, EXCEPT S&P 500 INDEX FUND) -- Bonds
issued by foreign branches of U.S. banks ("Eurobonds") and bonds issued by a
U.S. branch of a foreign bank and sold in the United States ("Yankee bonds").
These bonds are bought and sold in U.S. dollars, but generally carry with them
the same risks as investing in foreign securities.
FOREIGN SECURITIES -- Investments in the securities of foreign companies, or
companies that have their principal business activities outside the United
States, involve certain risks not associated with investments in U.S. companies.
Non-U.S. companies generally are not subject to the same uniform accounting,
auditing and financial reporting standards that apply to U.S. companies.
Therefore, financial information about foreign companies may be incomplete, or
may not be comparable to the information available on U.S. companies. There may
also be less publicly available information about a foreign company.
Although the volume of trading in foreign securities markets is growing,
securities of many non-U.S. companies may be less liquid and have greater swings
in price than securities of comparable U.S. companies. The costs of buying and
selling securities on foreign securities exchanges is generally significantly
higher than similar costs in the United States. There is generally less
government supervision and regulation of exchanges, brokers and issuers in
foreign countries than there is in the United States. Investments in non-U.S.
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, confiscatory taxation, and
imposition of withholding taxes on dividends or interest payments. If it becomes
necessary, it may be more difficult for a Fund to obtain or to enforce a
judgment against a foreign issuer than against a domestic issuer.
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Securities traded on foreign markets are usually bought and sold in local
currencies, not in U.S. dollars. Therefore, the market value of foreign
securities acquired by a Fund can be affected -- favorably or unfavorably -- by
changes in currency rates and exchange control regulations. Costs are incurred
in converting money from one currency to another. Foreign currency exchange
rates are determined by supply and demand on the foreign exchange markets.
Foreign exchange markets are affected by the international balance of payments
and other economic and financial conditions, government intervention,
speculation and other factors, all of which are outside the control of each
Fund. Generally, the Funds' foreign currency exchange transactions will be
conducted on a cash or "spot" basis at the spot rate for purchasing or selling
currency in the foreign currency exchange markets.
FUTURES, OPTIONS AND OTHER FINANCIAL INSTRUMENTS
GENERAL. As discussed in the Prospectuses, the adviser and/or sub-adviser may
use various types of financial instruments, some of which are derivatives, to
attempt to manage the risk of a Fund's investments or, in certain circumstances,
for investment (e.g., as a substitute for investing in securities). These
financial instruments include options, futures contracts (sometimes referred to
as "futures"), forward contracts, swaps, caps, floors and collars (collectively,
"Financial Instruments"). The policies in this section do not apply to other
types of instruments sometimes referred to as derivatives, such as indexed
securities, mortgage-backed and other asset-backed securities, and stripped
interest and principal of debt.
Hedging strategies can be broadly categorized as "short" hedges and "long" or
"anticipatory" hedges. A short hedge involves the use of a Financial Instrument
in order to partially or fully offset potential variations in the value of one
or more investments held in a Fund's portfolio. A long or anticipatory hedge
involves the use of a Financial Instrument in order to partially or fully offset
potential increases in the acquisition cost of one or more investments that the
Fund intends to acquire. In an anticipatory hedge transaction, the Fund does not
already own a corresponding security. Rather, it relates to a security or type
of security that the Fund intends to acquire. If the Fund does not eliminate the
hedge by purchasing the security as anticipated, the effect on the Fund's
portfolio is the same as if a long position were entered into. Financial
Instruments may also be used, in certain circumstances, for investment (e.g., as
a substitute for investing in securities).
Financial Instruments on individual securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that a Fund already owns or intends to acquire. Financial Instruments on
indexes, in contrast, generally are used to attempt to hedge all or a portion of
a portfolio against price movements of the securities within a market sector in
which the Fund has invested or expects to invest.
The use of Financial Instruments is subject to applicable regulations of the
Securities and Exchange Commission ("SEC"), the several exchanges upon which
they are traded, and the Commodity Futures Trading Commission ("CFTC"). In
addition, the Funds' ability to use Financial Instruments will be limited by tax
considerations. See "Tax Consequences of Owning Shares of a Fund."
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In addition to the instruments and strategies described below, the adviser
and/or sub-adviser may use other similar or related techniques to the extent
that they are consistent with a Fund's investment objective and permitted by its
investment limitations and applicable regulatory authorities. The Funds'
Prospectuses or Statement of Additional Information ("SAI") will be supplemented
to the extent that new products or techniques become employed involving
materially different risks than those described below or in the Prospectuses.
SPECIAL RISKS. Financial Instruments and their use involve special
considerations and risks, certain of which are described below.
(1) Financial Instruments may increase the volatility of a Fund. If the adviser
and/or sub-adviser employs a Financial Instrument that correlates imperfectly
with a Fund's investments, a loss could result, regardless of whether or not the
intent was to manage risk. In addition, these techniques could result in a loss
if there is not a liquid market to close out a position that a Fund has entered.
(2) There might be imperfect correlation between price movements of a Financial
Instrument and price movement of the investment(s) being hedged. For example, if
the value of a Financial Instrument used in a short hedge increased by less than
the decline in value of the hedged investment(s), the hedge would not be fully
successful. This might be caused by certain kinds of trading activity that
distorts the normal price relationship between the security being hedged and the
Financial Instrument. Similarly, the effectiveness of hedges using Financial
Instruments on indexes will depend on the degree of correlation between price
movements in the index and price movements in the securities being hedged.
The Funds are authorized to use options and futures contracts related to
securities with issuers, maturities or other characteristics different from the
securities in which it typically invests. This involves a risk that the options
or futures position will not track the performance of a Fund's portfolio
investments.
The direction of options and futures price movements can also diverge from the
direction of the movements of the prices of their underlying instruments, even
if the underlying instruments match a Fund's investments well. Options and
futures prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options and futures markets and the securities
markets, from structural differences in how options and futures and securities
are traded, or from imposition of daily price fluctuation limits or trading
halts. A Fund may take positions in options and futures contracts with a greater
or lesser face value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases.
(3) If successful, the above-discussed hedging strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements of portfolio securities. However, such strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements. For example, if a Fund entered into a short hedge because the adviser
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and/or sub-adviser projected a decline in the price of a security in the Fund's
portfolio, and the price of that security increased instead, the gain from that
increase would likely be wholly or partially offset by a decline in the value of
the short position in the Financial Instrument. Moreover, if the price of the
Financial Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss.
(4) A Fund's ability to close out a position in a Financial Instrument prior to
expiration or maturity depends on the degree of liquidity of the market or, in
the absence of such a market, the ability and willingness of the other party to
the transaction (the "counterparty") to enter into a transaction closing out the
position. Therefore, there is no assurance that any position can be closed out
at a time and price that is favorable to a Fund.
(5) As described below, the Funds are required to maintain assets as "cover,"
maintain segregated accounts or make margin payments when they take positions in
Financial Instruments involving obligations to third parties (i.e., Financial
Instruments other than purchased options). If a Fund is unable to close out its
positions in such Financial Instruments, it might be required to continue to
maintain such assets or segregated accounts or make such payments until the
position expired. These requirements might impair a Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time.
COVER. Positions in Financial Instruments, other than purchased options, expose
the Funds to an obligation to another party. A Fund will not enter into any such
transaction unless it owns (1) an offsetting ("covered") position in securities,
currencies or other options, futures contracts or forward contracts, or (2) cash
and liquid assets with a value, marked-to-market daily, sufficient to cover its
obligations to the extent not covered as provided in (1) above. The Funds will
comply with SEC guidelines regarding cover for these instruments and will, if
the guidelines so require, designate cash or liquid assets as segregated in the
prescribed amount as determined daily.
Assets used as cover or held as segregated cannot be sold while the position in
the corresponding Financial Instrument is open unless they are replaced with
other appropriate assets. As a result, the commitment of a large portion of a
Fund's assets to cover or to hold as segregated could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. Each Fund may engage in certain strategies involving options to attempt
to manage the risk of its investments or, in certain circumstances, for
investment (e.g., as a substitute for investing in securities). A call option
gives the purchaser the right to buy, and obligates the writer to sell the
underlying investment at the agreed-upon exercise price during the option
period. A put option gives the purchaser the right to sell, and obligates the
writer to buy the underlying investment at the agreed-upon exercise price during
the option period. Purchasers of options pay an amount, known as a premium, to
the option writer in exchange for the right under the option contract. See
"Options on Indexes" below with regard to cash settlement of option contracts on
index values.
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The purchase of call options can serve as a hedge against a price rise of the
underlier and the purchase of put options can serve as a hedge against a price
decline of the underlier. Writing call options can serve as a limited short
hedge because declines in the value of the hedged investment would be offset to
the extent of the premium received for writing the option. However, if the
security or currency appreciates to a price higher than the exercise price of
the call option, it can be expected that the option will be exercised and a Fund
will be obligated to sell the security or currency at less than its market
value.
Writing put options can serve as a limited long or anticipatory hedge because
increases in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency depreciates to a price lower than the exercise price of the put option,
it can be expected that the put option will be exercised and a Fund will be
obligated to purchase the security or currency at more than its market value.
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the price volatility of the underlying investment and general market
and interest rate conditions. Options that expire unexercised have no value.
A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option, which is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option, which is known as a
closing sale transaction. Closing transactions permit a Fund to realize profits
or limit losses on an option position prior to its exercise or expiration.
RISKS OF OPTIONS ON SECURITIES. Options embody the possibility of large amounts
of exposure, which will result in a Fund's net asset value being more sensitive
to changes in the value of the related investment. A Fund may purchase or write
both exchange-traded and OTC options. Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization guarantee. Thus, when a Fund purchases an OTC option,
it relies on the counterparty from whom it purchased the option to make or take
delivery of the underlying investment upon exercise of the option. Failure by
the counterparty to do so would result in the loss of any premium paid by a Fund
as well as the loss of any expected benefit from the transaction.
The Funds' ability to establish and close out positions in options depends on
the existence of a liquid market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. There can be no
assurance that a Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
counterparty, a Fund might be unable to close out an OTC option position at any
time prior to the option's expiration. If a Fund is not able to enter into an
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offsetting closing transaction on an option it has written, it will be required
to maintain the securities subject to the call or the liquid assets underlying
the put until a closing purchase transaction can be entered into or the option
expires. However, there can be no assurance that such a market will exist at any
particular time.
If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
OPTIONS ON INDEXES. Puts and calls on indexes are similar to puts and calls on
securities or futures contracts except that all settlements are in cash and
changes in value depend on changes in the index in question. When a Fund writes
a call on an index, it receives a premium and agrees that, prior to the
expiration date, upon exercise of the call, the purchaser will receive from the
Fund an amount of cash equal to the positive difference between the closing
price of the index and the exercise price of the call times a specified multiple
("multiplier"), which determines the total dollar value for each point of such
difference. When a Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When a Fund buys a put on an
index, it pays a premium and has the right, prior to the expiration date, to
require the seller of the put to deliver to the Fund an amount of cash equal to
the positive difference between the exercise price of the put and the closing
price of the index times the multiplier. When a Fund writes a put on an index,
it receives a premium and the purchaser of the put has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash equal to
the positive difference between the exercise price of the put and the closing
level of the index times the multiplier.
The risks of purchasing and selling options on indexes may be greater than
options on securities. Because index options are settled in cash, when a Fund
writes a call on an index it cannot fulfill its potential settlement obligations
by delivering the underlying securities. A Fund can offset some of the risk of
writing a call index option by holding a diversified portfolio of securities
similar to those on which the underlying index is based. However, a Fund cannot,
as a practical matter, acquire and hold a portfolio containing exactly the same
securities as underlie the index and, as a result, bears a risk that the value
of the securities held will vary from the value of the index.
Even if a Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level. As with other kinds of options, a Fund as the call
writer will not learn what it has been assigned until the next business day. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as common stock,
because in that case the writer's obligation is to deliver the underlying
security, not to pay its value as of a moment in the past. In contrast, the
writer of an index call will be required to pay cash in an amount based on the
difference between the closing index value on the exercise date and the exercise
price. By the time a Fund learns what it has been assigned, the index may have
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declined. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure.
If a Fund has purchased an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund nevertheless will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with respect
to the underlying instrument, expiration date, contract size, and strike price,
the terms of OTC options (options not traded on exchanges) generally are
established through negotiation with the other party to the option contract.
While this type of arrangement allows a Fund great flexibility to tailor the
option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchange where they are traded.
Generally, OTC foreign currency options used by a Fund are European-style
options. This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. When a Fund purchases or
sells a futures contract, it incurs an obligation respectively to take or make
delivery of a specified amount of the obligation underlying the contract at a
specified time and price. When a Fund writes an option on a futures contract, it
becomes obligated to assume a position in the futures contract at a specified
exercise price at any time during the term of the option. If a Fund writes a
call, on exercise it assumes a short futures position. If it writes a put, on
exercise it assumes a long futures position.
The purchase of futures or call options on futures can serve as a long or an
anticipatory hedge, and the sale of futures or the purchase of put options on
futures can serve as a short hedge. Writing call options on futures contracts
can serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indexes. Similarly, writing put options on
futures contracts can serve as a limited long or anticipatory hedge.
In addition, futures strategies can be used to manage the "duration" (a measure
of anticipated sensitivity to changes in interest rates, which is sometimes
related to the weighted average maturity of a portfolio) and associated interest
rate risk of a Fund's fixed-income portfolio. If the adviser and/or sub-adviser
wishes to shorten the duration of a Fund's fixed-income portfolio (i.e., reduce
anticipated sensitivity), the Fund may sell an appropriate debt futures contract
or a call option thereon, or purchase a put option on that futures contract. If
the adviser and/or sub-adviser wishes to lengthen the duration of a Fund's
fixed-income portfolio (i.e., increase anticipated sensitivity), the Fund may
buy an appropriate debt futures contract or a call option thereon, or sell a put
option thereon.
At the inception of a futures contract, a Fund is required to deposit "initial
margin" in an amount generally equal to 10% or less of the contract value.
Initial margin must also be deposited when writing a call or put option on a
futures contract, in accordance with applicable exchange rules. Subsequent
"variation margin" payments are made to and from the futures broker daily as the
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value of the futures or written option position varies, a process known as
"marking-to-market." Unlike margin in securities transactions, initial margin on
futures contracts and written options on futures contracts does not represent a
borrowing on margin, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, a Fund may be required to
increase the level of initial margin deposits. If the Fund has insufficient cash
to meet daily variation margin requirements, it might need to sell securities in
order to do so at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. However, there can be no assurance that a liquid
market will exist for a particular contract at a particular time. In such event,
it may not be possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a futures contract or an option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures contract or an option on a futures
contract position due to the absence of a liquid market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to continue to maintain the
position being hedged by the futures contract or option or to continue to
maintain cash or securities in a segregated account.
To the extent that a Fund enters into futures contracts, options on futures
contracts and options on foreign currencies traded on a CFTC-regulated exchange,
in each case that is not for bona fide hedging purposes (as defined by the
CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
RISKS OF FUTURES CONTRACTS AND OPTIONS THEREON. The ordinary spreads at a given
time between prices in the cash and futures markets (including the options on
futures markets), due to differences in the natures of those markets, are
subject to the following factors. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions, which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures
<PAGE>
market depends on participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Due to the possibility of distortion, a hedge may not be successful.
Although stock index futures contracts do not require physical delivery, under
extraordinary market conditions, liquidity of such futures contracts also could
be reduced. Additionally, the adviser and/or sub-adviser may be incorrect in its
expectations as to the extent of various interest rates, currency exchange rates
or stock market movements or the time span within which the movements take
place.
INDEX FUTURES. The risk of imperfect correlation between movements in the price
of index futures and movements in the price of the securities that are the
subject of a hedge increases as the composition of a Fund's portfolio diverges
from the index. The price of the index futures may move proportionately more
than or less than the price of the securities being hedged. If the price of the
index futures moves proportionately less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective. Assuming
the price of the securities being hedged has moved in an unfavorable direction,
as anticipated when the hedge was put into place, the Fund would be in a better
position than if it had not hedged at all, but not as good as if the price of
the index futures moved in full proportion to that of the hedged securities.
However, if the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially offset by movement of the price of
the futures contract. If the price of the futures contract moves more than the
price of the securities, the Fund will experience either a loss or a gain on the
futures contract that will not be completely offset by movements in the price of
the securities that are the subject of the hedge.
Where index futures are purchased in an anticipatory hedge, it is possible that
the market may decline instead. If a Fund then decides not to invest in the
securities at that time because of concern as to possible further market decline
or for other reasons, it will realize a loss on the futures contract that is not
offset by a reduction in the price of the securities it had anticipated
purchasing.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. A Fund may use
options and futures contracts on foreign currencies, as mentioned previously,
and forward currency contracts, as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated or, in certain circumstances, for investment (e.g., as a
substitute for investing in securities denominated in foreign currency).
Currency hedges can protect against price movements in a security that a Fund
owns or intends to acquire that are attributable to changes in the value of the
currency in which it is denominated.
A Fund might seek to hedge against changes in the value of a particular currency
when no Financial Instruments on that currency are available or such Financial
Instruments are more expensive than certain other Financial Instruments. In such
cases, a Fund may seek to hedge against price movements in that currency by
entering into transactions using Financial Instruments on another currency or a
basket of currencies, the value of which the adviser and/or sub-adviser believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Financial Instrument
will not correlate perfectly with movements in the price of the currency subject
to the hedging transaction may be increased when this strategy is used.
<PAGE>
The value of Financial Instruments on foreign currencies depends on the value of
the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such Financial Instruments, a
Fund could be disadvantaged by having to deal in the odd-lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
generally is representative of very large transactions in the interbank market
and thus might not reflect odd-lot transactions where rates might be less
favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
a Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY DEPOSITS. The Funds may enter
into forward currency contracts to purchase or sell foreign currencies for a
fixed amount of U.S. dollars or another foreign currency. A forward currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days (term) from the date of the
forward currency contract agreed upon by the parties, at a price set at the time
the forward currency contract is entered. Forward currency contracts are
negotiated directly between currency traders (usually large commercial banks)
and their customers.
Such transactions may serve as long or anticipatory hedges. For example, a Fund
may purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Fund intends to acquire.
Forward currency contracts may also serve as short hedges. For example, a Fund
may sell a forward currency contract to lock in the U.S. dollar equivalent of
the proceeds from the anticipated sale of a security or a dividend or interest
payment denominated in a foreign currency.
The Funds may also use forward currency contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. Such a hedge
would tend to offset both positive and negative currency fluctuations, but would
not offset changes in security values caused by other factors. A Fund could also
hedge the position by entering into a forward currency contract to sell another
currency expected to perform similarly to the currency in which the Fund's
existing investments are denominated. This type of hedge could offer advantages
in terms of cost, yield or efficiency, but may not hedge currency exposure as
effectively as a simple hedge against U.S. dollars. This type of hedge may
<PAGE>
result in losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.
The Funds may also use forward currency contracts in one currency or a basket of
currencies to attempt to hedge against fluctuations in the value of securities
denominated in a different currency if the adviser anticipates that there will
be a positive correlation between the two currencies.
The cost to a Fund of engaging in forward currency contracts varies with factors
such as the currency involved, the length of the contract period and the market
conditions then prevailing. Because forward currency contracts are usually
entered into on a principal basis, no fees or commissions are involved. When a
Fund enters into a forward currency contract, it relies on the counterparty to
make or take delivery of the underlying currency at the maturity of the
contract. Failure by the counterparty to do so would result in the loss of some
or all of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that a Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, the Fund might be unable to close out a forward
currency contract. In either event, the Fund would continue to be subject to
market risk with respect to the position, and would continue to be required to
maintain a position in securities denominated in the foreign currency or to
segregate cash or liquid assets.
The precise matching of forward currency contract amounts and the value of the
securities, dividends or interest payments involved generally will not be
possible because the value of such securities, dividends or interest payments,
measured in the foreign currency, will change after the forward currency
contract has been established. Thus, a Fund might need to purchase or sell
foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Forward currency contracts may substantially change a Fund's investment exposure
to changes in currency exchange rates and could result in losses to the Fund if
currencies do not perform as the adviser anticipates. There is no assurance that
the adviser's and/or sub-adviser's use of forward currency contracts will be
advantageous to a Fund or that it will hedge at an appropriate time.
The Funds may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.
COMBINED POSITIONS. A Fund may purchase and write options or futures in
combination with each other, or in combination with futures or forward currency
contracts, to manage the risk and return characteristics of its overall
<PAGE>
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs.
TURNOVER. The Funds' options and futures activities may affect their turnover
rates and brokerage commission payments. The exercise of calls or puts written
by a Fund, and the sale or purchase of futures contracts, may cause it to sell
or purchase related investments, thus increasing its turnover rate. Once a Fund
has received an exercise notice on an option it has written, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price. The
exercise of puts purchased by a Fund may also cause the sale of related
investments, increasing turnover. Although such exercise is within the Fund's
control, holding a protective put might cause it to sell the related investments
for reasons that would not exist in the absence of the put. A Fund will pay a
brokerage commission each time it buys or sells a put or call or purchases or
sells a futures contract. Such commissions may be higher than those that would
apply to direct purchases or sales.
SWAPS, CAPS, FLOORS AND COLLARS. The Funds are authorized to enter into swaps,
caps, floors and collars. Swaps involve the exchange by one party with another
party of their respective commitments to pay or receive cash flows, e.g., an
exchange of floating rate payments for fixed rate payments. The purchase of a
cap or a floor entitles the purchaser, to the extent that a specified index
exceeds in the case of a cap, or falls below in the case of a floor, a
predetermined value, to receive payments on a notional principal amount from the
party selling such instrument. A collar combines elements of buying a cap and
selling a floor.
ILLIQUID SECURITIES (ALL FUNDS, EXCEPT S&P 500 INDEX FUND) -- Securities which
do not trade on stock exchanges or in the over the counter market, or have
restrictions on when and how they may be sold, are generally considered to be
"illiquid." An illiquid security is one that a Fund may have difficulty -- or
may even be legally precluded from -- selling at any particular time. The Funds
may invest in illiquid securities, including restricted securities and other
investments which are not readily marketable. A Fund will not purchase any such
security if the purchase would cause the Fund to invest more than 15% of its net
assets, measured at the time of purchase, in illiquid securities. Repurchase
agreements maturing in more than seven days are considered illiquid for purposes
of this restriction.
The principal risk of investing in illiquid securities is that a Fund may be
unable to dispose of them at the time desired or at a reasonable price. In
addition, in order to resell a restricted security, a Fund might have to bear
the expense and incur the delays associated with registering the security with
the SEC, and otherwise obtaining listing on a securities exchange or in the over
the counter market.
<PAGE>
INVESTMENT COMPANY SECURITIES -- To manage their daily cash positions, the Funds
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 Funds also may invest in Standard & Poor's
Depository Receipts ("SPDRs") and shares of other investment companies. SPDRs
are investment companies whose portfolios mirror the compositions of specific
S&P indices, such as the S&P 500 and the S&P 400. SPDRs are traded on the
American Stock Exchange. SPDR holders such as a Fund are paid a "Dividend
Equivalent Amount" that corresponds to the amount of cash dividends accruing to
the securities held by the SPDR Trust, net of certain fees and expenses. The
Investment Company Act of 1940, as amended (the "1940 Act") limits investments
in securities of other investment companies, such as the SPDR Trust. These
limitations include, among others, that, subject to certain exceptions, no more
than 10% of a Fund's total assets may be invested in securities of other
investment companies and no more than 5% of its total assets may be invested in
the securities of any one investment company. As a shareholder of another
investment company, a Fund would bear its pro rata portion of the other
investment company's expenses, including advisory fees, in addition to the
expenses the Fund bears directly in connection with its own operations.
REITS -- Real Estate Investment Trusts are investment trusts that invest
primarily in real estate and securities of businesses connected to the real
estate industry.
REPURCHASE AGREEMENTS -- A Fund may enter into repurchase agreements, or REPOs,
on debt securities that the Fund is allowed to hold in its portfolio. This is a
way to invest money for short periods. A REPO is an agreement under which the
Fund acquires a debt security and then resells it to the seller at an
agreed-upon price and date (normally, the next business day). The repurchase
price represents an interest rate effective for the short period the debt
security is held by the Fund, and is unrelated to the interest rate on the
underlying debt security. A repurchase agreement is often considered as a loan
collateralized by securities. The collateral securities acquired by the Fund
(including accrued interest earned thereon) must have a total value in excess of
the value of the repurchase agreement. The collateral securities are held by the
Fund's custodian bank until the repurchase agreement is completed.
The Funds may enter into repurchase agreements with commercial banks, registered
broker-dealers or registered government securities dealers that are creditworthy
under standards established by the Company's board of directors. The Company's
board of directors has established standards that INVESCO and the applicable
sub-adviser must use to review the creditworthiness of any bank, broker or
dealer that is party to a REPO. REPOs maturing in more than seven days are
considered illiquid securities. A Fund will not enter into repurchase agreements
maturing in more than seven days if as a result more than 15% of the Fund's net
assets would be invested in these repurchase agreements and other illiquid
securities.
As noted above, the Funds use REPOs as a means of investing cash for short
periods of time. Although REPOs are considered to be highly liquid and
comparatively low-risk, the use of REPOs does involve some 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 on the sale of the collateral security. If the other party
to the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
<PAGE>
underlying security is collateral for a loan by the Fund not within the control
of the Fund and therefore the realization by the Fund on such collateral may
automatically be stayed. 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.
RULE 144A SECURITIES (ALL FUNDS, EXCEPT S&P 500 INDEX FUND) -- Securities that
can be resold to institutional investors pursuant to Rule 144A under the
Securities Act of 1933, as amended (the "1933 Act"). In recent years, a large
institutional market has developed for many Rule 144A Securities. Institutional
investors generally cannot sell these securities to the general public but
instead will often depend on an efficient institutional market in which Rule
144A Securities can readily be resold to other institutional investors, 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 does not necessarily mean that a Rule 144A Security is illiquid.
Institutional markets for Rule 144A Securities may provide both reliable market
values for Rule 144A Securities and enable a Fund to sell a Rule 144A investment
when appropriate. For this reason, the Company's board of directors has
concluded that if a sufficient institutional trading market exists for a given
Rule 144A security, it may be considered "liquid," and not subject to a Fund's
limitations on investment in restricted securities. The Company's board of
directors has given INVESCO the day-to-day authority to determine the liquidity
of Rule 144A Securities, according to guidelines approved by the board. The
principal risk of investing in Rule 144A Securities is that there may be an
insufficient number of qualified institutional buyers interested in purchasing a
Rule 144A Security held by a Fund, and the Fund might be unable to dispose of
such security promptly or at reasonable prices.
SECURITIES LENDING -- Each Fund may lend its portfolio securities. The advantage
of lending portfolio securities is that a Fund continues to have the benefits
(and risks) of ownership of the loaned securities, while at the same time
receiving interest from the borrower of the securities. The primary risk in
lending portfolio securities is that a borrower may fail to return a portfolio
security.
SOVEREIGN DEBT -- In certain emerging countries, the central government and its
agencies are the largest debtors to local and foreign banks and others.
Sovereign debt involves the risk that the government, as a result of political
considerations or cash flow difficulties, may fail to make scheduled payments of
interest or principal and may require holders to participate in rescheduling of
payments or even to make additional loans. If an emerging country government
defaults on its sovereign debt, there is likely to be no legal proceeding under
which the debt may be ordered repaid, in whole or in part. The ability or
willingness of a foreign sovereign debtor to make payments of principal and
interest in a timely manner may be influenced by, among other factors, its cash
flow, the magnitude of its foreign reserves, the availability of foreign
exchanges on the payment date, the debt service burden to the economy as a
whole, the debtor's then current relationship with the International Monetary
Fund and its then current political constraints. Some of the emerging countries
issuing such instruments have experienced high rates of inflation in recent
years and have extensive internal debt. Among other effects, high inflation and
internal debt service requirements may adversely affect the cost and
availability of future domestic sovereign borrowing to finance government
programs, and may have other adverse social, political and economic
<PAGE>
consequences, including effects on the willingness of such countries to service
their sovereign debt. An emerging country government's willingness and ability
to make timely payments on its sovereign debt also are likely to be heavily
affected by the country's balance of trade and its access to trade and other
international credits. If a country's exports are concentrated in a few
commodities, such country would be more significantly exposed to a decline in
the international process of one or more of such commodities. A rise in
protectionism on the part of its trading partners, or unwillingness by such
partners to make payment for goods in hard currency, could also adversely affect
the country's ability to export its products and repay its debts. Sovereign
debtors may also be dependent on expected receipts from such agencies and others
abroad to reduce principal and interest arrearages on their debt. However,
failure by the sovereign debtor or other entity to implement economic reforms
negotiated with multilateral agencies or others, to achieve specified levels of
economic performance, or to make other debt payments when due, may cause third
parties to terminate their commitments to provide funds to the sovereign debtor,
which may further impair such debtor's willingness or ability to service its
debts.
The Fund may invest in debt securities issued under the "Brady Plan" in
connection with restructurings in emerging country debt markets or earlier
loans. These securities, often referred to as "Brady Bonds," are, in some cases,
denominated in U.S. dollars and collateralized as to principal by U.S. Treasury
zero coupon bonds having the same maturity. At least one year's interest
payments, on a rolling basis, are collateralized by cash or other investments.
Brady Bonds are actively traded on an over-the-counter basis in the secondary
market for emerging country debt securities. Brady Bonds are lower-rated bonds
and highly volatile.
U.S. GOVERNMENT SECURITIES -- Each Fund may, from time to time, purchase debt
securities issued by the U.S. government. These securities include Treasury
bills, notes and bonds. 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.
U.S. government debt securities also include securities issued or guaranteed by
agencies or instrumentalities of the U.S. government. Some obligations of U.S.
government agencies, which are established under the authority of an act of
Congress, such as Government National Mortgage Association ("GNMA")
Participation Certificates, are supported by the full faith and credit of the
U.S. 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 are different from bonds because principal is paid back
monthly by the borrower over the term of the loan rather than returned in a lump
sum at maturity, as is the case with a bond. GNMA Certificates are called
"pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the GNMA
Certificate.
<PAGE>
Other United States government debt securities, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury. Others, such as bonds issued by Fannie Mae, a federally chartered
private corporation, are supported only by the credit of the corporation. In the
case of securities not backed by the full faith and credit of the United States,
a Fund must look principally to the agency issuing or guaranteeing the
obligation in the event the agency or instrumentality does not meet its
commitments. A Fund will invest in securities of such instrumentalities only
when INVESCO and the applicable sub-advisers are satisfied that the credit risk
with respect to any such instrumentality is comparatively minimal.
WHEN-ISSUED/DELAYED DELIVERY -- The Funds normally buy and sell securities on an
ordinary settlement basis. That means that the buy or sell order is sent, and a
Fund actually takes delivery or gives up physical possession of the security on
the "settlement date," which is three business days later. However, the Funds
also may purchase and sell securities on a when-issued or delayed delivery
basis.
When-issued or delayed delivery transactions occur when securities are purchased
or sold by a Fund and payment and delivery take place at an agreed-upon time in
the future. The Funds may engage in this practice in an effort to secure an
advantageous price and yield. However, the yield on a comparable security
available when delivery actually takes place may vary from the yield on the
security at the time the when-issued or delayed delivery transaction was entered
into. When a Fund engages in when-issued and delayed delivery transactions, it
relies on the seller or buyer to consummate the sale at the future date. If the
seller or buyer fails to act as promised, that failure may result in the Fund
missing the opportunity of obtaining a price or yield considered to be
advantageous. No payment or delivery is made by a Fund until it receives
delivery or payment from the other party to the transaction. However,
fluctuation in the value of the security from the time of commitment until
delivery could adversely affect a Fund.
INVESTMENT RESTRICTIONS
The Funds operate under certain investment restrictions. For purposes of the
following restrictions, all percentage limitations apply immediately after a
purchase or initial investment. Any subsequent change in a particular percentage
resulting from fluctuations in value does not require elimination of any
security from a Fund.
The following restrictions are fundamental and may not be changed without prior
approval of a majority of the outstanding voting securities of a Fund, as
defined in the 1940 Act. Each Fund may not:
1. purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities or municipal securities) if, as a result, more than 25%
of the Fund's total assets would be invested in the securities of companies
whose principal business activities are in the same industry;
2. with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the
<PAGE>
U.S. government or any of its agencies or instrumentalities, or securities
of other investment companies) if, as a result, (i) more than 5% of a
Fund's total assets would be invested in the securities of that issuer, or
(ii) a Fund would hold more than 10% of the outstanding voting securities
of that issuer;
3. underwrite securities of other issuers, except insofar as it may be
deemed to be an underwriter under the 1933 Act in connection with the
disposition of the Fund's portfolio securities;
4. borrow money, except that the Fund may borrow money in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings);
5. issue senior securities, except as under the 1940 Act;
6. lend any security or make any loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limitation
does not apply to the purchase of debt securities or to repurchase
agreements;
7. purchase or sell physical commodities; however, this policy shall not
prevent the Fund from purchasing and selling foreign currency, futures
contracts, options, forward contracts, swaps, caps, floors, collars and
other financial instruments; or
8. purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
9. Each Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company managed by INVESCO or an
affiliate or a successor thereof, with substantially the same fundamental
investment objective, policies and limitations as the Fund.
In addition, each Fund has the following non-fundamental policies, which may be
changed without shareholder approval:
A. The Fund may not sell securities short (unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities
sold short) or purchase securities on margin, except that (i) this policy
does not prevent the Fund from entering into short positions in foreign
currency, futures contracts, options, forward contracts, swaps, caps,
floors, collars and other financial instruments, (ii) the Fund may obtain
such short-term credits as are necessary for the clearance of transactions,
and (iii) the Fund may make margin payments in connection with futures
contracts, options, forward contracts, swaps, caps, floors, collars and
other financial instruments.
B. The Fund may borrow money only from a bank or from an open-end
management investment company managed by INVESCO or an affiliate or a
successor thereof for temporary or emergency purposes (not for leveraging
<PAGE>
or investing) or by engaging in reverse repurchase agreements with any
party (reverse repurchase agreements will be treated as borrowings for
purposes of fundamental limitation (4)).
C. The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
D. The Fund may invest in securities issued by other investment
companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940
Act.
E. With respect to fundamental limitation (1), domestic and foreign
banking will be considered to be different industries.
In addition, with respect to a Fund that may invest in municipal obligations,
the following non-fundamental policy applies, which may be changed without
shareholder approval:
Each state (including the District of Columbia and Puerto Rico), territory
and possession of the United States, each political subdivision, agency,
instrumentality and authority thereof, and each multi-state agency of which
a state is a member is a separate "issuer." When the assets and revenues of
an agency, authority, instrumentality or other political subdivision are
separate from the government creating the subdivision and the security is
backed only by assets and revenues of the subdivision, such subdivision
would be deemed to be the sole issuer. Similarly, in the case of an
Industrial Development Bond or Private Activity bond, if that bond is
backed only by the assets and revenues of the non-governmental user, then
that non-governmental user would be deemed to be the sole issuer. However,
if the creating government or another entity guarantees a security, then to
the extent that the value of all securities issued or guaranteed by that
government or entity and owned by a Fund exceeds 10% of the Fund's total
assets, the guarantee would be considered a separate security and would be
treated as issued by that government or entity.
Following is a chart outlining some of the limitations pursuant to
non-fundamental investment policies set by the board of directors. These
non-fundamental policies may be changed by the board of directors without
shareholder approval:
- --------------------------------------------------------------------------------
INVESTMENT BLUE CHIP GROWTH DYNAMICS ENDEAVOR GROWTH & INCOME
- --------------------------------------------------------------------------------
EQUITY SECURITIES Unlimited Unlimited Unlimited Unlimited
- --------------------------------------------------------------------------------
LOWER RATED Not Allowed Up to 25%
CORPORATE DEBT
SECURITIES
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT BLUE CHIP GROWTH DYNAMICS ENDEAVOR GROWTH & INCOME
- --------------------------------------------------------------------------------
FOREIGN SECURITIES Up to 25% Up to 25% Up to 25% Up to 25%
(Percentages
exclude ADRs and
securities of
Canadian issuers.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT SMALL COMPANY GROWTH S&P 500 INDEX VALUE EQUITY
- --------------------------------------------------------------------------------
EQUITY SECURITIES Normally, at least Normally, those Normally, at
65% in companies listed in the least 65%
with market S&P 500 Index
capitalizations of
$2 billion or less
- --------------------------------------------------------------------------------
LOWER RATED Up to 5%
CORPORATE DEBT
SECURITIES
- --------------------------------------------------------------------------------
FOREIGN SECURITIES Up to 25% Only securities Up to 25%
(Percentages that are listed
exclude ADRs and in the S&P 500
securities of Index
Canadian issuers.)
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISER
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the Company's
investment adviser. INVESCO was founded in 1932 and 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 International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios,
Inc.)
INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
INVESCO Treasurer's Series Funds, Inc. (formerly, INVESCO Treasurer's
Series Trust)
INVESCO Variable Investment Funds, Inc.
As of December 31, 1999, INVESCO managed 45 mutual funds having combined assets
of $31 billion, on behalf of more than 960,478 shareholders.
INVESCO is an indirect wholly owned subsidiary of AMVESCAP PLC, a publicly
traded holding company. Through its subsidiaries, AMVESCAP PLC engages in the
business of investment management on an international basis. AMVESCAP PLC is one
<PAGE>
of the largest independent investment management businesses in the world, with
approximately $291 billion in assets under management on September 30, 1999.
AMVESCAP PLC's North American subsidiaries include:
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 ("IRPS"), 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"), 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 complete transfer agency functions: correspondence,
sub-accounting, telephone communications and processing of
distributions.
INVESCO, Inc., Atlanta, Georgia, manages individualized investment
portfolios of equity, fixed-income and real estate securities for
institutional clients, including mutual funds and the collective investment
entities. INVESCO, Inc. includes the following Divisions:
INVESCO Capital Management Division, Atlanta, Georgia, manages
institutional investment portfolios, consisting primarily of
discretionary employee benefit plans for corporations and state and
local governments, and endowment funds.
INVESCO Management & Research Division, Boston, Massachusetts,
primarily manages pension and endowment accounts.
PRIMCO Capital Management Division, Louisville, Kentucky, specializes
in managing stable return investments, principally on behalf of
Section 401(k) retirement plans.
INVESCO Realty Advisors Division, Dallas, Texas, is responsible for
providing advisory services in the U.S. real estate markets for
AMVESCAP PLC's clients worldwide. Clients include corporate pension
plans and public pension funds as well as endowment and foundation
accounts.
INVESCO (NY) Division, 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 further serves as
investment adviser to several closed-end investment companies, and as
sub-adviser with respect to certain commingled employee benefit
trusts.
<PAGE>
A I M Advisors, Inc., Houston, Texas, provides investment advisory and
administrative services for retail and institutional mutual funds.
A I M Capital Management, Inc., Houston, Texas, provides investment
advisory services to individuals, corporations, pension plans and other
private investment advisory accounts and also serves as a sub-adviser to
certain retail and institutional mutual funds, one Canadian mutual fund and
one portfolio of an open-end registered investment company that is offered
to separate accounts of variable insurance companies.
A I M Distributors, Inc. and Fund Management Company, 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.
THE INVESTMENT ADVISORY AGREEMENT
INVESCO serves as investment adviser to the Funds under an investment advisory
agreement dated February 28, 1997 (the "Agreement") with the Company.
The Agreement requires that INVESCO manage the investment portfolio of each Fund
in a way that conforms with the Fund's investment policies. INVESCO may directly
manage a Fund itself, or may hire a sub-adviser, which may be an affiliate of
INVESCO, to do so. Specifically, INVESCO is responsible for:
o managing the investment and reinvestment of all the assets of the Funds,
and executing all purchases and sales of portfolio securities;
o maintaining a continuous investment program for the Funds, consistent
with (i) each 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 Funds, 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;
o determining what securities are to be purchased or sold for the Funds,
unless otherwise directed by the directors of the Company, and executing
transactions accordingly;
o providing the Funds the benefit of the investment analysis and
research, the reviews of current economic conditions and trends, and the
consideration of a long-range investment policy now or hereafter
generally available to the investment advisory customers of the adviser
or any sub-adviser;
o determining what portion of each Fund's assets should be invested in the
various types of securities authorized for purchase by the Fund; and
o making recommendations as to the manner in which voting rights, rights to
consent to Fund action and any other rights pertaining to a Fund's
portfolio securities shall be exercised.
<PAGE>
INVESCO also performs all of the following services for the Funds:
o administrative;
o internal accounting (including computation of net asset value);
o clerical and statistical;
o secretarial;
o all other services necessary or incidental to the administration of the
affairs of the Funds;
o supplying the Company with officers, clerical staff and other employees;
o furnishing office space, facilities, equipment, and supplies; providing
personnel and facilities required to respond to inquiries related to
shareholder accounts;
o conducting periodic compliance reviews of the Funds' operations;
preparation and review of required documents, reports and filings by
INVESCO's in-house legal and accounting staff or in conjunction with
independent attorneys and accountants (including prospectuses, statements
of additional information, proxy statements, shareholder reports, tax
returns, reports to the SEC, and other corporate documents of the Funds);
o supplying basic telephone service and other utilities; and
o preparing and maintaining certain of the books and records required to be
prepared and maintained by the Funds under the 1940 Act.
Expenses not assumed by INVESCO are borne by the Funds. As full compensation for
its advisory services to the Company, INVESCO receives a monthly fee from each
Fund. The fee is calculated at the annual rate of:
BLUE CHIP GROWTH AND DYNAMICS FUNDS
o 0.60% on the first $350 million of each Fund's average net assets;
o 0.55% on the next $350 million of each Fund's average net assets;
o 0.50% of each Fund's average net assets from $700 million;
o 0.45% of each Fund's average net assets from $2 billion;
o 0.40% of each Fund's average net assets from $4 billion;
o 0.375% of each Fund's average net assets from $6 billion; and
<PAGE>
o 0.35% of each Fund's average net assets from $8 billion.
ENDEAVOR AND GROWTH & INCOME FUNDS
o 0.75% on the first $500 million of each Fund's average net assets;
o 0.65% on the next $500 million of each Fund's average net assets;
o 0.55% of each Fund's average net assets from $1 billion;
o 0.45% of each Fund's average net assets from $2 billion;
o 0.40% of each Fund's average net assets from $4 billion;
o 0.375% of each Fund's average net assets from $6 billion; and
o 0.35% of each Fund's average net assets from $8 billion.
SMALL COMPANY GROWTH FUND
o 0.75% on the first $350 million of the Fund's average net assets;
o 0.65% on the next $350 million of the Fund's average net assets;
o 0.55% of the Fund's average net assets from $700 million;
o 0.45% of the Fund's average net assets from $2 billion;
o 0.40% of the Fund's average net assets from $4 billion;
o 0.375% of the Fund's average net assets from $6 billion; and
o 0.35% of the Fund's average net assets from $8 billion.
S&P 500 INDEX FUND
o 0.25% of the Fund's average net assets.
VALUE EQUITY FUND
o 0.75% on the first $500 million of the Fund's average net assets;
o 0.65% on the next $500 million of the Fund's average net assets;
o 0.50% of the Fund's average net assets from $1 billion;
<PAGE>
o 0.45% of the Fund's average net assets from $2 billion;
o 0.40% of the Fund's average net assets from $4 billion;
o 0.375% of the Fund's average net assets from $6 billion; and
o 0.35% of the Fund's average net assets from $8 billion.
During the periods outlined in the table below, the Funds paid INVESCO advisory
fees in the dollar amounts shown below. Since the Funds' Class C shares are not
offered until February 15, 2000, no advisory fees were paid with respect to
Class C shares for the periods shown below. If applicable, the advisory fees
were offset by credits in the amounts shown below, so that the Funds' fees were
not in excess of the expense limitations shown below, which have been
voluntarily agreed to by the Company and INVESCO.
Advisory Total Expense Total Expense
Fee Dollars Reimbursements Limitations
----------- -------------- -----------
Blue Chip Growth Fund - Investor Class
July 31, 1999(a) $5,712,698 $0 N/A
August 31, 1998 $4,561,574 $0 N/A
August 31, 1997 $3,922,981 $0 N/A
August 31, 1996 $3,196,929 $0 N/A
Dynamics Fund - Investor Class
July 31, 1999(b) $2,927,803 $0 1.20%(c)
April 30, 1999 $7,750,919 $0 1.21%
April 30, 1998 $5,874,212 $0 1.21%
April 30, 1997 $4,550,303 $0 1.21%
Endeavor Fund - Investor Class
July 31, 1999(b) $ 173,488 $0 1.50%
April 30, 1999 $ 206,836 $0 1.50%
Growth & Income Fund - Investor Class
July 31, 1999(b) $ 107,949 $33,201 1.50%
April 30, 1999 $ 209,172 $53,659 1.50%
Small Company Growth Fund - Investor Class
July 31, 1999(d) $ 512,934 $ 84,361 1.50%
May 31, 1999 $ 1,973,393 $ 201,069 1.50%
May 31, 1998 $ 2,334,680 $ 0 1.50%
May 31, 1997 $ 2,029,312 $ 59,729 1.50%
<PAGE>
S&P 500 Index Fund - Institutional Class
July 31, 1999(e) $ 9,042 $ 29,912 0.35%(f)
July 31, 1998 $ 3,729 $ 31,239 0.30%
S&P 500 Index Fund - Investor Class
July 31, 1999(e) $ 99,317 $ 155,166 0.60%(g)
July 31, 1998 $ 10,030 $ 44,823 0.55%
Value Equity Fund - Investor Class
July 31, 1999(a) $2,756,316 $ 397,754 1.30%(h)
August 31, 1998 $3,080,351 $ 164,235 1.25%
August 31, 1997 $2,250,039 $ 0 N/A
August 31, 1996 $1,382,049 $ 0 N/A
(a) For the period September 1, 1998 through July 31, 1999
(b) For the period May 1, 1999 through July 31, 1999
(c) Effective May 13, 1999, the Total Expense Limitation was changed to 1.20%
(d) For the period June 1, 1999 through July 31, 1999
(e) For the period August 1, 1998 through July 31, 1999
(f) Effective May 13, 1999, the Total Expense Limitation was changed to 0.35%
(g) Effective May 13, 1999, the Total Expense Limitation was changed to 0.60%
(h) Effective May 13, 1999, the Total Expense Limitation was changed to 1.30%
THE SUB-ADVISORY AGREEMENT
With respect to the S&P 500 Index Fund, World Asset Management ("World") serves
as sub-adviser to the Fund pursuant to a sub-advisory agreement dated July 15,
1999 with INVESCO.
With respect to the Value Equity Fund, INVESCO Capital Management, a division of
INVESCO, Inc. ("ICM"), serves as sub-adviser to the Fund pursuant to a
sub-advisory agreement dated February 28, 1997 with INVESCO.
The Sub-Agreements provide that World and ICM, as applicable, subject to the
supervision of INVESCO, shall manage the investment portfolio of the respective
Funds in conformity with each such Fund's investment policies. These management
services include: (a) managing the investment and reinvestment of all the
assets, now or hereafter acquired, of each Fund, and executing all purchases and
sales of portfolio securities; (b) maintaining a continuous investment program
for the Funds, consistent with (i) each 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, as amended, 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 each
Fund, unless otherwise directed by the directors of the Company or INVESCO, and
executing transactions accordingly; (d) providing the Funds the benefit of all
<PAGE>
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 or
ICM; (e) determining what portion of each applicable Fund's assets should be
invested in the various types of securities authorized for purchase by such
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 each applicable Fund shall be exercised.
The Sub-Agreements provide that, as compensation for their services, World and
ICM shall receive from INVESCO, at the end of each month, a fee based upon the
average daily value of the applicable Fund's net assets. The sub-advisory fees
are paid by INVESCO, NOT the Funds. The fees are calculated at the following
annual rates:
S&P 500 INDEX FUND
o 0.07% on the first $10 million of the Fund's average net assets;
o 0.05% on the next $40 million of the Fund's average net assets; and
o 0.03% of the Fund's average net assets from $50 million.
VALUE EQUITY FUND
o 0.30% on the first $500 million of the Fund's average net assets;
o 0.26% on the next $500 million of the Fund's average net assets;
o 0.20% of the Fund's average net assets from $1 billion;
o 0.18% of the Fund's average net assets from $2 billion;
o 0.16% of the Fund's average net assets from $4 billion;
o 0.15% of the Fund's average net assets from $6 billion; and
o 0.14% of the Fund's average net assets from $8 billion.
ADMINISTRATIVE SERVICES AGREEMENT
INVESCO, either directly or through affiliated companies, provides certain
administrative, sub-accounting, and recordkeeping services to the Funds pursuant
to an Administrative Services Agreement dated February 28, 1997 with the
Company.
<PAGE>
The Administrative Services Agreement requires INVESCO to provide the following
services to the Funds:
o such sub-accounting and recordkeeping services and functions as are
reasonably necessary for the operation of the Funds; and
o 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 Services
Agreement, each Fund pays a monthly fee to INVESCO consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
monthly at an annual rate of 0.015% per year of the average net assets of each
Fund prior to May 13, 1999, and 0.045% per year of the average net assets of
each Fund effective May 13, 1999.
TRANSFER AGENCY AGREEMENT
INVESCO also performs transfer agent, dividend disbursing agent and registrar
services for the Funds pursuant to a Transfer Agency Agreement dated February
28, 1997 with the Company.
The Transfer Agency Agreement provides that each Fund pays 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 the rate of 1/12 of the annual fee
and is based upon the actual number of shareholder accounts and omnibus account
participants in each Fund at any time during each month.
FEES PAID TO INVESCO
For the periods outlined in the table below for each Fund, the Funds' Investor
Class shares paid the following fees to INVESCO (in some instances, prior to the
absorption of certain Fund expenses by INVESCO). Since the Funds' Class C shares
are not offered until February 15, 2000, no fees were paid with respect to Class
C shares for the periods shown below.
Blue Chip Growth Fund - Investor Class
JULY 31, AUGUST 31
TYPE OF FEE 1999(a) 1998 1997 1996
- ----------- ------- ---- ---- ----
Advisory $5,712,698 $4,561,574 $3,922,981 $3,196,929
Administrative Services 248,879 131,098 112,386 92,412
Transfer Agency 1,500,795 1,160,513 1,066,438 751,390
<PAGE>
Dynamics Fund - Investor Class
JULY 31, APRIL 30
TYPE OF FEE 1999(b) 1999 1998 1997
- ----------- ------- ---- ---- ----
Advisory $2,927,803 $7,750,919 $5,874,212 $4,550,303
Administrative Services 236,694 226,800 170,476 130,696
Transfer Agency 993,382 2,693,081 2,156,766 1,964,970
Endeavor Fund - Investor Class
JULY 31, APRIL 30
TYPE OF FEE 1999(b) 1999(c)
- ----------- ------- -------
Advisory 173,488 $ 206,836
Administrative Services 12,209 9,217
Transfer Agency 57,863 52,532
Growth & Income Fund - Investor Class
JULY 31, APRIL 30
TYPE OF FEE 1999(b) 1999(d)
- ----------- ------- -------
Advisory 107,949 $ 209,172
Administrative Services 8,442 12,517
Transfer Agency 47,918 70,040
Small Company Growth Fund - Investor Class
JULY 31, MAY 31
TYPE OF FEE 1999(e) 1998 1998 1997
- ----------- ------- ---- ---- ----
Advisory $ 512,934 $1,973,393 $2,334,680 $2,029,312
Administrative Services 33,164 54,324 56,738 50,600
Transfer Agency 327,104 1,116,282 1,090,224 1,043,895
S&P 500 Index Fund - Institutional Class
JULY 31,
TYPE OF FEE 1999 1998
- ----------- ---- ----
Advisory $ 9,042 $ 3,729
Administrative Services 1,793 2,624
Transfer Agency 2,447 266
S&P 500 Index Fund - Investor Class
JULY 31,
TYPE OF FEE 1999 1998
- ----------- ---- ----
Advisory $ 99,317 $ 10,030
Administrative Services 19,051 4,250
Transfer Agency 76,345 7,631
<PAGE>
Value Equity Fund - Investor Class
JULY 31, AUGUST 31
TYPE OF FEE 1999(a) 1998 1997 1996
- ----------- ------- ---- ---- ----
Advisory $2,756,316 $3,080,351 $2,250,039 $1,382,049
Administrative Services 89,785 71,607 55,001 37,641
Transfer Agency 1,011,717 918,694 610,115 282,255
(a) From September 1, 1998 to July 31, 1999
(b) From May 1, 1999 to July 31, 1999
(c) From October 28, 1998 (commencement of operations) to April 30, 1999
(d) From July 1, 1998 (commencement of operations) to April 30, 1999 (e) From
June 1, 1999 to July 31, 1999
DIRECTORS AND OFFICERS OF THE COMPANY
The overall direction and supervision of the Company come from the board of
directors. The board of directors is responsible for making sure that the Funds'
general investment policies and programs are carried out and that the Funds are
properly administered.
The board of directors has an audit committee comprised of four of the directors
who are not affiliated with INVESCO (the "Independent Directors"). The committee
meets quarterly 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 to facilitate better
understanding of management and operations of the Company, and 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 brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by the Funds, and to review
policies and procedures of INVESCO with respect to 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 Funds. It monitors derivative usage
by the Funds and the procedures utilized by INVESCO 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.
The officers of the Company, all of whom are officers and employees of INVESCO,
are responsible for the day-to-day administration of the Company and the Funds.
The officers of the Company receive no direct compensation from the Company or
the Funds for their services as officers. INVESCO has the primary responsibility
<PAGE>
for making investment decisions on behalf of the Funds. These investment
decisions are reviewed by the investment committee of INVESCO.
All of the officers and directors of the Company hold comparable positions with
the following funds, which, with the Company, are collectively referred to as
the "INVESCO Funds":
INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO
Flexible Funds, Inc.)
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios,
Inc.)
INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
INVESCO Treasurer's Series Funds, Inc. (formerly, INVESCO Treasurer's
Series Trust)
INVESCO Variable Investment Funds, Inc.
The table below provides information about each of the Company's directors and
officers. Their affiliations represent their principal occupations.
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE COMPANY DURING PAST FIVE YEARS
Charles W. Brady *+ Director and Chairman Chairman of the Board
1315 Peachtree St., N.E. of the Board of INVESCO Global
Atlanta, Georgia Health Sciences Fund;
Age: 64 Chief Executive
Officer and Director
of AMVESCAP PLC,
London, England and
various subsidiaries
of AMVESCAP PLC.
Fred A. Deering +# Director and Vice Trustee of INVESCO
Security Life Center Chairman of the Board Global Health Sciences
1290 Broadway Fund; formerly,
Denver, Colorado Chairman of the
Age: 72 Executive Committee
and Chairman of the
Board of Security Life
of Denver Insurance
Company; Director of
ING American Holdings
Company and First ING
Life Insurance
Company of New York.
<PAGE>
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE COMPANY DURING PAST FIVE YEARS
Mark H. Williamson *+ President, Chief President, Chief
7800 E. Union Avenue Executive Officer Executive Officer and
Denver, Colorado and Director Director of INVESCO
Age: 48 Funds Group, Inc.;
President, Chief
Executive Officer and
Director of INVESCO
Distributors, Inc.;
President, Chief
Operating Officer and
Trustee of INVESCO
Global Health Sciences
Fund; formerly,
Chairman and Chief
Executive Officer of
Nations Banc Advisors,
Inc.; formerly,
Chairman of
NationsBanc
Investments, Inc.
Victor L. Andrews, Ph.D. **! Director Professor Emeritus,
34 Seawatch Drive Chairman Emeritus and
Savannah, Georgia Chairman of the CFO
Age: 69 Roundtable of the
Department of Finance
of Georgia State
University; President,
Andrews Financial
Associates, Inc.
(consulting firm);
formerly, member of the
faculties of the
Harvard Business School
and the Sloan School of
Management of MIT;
Director of The
Sheffield Funds, Inc.
<PAGE>
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE COMPANY DURING PAST FIVE YEARS
Bob R. Baker +**@ Director Consultant(since 2000)
AMC Cancer Research Center and President and
1600 Pierce Street Chief Executive
Denver, Colorado Officer (1988 to 2000)
Age: 63 of AMC Cancer Research
Center, Denver,
Colorado; until
mid-December 1988, Vice
Chairman of the Board
of First Columbia
Financial Corporation,
Englewood, Colorado;
formerly, Chairman of
the Board and Chief
Executive Officer of
First Columbia
Financial Corporation.
Lawrence H. Budner # @ Director Trust Consultant; prior
7608 Glen Albens Circle to June 30, 1987,
Dallas, Texas Senior Vice President
Age: 69 and Senior Trust
Officer of InterFirst
Bank, Dallas, Texas.
James T. Bunch**@ Director Principal and Founder
3600 Republic Plaza of Green Manning &
320 Seventeenth Street Bunch Ltd., Denver,
Denver, Colorado Colorado, since
Age: 57 August 1988;
Director and Secretary
of Green Manning
Bunch Securities, Inc.,
Denver, Colorado since
September 1993;
Vice President and
Director of
Western Golf
Association and Evans
Scholars Foundation;
formerly, General
Counsel and Director of
Boettcher & Co.,
Denver, Colorado;
formerly, Chairman and
Managing Partner of
Davis Graham & Stubbs,
Denver, Colorado.
<PAGE>
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE COMPANY DURING PAST FIVE YEARS
Wendy L. Gramm, Ph.D.**! Director Self-employed (since
4201 Yuma Street, N.W. 1993); Professor of
Washington, DC Economics and Public
Age: 55 Administration,
University of Texas at
Arlington; formerly,
Chairman, Commodity
Futures Trading
Commission;
Administrator for
Information and
Regulatory Affairs at
the Office of
Management and Budget;
Executive Director of
the Presidential Task
Force on Regulatory
Relief; and Director of
the Federal Trade
Commission's Bureau of
Economics; also,
Director of Chicago
Mercantile Exchange,
Enron Corporation, IBP,
Inc., State Farm
Insurance Company,
Independent Women's
Forum, International
Republic Institute, and
the Republican Women's
Federal Forum. Also,
Member of Board of
Visitors, College of
Business
Administration,
University of Iowa, and
Member of Board of
Visitors, Center for
Study of Public Choice,
George Mason
University.
<PAGE>
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE COMPANY DURING PAST FIVE YEARS
Gerald J. Lewis#! Director Chairman of Lawsuit
701 "B" Street Resolution Services,
Suite 2100 San Diego, California
San Diego, California since 1987;
Age: 65 Director of General
Chemical Group, Inc.,
Hampdon, New
Hampshire, since 1996;
formerly, Associate
Justice of the
California Court of
Appeals; formerly,
Director of
Wheelabrator
Technologies, Inc.,
Fisher Scientific,
Inc., Henley
Manufacturing, Inc.,
and California Coastal
Properties, Inc.;
formerly, Of Counsel
Latham & Watkins, San
Diego, California
(1987 to 1997).
John W. McIntyre + #@ Director Retired. Formerly, Vice
7 Piedmont Center Suite 100 Chairman of the Board
Atlanta, Georgia of Directors of the
Age: 69 Citizens and Southern
Corporation and
Chairman of the Board
and Chief Executive
Officer of the Citizens
and Southern Georgia
Corp. and the Citizens
and Southern National
Bank; Trustee of
INVESCO Global Health
Sciences Fund, Gables
Residential Trust,
Employee's Retirement
System of GA, Emory
University and J.M.
Tull Charitable
Foundation; Director of
Kaiser Foundation
Health Plans of
Georgia, Inc.
<PAGE>
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE COMPANY DURING PAST FIVE YEARS
Larry Soll, Ph.D.!** Director Retired. Formerly,
345 Poorman Road Chairman of the Board
Boulder, Colorado (1987 to 1994), Chief
Age: 57 Executive Officer (1982
to 1989 and 1993 to
1994) and President
(1982 to 1989) of
Synergen Inc.; Director
of Synergen since
incorporation in 1982;
Director of Isis
Pharmaceuticals, Inc.;
Trustee of INVESCO
Global Health Sciences
Fund.
Glen A. Payne Secretary Senior Vice President,
7800 E. Union Avenue General Counsel and
Denver, Colorado Secretary of INVESCO
Age: 52 Funds Group, Inc.;
Senior Vice President,
Secretary and General
Counsel of INVESCO
Distributors, Inc.;
Secretary of INVESCO
Global Health Sciences
Fund; formerly, General
Counsel of INVESCO
Trust Company (1989
to1998); formerly,
employee of a U.S.
regulatory agency,
Washington, D.C. (1973
to 1989).
<PAGE>
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE COMPANY DURING PAST FIVE YEARS
- ---------------------- --------------------- ----------------------
Ronald L. Grooms Chief Accounting Senior Vice President,
7800 E. Union Avenue Officer, Chief Treasurer and Director
Denver, Colorado Financial Officer and of INVESCO Funds Group,
Age: 53 Treasurer Inc.; Senior Vice
President, Treasurer
and Director of INVESCO
Distributors, Inc.;
Treasurer and Principal
Financial and
Accounting Officer of
INVESCO Global Health
Sciences Fund;
formerly, Senior Vice
President and Treasurer
of INVESCO Trust
Company (1988 to 1998).
William J. Galvin, Jr. Assistant Secretary Senior Vice President
7800 E. Union Avenue and Assistant Secretary
Denver, Colorado of INVESCO Funds Group,
Age: 43 Inc.; Senior Vice
President and Assistant
Secretary of INVESCO
Distributors, Inc.;
formerly, Trust Officer
of INVESCO Trust
Company (1995 to 1998).
Pamela J. Piro Assistant Treasurer Vice President and
7800 E. Union Avenue Assistant Treasurer of
Denver, Colorado INVESCO Funds Group,
Age: 39 Inc.; Assistant
Treasurer of INVESCO
Distributors, Inc.;
formerly, Assistant
Vice President (1996 to
1997), Director -
Portfolio Accounting
(1994 to 1996),
Portfolio Accounting
Manager (1993 to 1994)
and Assistant
Accounting Manager
(1990 to 1993).
<PAGE>
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE COMPANY DURING PAST FIVE YEARS
Alan I. Watson Assistant Secretary Vice President of
7800 E. Union Avenue INVESCO Funds Group,
Denver, Colorado Inc.; formerly, Trust
Age: 58 Officer of INVESCO
Trust Company.
Judy P. Wiese Assistant Secretary Vice President and
7800 E. Union Avenue Assistant Secretary of
Denver, Colorado INVESCO Funds Group,
Age: 51 Inc.; Assistant
Secretary of INVESCO
Distributors, Inc.;
formerly, Trust
Officer of INVESCO
Trust Company.
# 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.
* These directors are "interested persons" of the Company as defined in the
1940 Act.
** Member of the management liaison committee of the Company.
@ Member of the brokerage committee of the Company.
! Member of the derivatives committee of the Company.
The following table shows 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, all for the period ended July 31, 1999.
In addition, the table sets forth the total compensation paid by all of the
INVESCO Funds and INVESCO Global Health Sciences Fund (collectively, the
"INVESCO Complex") to these directors or trustees for services rendered in their
capacities as directors or trustees during the year ended December 31, 1999. As
of December 31, 1999, there were 46 funds in the INVESCO Complex.
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
BENEFITS ESTIMATED TOTAL
AGGREGATE ACCRUED ANNUAL COMPENSATION
COMPENSATION AS PART OF BENEFITS FROM INVESCO
NAME OF PERSON FROM COMPANY UPON COMPLEX PAID
AND POSITION COMPANY(1) EXPENSES(2) RETIREMENT(3) TO DIRECTORS(7)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fred A. Deering, $6,164 $8,033 $5,425 $107,050
Vice Chairman of
the Board
- -----------------------------------------------------------------------------------------
Victor L. Andrews 5,589 7,684 5,981 84,700
- -----------------------------------------------------------------------------------------
Bob R. Baker 5,672 6,862 8,016 82,850
- -----------------------------------------------------------------------------------------
Lawrence H. Budner 5,561 7,684 5,981 82,850
- -----------------------------------------------------------------------------------------
James T. Bunch(4) 0 0 0 0
- -----------------------------------------------------------------------------------------
Daniel D. Chabris(5) 2,366 7,852 4,921 34,000
- -----------------------------------------------------------------------------------------
Wendy L. Gramm 5,449 0 0 81,350
- -----------------------------------------------------------------------------------------
Kenneth T. King(5) 6,014 8,199 4,921 85,850
- -----------------------------------------------------------------------------------------
Gerald J. Lewis(4) 0 0 0 0
- -----------------------------------------------------------------------------------------
John W. McIntyre 6,135 0 0 108,700
- -----------------------------------------------------------------------------------------
Larry Soll 5,449 0 0 100,900
- -----------------------------------------------------------------------------------------
Total 48,399 46,314 35,245 768,250
- -----------------------------------------------------------------------------------------
% of Net Assets 0.0010%(6) 0.0010%(6) 0.0024%(7)
- -----------------------------------------------------------------------------------------
</TABLE>
(1) The vice chairman of the board, the chairmen of the Funds' committees who
are Independent Directors, and the members of the Funds' committees who are
Independent Directors each receive compensation for serving in such capacities
in addition to the compensation paid to all Independent Directors.
(2) Represents estimated benefits accrued with respect to the Defined Benefit
Deferred Compensation Plan discussed below, and not compensation deferred at the
election of the directors.
(3) These amounts represent the Company's share of the estimated annual benefits
payable by the INVESCO Funds upon the directors' retirement, calculated using
the current method of allocating director compensation among the INVESCO Funds.
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 Funds, 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
<PAGE>
are closer to retirement and higher estimated benefits for directors who are
further from retirement. With the exception of Drs. Soll and Gramm and Messrs.
Bunch and Lewis, each of these directors has served as a director of one or more
of the funds in the INVESCO Funds for the minimum five-year period required to
be eligible to participate in the Defined Benefit Deferred Compensation Plan.
Although Mr. McIntyre became eligible to participate in the Defined Benefit
Deferred Compensation Plan as of November 1, 1998, he was not included in the
calculation of retirement benefits until November 1, 1999.
(4) Messrs. Bunch and Lewis became directors of the Company on January 1, 2000.
(5) Mr. Chabris retired as a director of the Company on September 30, 1998. Mr.
King retired as a director of the Company on December 31, 1999.
(6) Total as a percentage of the Company's net assets as of July 31, 1999.
(7) Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1999.
Messrs. Brady and Williamson, as "interested persons" of the Company and the
other INVESCO Funds, 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 Funds for their
service as directors.
The boards of directors of the mutual funds in the INVESCO Funds have adopted a
Defined Benefit Deferred Compensation Plan (the "Plan") for the Independent
Directors of the funds. Under this Plan, each director who is not an interested
person of the funds (as defined in Section 2(a)(19) of the 1940 Act) and who has
served for at least five years (a "Qualified Director") is entitled to receive,
if the Qualified Director retires upon reaching age 72 (or the retirement age of
73 or 74, if the retirement date is extended by the boards for one or two years,
but less than three years), continuation of payment for one year (the "First
Year Retirement Benefit") of the annual basic retainer and annualized board
meeting fees payable by the funds to the Qualified Director at the time of
his/her retirement (the "Basic Benefit"). Commencing with any such director's
second year of retirement, commencing with the first year of retirement of any
Qualified Director whose retirement has been extended by the boards for three
years, and commencing with attainment of age 72 by a Qualified Director who
voluntarily retires prior to reaching age 72, a Qualified Director shall receive
quarterly payments at an annual rate equal to 50% of the Basic Benefit. These
payments will continue for the remainder of the Qualified Director's life or ten
years, whichever is longer (the "Reduced Benefit 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 Reduced Benefit
Payments will be made to him/her or to his/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
Benefit Payments will be made to him/her or 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
<PAGE>
payments under the Plan to Mr. Chabris as of October 1, 1998 and to Mr. King as
of January 1, 2000. 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. A similar plan has been adopted by INVESCO
Global Health Sciences Fund's board of trustees. All trustees of INVESCO Global
Health Sciences Fund are also directors of the INVESCO Funds.
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. Certain of the deferred amounts have been invested in the shares of all
INVESCO Funds, except Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally precluded from investing. Each Independent
Director may, therefore, be deemed to have an indirect interest in shares of
each such INVESCO Fund, in addition to any INVESCO Fund shares the Independent
Director may own either directly or beneficially.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of December 31, 1999, the following persons owned more than 5% of the
outstanding shares of the Funds indicated below. This level of share ownership
is considered to be a "principal shareholder" relationship with a Fund under the
1940 Act. Shares that are owned "of record" are held in the name of the person
indicated. Shares that are owned "beneficially" are held in another name, but
the owner has the full economic benefit of ownership of those shares:
Blue Chip Growth Fund
- --------------------------------------------------------------------------------
BASIS OF OWNERSHIP
NAME AND ADDRESS (RECORD/BENEFICIAL) PERCENTAGE OWNED
================================================================================
None
- --------------------------------------------------------------------------------
<PAGE>
Dynamics Fund
- --------------------------------------------------------------------------------
BASIS OF OWNERSHIP
NAME AND ADDRESS (RECORD/BENEFICIAL) PERCENTAGE OWNED
================================================================================
Charles Schwab & Co., Inc.
Special Custody Account Record 14.44%
for the Exclusive Benefit
of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
Connecticut General Life Ins.
c/o Liz Pezda M-110 Record 5.69%
P.O. Box 2975 H 19 B
Hartford, CT 06104-2975
- --------------------------------------------------------------------------------
Endeavor Fund
- --------------------------------------------------------------------------------
BASIS OF OWNERSHIP
NAME AND ADDRESS (RECORD/BENEFICIAL) PERCENTAGE OWNED
================================================================================
Charles Schwab & Co., Inc. Record 26.20%
Special Custody Account
for the Exclusive Benefit
of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
National Financial Services Corp.
The Exclusive Benefit Record 7.40%
of Customers
One World Financial Center
200 Liberty St., 5th Floor
Attn: Kate - Recon
New York, NY 10281-5500
- --------------------------------------------------------------------------------
<PAGE>
Growth & Income Fund
- --------------------------------------------------------------------------------
BASIS OF OWNERSHIP
NAME AND ADDRESS (RECORD/BENEFICIAL) PERCENTAGE OWNED
================================================================================
Charles Schwab & Co., Inc. Record 30.92%
Special Custody Account
for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
Nat'l Financial Services Corp. Record 6.85%
The Exclusive Benefit of Cust.
One World Financial Center
200 Liberty Street, 5th Floor
Attn: Kate Recon
New York, NY 10281-1003
- --------------------------------------------------------------------------------
Small Company Growth Fund
- --------------------------------------------------------------------------------
BASIS OF OWNERSHIP
NAME AND ADDRESS (RECORD/BENEFICIAL) PERCENTAGE OWNED
================================================================================
Connecticut General Life Record 14.46%
Insurance
c/o Liz Pezda M-110
P.O. Box 2975 H 19 B
Hartford, CT 06104-2975
- --------------------------------------------------------------------------------
Charles Schwab & Co., Inc.
Special Custody Account Record 9.18%
for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
FIIOC Agent
Employee Benefit Plans Record 5.68%
100 Magellan Way KWIC
Covington, KY 41015-1987
<PAGE>
S&P 500 Index Fund
- --------------------------------------------------------------------------------
BASIS OF OWNERSHIP
NAME AND ADDRESS (RECORD/BENEFICIAL) PERCENTAGE OWNED
================================================================================
INVESCO Trust Company Record 38.57%
Right Choice Managed Care Inc.
Exec Def Retirement Plan
1831 Chestnut Street
St. Louis, MO 63103-2231
- --------------------------------------------------------------------------------
INVESCO Trust Company Record 20.31%
Compass Group USA
Non-Qualified Plan IRPS
Attn: Kelly Allen
P.O. Box 1350
Winston-Salem, NC 27102-1350
- --------------------------------------------------------------------------------
INVESCO Trust Company Record 19.49%
Right Choice Managed Care Inc.
Supp Exec Retirement Plan
1831 Chestnut Street
St. Louis, MO 63103-2231
- --------------------------------------------------------------------------------
Ronald L. Grooms Beneficial 10.05%
7800 East Union Avenue
Denver, CO 80237-2715
- --------------------------------------------------------------------------------
Value Equity Fund
- --------------------------------------------------------------------------------
BASIS OF OWNERSHIP
NAME AND ADDRESS (RECORD/BENEFICIAL) PERCENTAGE OWNED
================================================================================
Charles Schwab & Co., Inc. Record 6.47%
Special Custody Account
for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BASIS OF OWNERSHIP
NAME AND ADDRESS (RECORD/BENEFICIAL) PERCENTAGE OWNED
================================================================================
INVESCO Trust Company Record 6.02%
The Ritz Carlton Hotel
Company LLC
Special Reserve Plan DC
400 Colony Square Suite 2200
1201 Peachtree Street NE
Atlanta, GA 30361-3500
- --------------------------------------------------------------------------------
INVESCO Trust Company Record 5.89%
Morris Communications Corp.
Employee's Profit Sharing
Retirement Plan
725 Broad Street
Augusta, GA 30901-1336
- --------------------------------------------------------------------------------
INVESCO Trust Company Record 5.72%
Carle Clinic Association
Profit Sharing Plan
602 West University Avenue
Urbana, IL 61801-2530
- --------------------------------------------------------------------------------
As of December 31, 2000, officers and directors of the Company, as a group,
beneficially owned less than 1% of each of Blue Chip Growth, Dynamics,
Endeavor, Growth & Income, Small Company Growth, and Value Equity Funds'
outstanding shares and less than 11% of the S&P 500 Index Fund's outstanding
shares.
DISTRIBUTOR
INVESCO Distributors, Inc. ("IDI"), a wholly owned subsidiary of INVESCO, is the
distributor of the Funds. IDI receives no compensation and bears all expenses,
including the cost of printing and distributing prospectuses, incident to
marketing of the Funds' shares, except for such distribution expenses as are
paid out of Fund assets under the Company's Plans of Distribution, which have
been adopted by each Fund pursuant to Rule 12b-1 under the 1940 Act.
INVESTOR CLASS. The Company has adopted a Plan and Agreement of Distribution
(the "Investor Class Plan") with respect to Investor Class shares, which
provides that the Investor Class shares of each Fund will make monthly payments
to IDI computed at an annual rate no greater than 0.25% of average net assets
attributable to Investor Class shares. These payments permit IDI, at its
discretion, to engage in certain activities and provide services in connection
with the distribution of a Fund's Investor Class shares to investors. Payments
by a Fund under the Investor Class Plan, for any month, may be made to
compensate IDI for permissible activities engaged in and services provided.
<PAGE>
CLASS C. The Company has adopted a Master Distribution Plan and Agreement
pursuant to Rule 12b-1 under the 1940 Act relating to the Class C shares of the
Funds (the "Class C Plan"). Under the Class C Plan, Class C shares of the Funds
pay compensation to IDI at an annual rate of 1.00% per annum of the average
daily net assets attributable to Class C shares for the purpose of financing any
activity which is primarily intended to result in the sale of Class C shares.
The Class C Plan is designed to compensate IDI for certain promotional and other
sales-related costs, and to implement a dealer incentive program which provides
for periodic payments to selected dealers who furnish continuing personal
shareholder services to their customers who purchase and own Class C shares of a
Fund. Payments can also be directed by IDI to selected institutions that have
entered into service agreements with respect to Class C shares of each Fund and
that provide continuing personal services to their customers who own such Class
C shares of a Fund. Activities appropriate for financing under the Class C Plan
include, but are not limited to, the following: printing of prospectuses and
statements of additional information and reports for other than existing
shareholders; preparation and distribution of advertising material and
sales literature; expenses of organizing and conducting sales seminars;
supplemental payments to dealers and other institutions such as asset-based
sales charges or as payments of service fees under shareholder service
arrangements; and costs of administering the Class C Plan.
Of the aggregate amount payable under the Class C Plan, payments to dealers and
other financial institutions that provide continuing personal shareholder
services to their customers who purchase and own Class C shares of a Fund, in
amounts of up to 0.25% of the average daily net assets of the Class C shares of
the Fund attributable to the customers of such dealers or financial institutions
are characterized as a service fee. Payments to dealers and other financial
institutions in excess of such amount and payments to IDI would be characterized
as an asset-based sales charge pursuant to the Class C Plan. Payments pursuant
to the Class C Plan are subject to any applicable limitations imposed by rules
of the National Association of Securities Dealers, Inc. ("NASD"). The Class C
Plan conforms to rules of the NASD by limiting payments made to dealers and
other financial institutions who provide continuing personal shareholder
services to their customers who purchase and own Class C shares of the Funds to
no more than 0.25% per annum of the average daily net assets of the Class C
shares of the Funds attributable to the customers of such dealers or financial
institutions, and by imposing a cap on the total sales charges, including
asset-based sales charges, that may be paid by the Funds.
IDI may pay sales commissions to dealers and institutions who sell Class C
shares of the Funds at the time of such sales. Payments with respect to Class C
shares will equal 1.00% of the purchase price of the Class C shares sold by the
dealer or institution, and will consist of a sales commission of 0.75% of the
purchase price of Class C shares sold plus an advance of the first year service
fee of 0.25% with respect to such shares. IDI will retain all payments received
by it relating to Class C shares for the first thirteen months after they are
purchased. The portion of the payments to IDI under the Class C Plan
attributable to Class C shares which constitutes an asset-based sales charge
(0.75%) is intended in part to permit IDI to recoup a portion of on-going sales
commissions to dealers plus financing costs, if any. After the first thirteen
months, IDI will make such payments quarterly to dealers and institutions based
on the average net asset value of Class C shares which are attributable to
shareholders for whom the dealers and institutions are designated as dealers of
record.
<PAGE>
A significant expenditure under the Investor Class Plan and Class C Plan
(collectively, the "Plans") is compensation paid to securities companies and
other financial institutions and organizations, which may include
INVESCO-affiliated companies, in order to obtain various distribution-related
and/or administrative services for the Funds. Each Fund is authorized by a 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 a 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, INVESCO does not believe
that these limitations would affect the ability of such banks to enter into
arrangements with IDI, but can give no assurance in this regard. However, to the
extent it is determined otherwise in the future, arrangements with banks might
have to be modified or terminated, and, in that case, the size of the Funds
possibly could decrease to the extent that the banks would no longer invest
customer assets in the Funds. 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 a Fund.
Financial institutions and any other person entitled to receive compensation for
selling Fund shares may receive different compensation for selling shares of one
particular class instead of another.
During the period ended July 31, 1999, the Funds made payments to IDI under the
Investor Class Plan in the amounts of $2,507,538, $1,291,398, $49,244, $34,245,
$138,369, $88,491, and $915,156 for Blue Chip Growth Fund - Investor Class,
Dynamics Fund - Investor Class, Endeavor Fund - Investor Class, Growth & Income
Fund - Investor Class, Small Company Growth Fund - Investor Class, S&P 500 Index
Fund - Investor Class and Value Equity Fund - Investor Class, respectively. In
addition, as of July 31, 1999, $277,286, $524,406, $23,848, $12,940, $100,988,
$13,861 and $83,038 of additional distribution accruals had been incurred for
Blue Chip Growth Fund - Investor Class, Dynamics Fund - Investor Class, Endeavor
Fund - Investor Class, Growth & Income Fund - Investor Class, Small Company
Growth Fund - Investor Class, S&P 500 Index Fund - Investor Class and Value
Equity Fund - Investor Class, respectively, and will be paid during the fiscal
year ended July 31, 2000. Since the Funds' Class C shares are not offered until
February 15, 2000, the Funds' Class C shares made no payments to IDI under the
Class C Plan during the period ended July 31, 1999. For the fiscal year ended
July 31, 1999, allocation of 12b-1 amounts paid by the Funds' Investor Class for
the following categories of expenses were:
Blue Chip Growth Fund - Investor Class
Advertising--$1,251,932;
Sales literature, printing, and postage--$259,217;
Direct Mail--$166,036;
Public Relations/Promotion--$112,722;
Compensation to securities dealers and other organizations--$396,205; and
Marketing personnel--$321,426.
<PAGE>
Dynamics Fund - Investor Class
Advertising--$333,433;
Sales literature, printing, and postage--$82,180;
Direct Mail--$39,011;
Public Relations/Promotion--$62,799;
Compensation to securities dealers and other organizations--$636,304; and
Marketing personnel--$137,671.
Endeavor Fund - Investor Class
Advertising--$31,872;
Sales literature, printing, and postage--$3,067;
Direct Mail--$2,645;
Public Relations/Promotion--$2,056;
Compensation to securities dealers and other organizations--$6,726; and
Marketing personnel--$2,878.
Growth & Income Fund - Investor Class
Advertising--$25,828;
Sales literature, printing, and postage--$2,003;
Direct Mail--$1,343;
Public Relations/Promotion--$1,013;
Compensation to securities dealers and other organizations--$2,727; and
Marketing personnel--$1,331.
Small Company Growth Fund - Investor Class
Advertising--$6,605;
Sales literature, printing, and postage--$9,551;
Direct Mail--$8,895;
Public Relations/Promotion--$11,675;
Compensation to securities dealers and other organizations--$76,799; and
Marketing personnel--$24,844.
S&P 500 Index Fund - Investor Class
Advertising--$24,616;
Sales literature, printing, and postage--$22,775;
Direct Mail--$2,760;
Public Relations/Promotion--$4,380;
Compensation to securities dealers and other organizations--$20,335; and
Marketing personnel--$13,625.
<PAGE>
Value Equity Fund - Investor Class
Advertising--$134,414;
Sales literature, printing, and postage--$68,376;
Direct Mail--$19,218;
Public Relations/Promotion--$26,709;
Compensation to securities dealers and other organizations--$573,142; and
Marketing personnel--$93,297.
The services which are provided by securities dealers and other organizations
may vary by dealer but include, among other things, processing new shareholder
account applications, preparing and transmitting to the Company's Transfer Agent
computer-processable tapes of all Fund transactions by customers, serving as the
primary source of information to customers in answering questions concerning the
Funds, and assisting in other customer transactions with the Funds.
The Plans provide that they shall continue in effect with respect to each Fund
as 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, including the vote of a majority of the
Independent Directors. A Plan can also be terminated at any time by a Fund,
without penalty, if a majority of the Independent Directors, or shareholders of
the relevant class of shares of the Fund, vote to terminate a Plan. The Company
may, in its absolute discretion, suspend, discontinue or limit the offering of
its shares at any time. In determining whether any such action should be taken,
the board of directors intends to consider all relevant factors including,
without limitation, the size of a Fund, the investment climate for a Fund,
general market conditions, and the volume of sales and redemptions of a Fund's
shares. The Plans may continue in effect and payments may be made under a Plan
following any temporary suspension or limitation of the offering of Fund shares;
however, the Company is not contractually obligated to continue a Plan for any
particular period of time. Suspension of the offering of a Fund's shares would
not, of course, affect a shareholder's ability to redeem his or her shares.
So long as the Plans are 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 Plans may not be amended to increase the amount of a Fund's
payments under a Plan without approval of the shareholders of the affected class
of the Fund's shares, and all material amendments to a Plan must be approved by
the board of directors of the Company, including a majority of the Independent
Directors. Under the agreement implementing the Plans, IDI or a Fund, the latter
by vote of a majority of the Independent Directors, or a majority of the holders
of the relevant class of a 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 a Fund under a Plan in the event of its
termination.
To the extent that a 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 Fund assets in the amounts and for the purposes set forth
therein, notwithstanding the occurrence of an assignment, as defined by the 1940
Act, and rules thereunder. To the extent it constitutes an agreement pursuant to
a plan, a Fund's obligation to make payments to IDI shall terminate
<PAGE>
automatically, in the event of such "assignment." In this event, a Fund may
continue to make payments pursuant to a Plan only upon the approval of new
arrangements regarding the use of the amounts authorized to be paid by a Fund
under a Plan. Such new arrangements must be approved by the directors, including
a majority of the Independent Directors, by a vote cast in person at a meeting
called for such purpose. These new arrangements might or might not be with IDI.
On a quarterly basis, the directors review information about the distribution
services that have been provided to each Fund and the 12b-1 fees paid for such
services. On an annual basis, the directors consider whether a Plan should be
continued and, if so, whether any amendment to the Plan, including changes in
the amount of 12b-1 fees paid by each class of a Fund, should be made.
The only Company directors and interested persons, as that term is defined in
Section 2(a)(19) of the 1940 Act, who have a direct or indirect financial
interest in the operation of the Plans are the officers and directors of the
Company who are also officers either of IDI or other companies affiliated with
IDI. The benefits which the Company believes will be reasonably likely to flow
to a Fund and its shareholders under the Plans include the following:
o 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 Funds;
o The sale of additional shares reduces the likelihood that redemption of
shares will require the liquidation of securities of the Funds in amounts
and at times that are disadvantageous for investment purposes; and
o Increased Fund assets may result in reducing each investor's share of
certain expenses through economies of scale (e.g., exceeding established
breakpoints in an advisory fee schedule and allocating fixed expenses
over a larger asset base), thereby partially offsetting the costs of a
Plan.
The positive effect which increased Fund assets will have on INVESCO's revenues
could allow INVESCO and its affiliated companies:
o To have greater resources to make the financial commitments necessary to
improve the quality and level of the Funds' shareholder services (in both
systems and personnel);
o 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
o To acquire and retain talented employees who desire to be associated with
a growing organization.
<PAGE>
OTHER SERVICE PROVIDERS
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 950 Seventeenth Street, Suite 2500, Denver,
Colorado, are the independent accountants of the Company. The independent
accountants are responsible for auditing the financial statements of the Funds.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts, is the
custodian of the cash and investment securities of the Company. The custodian is
also responsible for, among other things, receipt and delivery of each Fund's
investment securities in accordance with procedures and conditions specified in
the custody agreement with the Company. The custodian is authorized to establish
separate accounts in foreign countries and to cause foreign securities owned by
the Funds 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.
TRANSFER AGENT
INVESCO, 7800 E. Union Avenue, Denver, Colorado, is the Company's transfer
agent, registrar, and dividend disbursing agent. Services provided by INVESCO
include the issuance, cancellation and transfer of shares of the Funds, and the
maintenance of records regarding the ownership of such shares.
LEGAL COUNSEL
The firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., 2nd
Floor, Washington, D.C., is legal counsel for the Company. The firm of Moye,
Giles, O'Keefe, Vermeire & Gorrell LLP, 1225 17th Street, Suite 2900, Denver,
Colorado, acts as special counsel to the Company.
BROKERAGE ALLOCATION AND OTHER PRACTICES
As the investment adviser to the Funds, INVESCO places orders for the purchase
and sale of securities with broker-dealers based upon an evaluation of the
financial responsibility of the broker-dealers and the ability of the
broker-dealers to effect transactions at the best available prices.
While INVESCO seeks reasonably competitive commission rates, the Funds do not
necessarily pay the lowest commission or spread available. INVESCO is permitted
to, and does, consider qualitative factors in addition to price in the selection
of brokers. Among other things, INVESCO considers the quality of executions
obtained on a 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. INVESCO has found that a broker's
consistent ability to execute transactions is at least as important as the price
the broker charges for those services.
<PAGE>
In seeking to ensure that the commissions charged a Fund are consistent with
prevailing and reasonable commissions, INVESCO monitors brokerage industry
practices and commissions charged by broker-dealers on transactions effected for
other institutional investors like the Funds.
Consistent with the standard of seeking to obtain favorable execution on
portfolio transactions, INVESCO may select brokers that provide research
services to INVESCO and the Company, as well as other INVESCO mutual funds and
other accounts managed by INVESCO. Research services include 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 a 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 a particular Fund. Conversely, a Fund receives
benefits of research acquired through the brokerage transactions of other
clients of INVESCO.
In order to obtain reliable trade execution and research services, INVESCO may
utilize brokers that charge higher commissions than other brokers would charge
for the same transaction. This practice is known as "paying up." However, even
when paying up, INVESCO is obligated to obtain favorable execution of a Fund's
transactions.
Portfolio transactions also may be effected through broker-dealers that
recommend the Funds to their clients, or that act as agent in the purchase of a
Fund's shares for their clients. When a number of broker-dealers can provide
comparable best price and execution on a particular transaction, INVESCO may
consider the sale of a Fund's shares by a broker-dealer in selecting among
qualified broker-dealers.
Certain of the INVESCO Funds utilize fund brokerage commissions to pay custody
fees for each respective fund. This program requires that the participating
funds receive favorable execution.
The aggregate dollar amount of underwriting discounts and brokerage commissions
paid by each Fund for the periods outlined in the table below were:
BLUE CHIP GROWTH FUND
Period Ended July 31, 1999(a) $3,975,896
Year Ended August 31, 1998 2,574,626
Year Ended August 31, 1997 5,300,030
Year Ended August 31, 1996 2,703,470
DYNAMICS FUND
Period Ended July 31, 1999(b) $3,309,214
Year Ended April 30, 1999 7,689,483
Year Ended April 30, 1998 7,542,687
Year Ended April 30, 1997 5,707,197
<PAGE>
ENDEAVOR FUND
Period Ended July 31, 1999(b) $1,463,690
Period Ended April 30, 1999(c) 466,439
GROWTH & INCOME FUND
Period Ended July 31, 1999(b) $ 165,787
Period Ended April 30, 1999(d) 438,309
SMALL COMPANY GROWTH FUND
Period Ended July 31, 1999(e) $1,414,200
Year Ended May 31, 1998 3,319,634
Year Ended May 31, 1997 4,167,020
Year Ended May 31, 1996 3,987,784
S&P 500 INDEX FUND
Year Ended July 31, 1999 $ 18,707
Year Ended July 31, 1998 0
VALUE EQUITY FUND
Period Ended July 31, 1999(a) $ 272,645
Year Ended August 31, 1998 194,473
Year Ended August 31, 1997 470,619
(a) From September 1, 1998 to July 31, 1999
(b) From May 1, 1999 to July 31, 1999
(c) From October 28, 1998 (commencement of operations) to April 30, 1999
(d) From July 1, 1998 (commencement of operations) to April 30, 1999
(e) From June 1, 1999 to July 31, 1999
For the fiscal year ended July 31, 1999, brokers providing research services
received $4,728,050 in commissions on portfolio transactions effected for the
Funds. The aggregate dollar amount of such portfolio transactions was
$3,773,902,315. Commissions totaling $206,673 were allocated to certain brokers
in recognition of their sales of shares of the Funds on portfolio transactions
of the Funds effected during the fiscal year ended July 31, 1999.
<PAGE>
At July 31, 1999, each Fund held debt securities of its regular brokers or
dealers, or their parents, as follows:
- --------------------------------------------------------------------------------
VALUE OF SECURITIES
FUND BROKER OR DEALER AT JULY 31, 1999
================================================================================
Blue Chip Growth General Electric $50,662,110
- --------------------------------------------------------------------------------
Dynamics American Express Credit $45,000,000
- --------------------------------------------------------------------------------
GE Companies 30,000,000
- -------------------------------------------------------------------------------
State Street Bank & Trust 5,853,000
- --------------------------------------------------------------------------------
Paine Webber Group 5,400,000
- --------------------------------------------------------------------------------
Endeavor State Street Bank & Trust $ 3,745,000
- --------------------------------------------------------------------------------
General Electric 1,486,215
- --------------------------------------------------------------------------------
Growth & Income General Electric $ 2,078,630
- --------------------------------------------------------------------------------
State Street Bank & Trust 1,145,000
- --------------------------------------------------------------------------------
American Express 615,273
- --------------------------------------------------------------------------------
Small Company Growth State Street Bank & Trust $80,476,000
- --------------------------------------------------------------------------------
S&P 500 Index State Street Bank & Trust $ 5,182,000
- --------------------------------------------------------------------------------
General Electric 2,130,841
- --------------------------------------------------------------------------------
Ford Motor 344,654
- --------------------------------------------------------------------------------
American Express 343,209
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter 296,421
- --------------------------------------------------------------------------------
Merrill Lynch 144,224
- --------------------------------------------------------------------------------
Morgan (JP) & Co. 117,261
- --------------------------------------------------------------------------------
CIGNA Corp 109,970
- --------------------------------------------------------------------------------
American General 105,230
- --------------------------------------------------------------------------------
Sears Roebuck 91,409
- --------------------------------------------------------------------------------
Bank Boston Corp 79,324
- --------------------------------------------------------------------------------
State Street 71,300
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
VALUE OF SECURITIES
FUND BROKER OR DEALER AT JULY 31, 1999
================================================================================
PaineWebber Group 32,000
- -------------------------------------------------------------------------------
Value Equity General Electric $ 7,902,500
- --------------------------------------------------------------------------------
American General 6,963,750
- --------------------------------------------------------------------------------
Ford Motor 6,253,175
- --------------------------------------------------------------------------------
State Street Bank & Trust 5,686,000
- --------------------------------------------------------------------------------
State Street 1,842,750
- --------------------------------------------------------------------------------
Neither INVESCO nor any affiliate of INVESCO receives any brokerage commissions
on portfolio transactions effected on behalf of the Funds, and there is no
affiliation between INVESCO or any person affiliated with INVESCO or the Funds
and any broker-dealer that executes transactions for the Funds.
CAPITAL STOCK
The Company is authorized to issue up to three billion five hundred million
shares of common stock with a par value of $0.01 per share. As of December 31,
1999, the following shares of each Fund were outstanding:
Blue Chip Growth Fund - Investor Class 201,968,903
Blue Chip Growth Fund - Class C 0
Dynamics Fund - Investor Class 178,238,339
Dynamics Fund - Class C 0
Endeavor Fund - Investor Class 12,852,556
Endeavor Fund - Class C 0
Growth & Income Fund - Investor Class 8,565,801
Growth & Income Fund - Class C 0
Small Company Growth Fund - Investor Class 47,054,162
Small Company Growth Fund - Class C 0
S&P 500 Index Fund - Institutional Class 320,642
S&P 500 Index Fund - Investor Class 5,437,814
Value Equity Fund - Investor Class 12,027,646
Value Equity Fund - Class C 0
A share of each class of a Fund represents an identical interest in that Fund's
investment portfolio and has the same rights, privileges and preferences.
However, each class may differ with respect to sales charges, if any,
distribution and/or service fees, if any, other expenses allocable exclusively
to each class, voting rights on matters exclusively affecting that class, and
its exchange privilege, if any. The different sales charges and other expenses
<PAGE>
applicable to the different classes of shares of the Funds will affect the
performance of those classes. Each share of a Fund is entitled to participate
equally in dividends for that class, other distributions and the proceeds of any
liquidation of a class of that Fund. However, due to the differing expenses of
the classes, dividends and liquidation proceeds on Institutional Class, Investor
Class and Class C shares will differ. All shares of a Fund will be voted
together, except that only the shareholders of a particular class of a Fund may
vote on matters exclusively affecting that class, such as the terms of a Rule
12b-1 Plan as it relates to the class. All shares issued and outstanding are,
and all shares offered hereby when issued will be, fully paid and non-
assessable. The board of directors has the authority to designate additional
classes of common stock without seeking the approval of shareholders and may
classify and reclassify any authorized but unissued shares.
Shares have no preemptive rights and are freely transferable on the books of
each Fund.
All shares of the Company have equal voting rights based on one vote for each
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 Company
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 Funds will assist shareholders in
communicating with other shareholders as required by the 1940 Act.
Fund shares have noncumulative voting rights, which means that the holders of a
majority of the shares of the Company voting for the election of directors of
the Company can elect 100% of the directors if they choose to do so. If that
occurs, 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.
Directors may be removed by action of the holders of a majority of the
outstanding shares of the Company.
TAX CONSEQUENCES OF OWNING SHARES OF A FUND
Each Fund intends to continue 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. Each Fund qualified as a regulated investment
company and intends to continue to qualify during its current fiscal year. It is
the policy of each Fund to distribute all investment company taxable income and
net capital gains. As a result of this policy and the Funds' qualification as
regulated investment companies, it is anticipated that none of the Funds will
pay federal income or excise taxes and that all of the Funds will be accorded
conduit or "pass through" treatment for federal income tax purposes. Therefore,
any taxes that a Fund would ordinarily owe are paid by its shareholders on a
pro-rata basis. If a Fund does not distribute all of its net investment income
or net capital gains, it will be subject to income and excise taxes on the
<PAGE>
amount that is not distributed. If a Fund does not qualify as a regulated
investment company, it will be subject to income tax on its net investment
income and net capital gains at the corporate tax rates.
Dividends paid by a 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 taxable for federal income tax purposes as
ordinary income to shareholders. After the end of each calendar year, the Funds
send shareholders information regarding the amount and character of dividends
paid in the year, including the dividends eligible for the dividends-received
deduction for corporations. Dividends eligible for the dividends-received
deduction will be limited to the aggregate amount of qualifying dividends that a
Fund derives from its portfolio investments.
A Fund realizes a capital gain or loss when it sells a portfolio security for
more or less than it paid for that security. Capital gains and losses are
divided into short-term and long-term, depending on how long the Fund held the
security which gave rise to the gain or loss. If the security was held one year
or less the gain or loss is considered short-term, while holding a security for
more than one year will generate a long-term gain or loss. A capital gain
distribution consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest as ordinary income and are paid to shareholders as dividends, as
discussed above. If total long-term gains on sales exceed total short-term
losses, including any losses carried forward from previous years, a Fund will
have a net capital gain. Distributions by a Fund of net capital gains are, for
federal income tax purposes, taxable to the shareholder as a long-term capital
gain regardless of how long a shareholder has held shares of the particular
Fund. Such distributions are not eligible for the dividends-received deduction.
After the end of each calendar year, the Funds send information to shareholders
regarding the amount and character of distributions paid during the year.
All dividends and other distributions are taxable income to the shareholder,
whether or not such dividends and distributions are reinvested in additional
shares or paid in cash. If the net asset value of a Fund's shares should be
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 a
return of invested capital. The net asset value of shares of a Fund reflects
accrued net investment income and undistributed realized capital and foreign
currency gains; therefore, when a distribution is declared, the net asset value
is reduced by the amount of the distribution. If shares of a Fund 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.
If it invests in foreign securities, a Fund may be subject to the 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 unless the Fund
meets the qualifications and makes the election to enable it to pass these taxes
through to shareholders for use by them as a foreign tax credit or deduction.
Tax conventions between certain countries and the United States may reduce or
eliminate such taxes.
A 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 value of at least 50% of its assets produce, or are held for the
<PAGE>
production of, passive income. Each Fund intends to "mark-to-market" its stock
in any PFIC. In this context, "marking-to-market" 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 basis in the PFIC stock as of the end of the
year. In certain circumstances, a Fund will also be allowed to deduct from
ordinary income the excess, if any, of its adjusted basis in PFIC stock over the
fair market value of the PFIC stock as of the end of the year. The deduction
will only be allowed to the extent of any PFIC mark-to-market gains recognized
as ordinary income in prior years. A Fund's adjusted tax basis in each PFIC
stock for which it makes this election will be adjusted to reflect the amount of
income included or deduction taken under the election.
Gains or losses (1) from the disposition of foreign currencies, (2) from the
disposition of debt securities denominated in foreign currencies that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time 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 a Fund's investment company taxable income to be
distributed to its shareholders.
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 Funds recommend any
particular method of determining cost basis. Other methods may result in
different tax consequences. If you have reported gains or losses for a Fund in
past years, you must continue to use the method previously used, unless you
apply to the IRS for permission to change methods.
If you sell Fund shares at a loss after holding them for six months or less,
your loss will be treated as long-term (instead of short-term) capital loss to
the extent of any capital gain distributions that you may have received on those
shares.
Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and its net capital gains for the one-year period
ending on October 31 of that year, plus certain other amounts.
You should consult your own tax adviser 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.
<PAGE>
PERFORMANCE
To keep shareholders and potential investors informed, INVESCO will occasionally
advertise the Funds' total return for one-, five-, and ten-year periods (or
since inception). Total return figures show the rate of return on a $10,000
investment in a Fund, assuming reinvestment of all dividends and capital gain
distributions for the periods cited.
Cumulative total return shows the actual rate of return on an investment for the
period cited; average annual total return represents the average annual
percentage change in the value of an investment. Both cumulative and average
annual total returns tend to "smooth out" fluctuations in a Fund's investment
results, because they do not show the interim variations in performance over the
periods cited. More information about the Funds' 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 INVESCO using the telephone number or
address on the back cover of the Funds' Prospectuses.
When we quote mutual fund rankings published by Lipper Inc., we may compare a
Fund to others in its appropriate Lipper category, as well as the broad-based
Lipper general fund groupings. These rankings allow you to compare a Fund to its
peers. Other independent financial media also produce performance- or
service-related comparisons, which you may see in our promotional materials.
Performance figures are based on historical earnings and are not intended to
suggest future performance.
Average annual total return performance for the one-, five-, and ten-year
periods (or since inception) ended July 31, 1999 was:
10 Year or
Name of Fund 1 Year 5 Year Since Inception
- ------------ ------ ------ ---------------
Blue Chip Growth Fund - Investor Class 42.06%(a) 23.66% 16.87%
Dynamics Fund - Investor Class 6.83%(b) 25.43% 20.11%
Endeavor Fund - Investor Class 1.78%(b) N/A 66.10%(c)
<PAGE>
Growth & Income Fund - Investor Class 5.71%(b) N/A 55.82%(d)
Small Company Growth Fund - Investor Class 12.67%(e) 18.45% 18.39%(f)
S&P 500 Index Fund - Institutional Class 20.40% N/A 26.36%(g)
S&P 500 Index Fund - Investor Class 20.09% N/A 26.92%(g)
Value Equity Fund - Investor Class 25.41%(a) 18.78% 13.56%
(a) From September 1, 1998 to July 31, 1999
(b) From May 1, 1999 to July 31, 1999
(c) Since inception October 28, 1998
(d) Since inception July 1, 1998
(e) From June 1, 1999 to July 31, 1999
(f) Since inception December 27, 1991
(g) Since inception December 23, 1997
Average annual total return performance is not provided for each Fund's Class C
shares since they are not offered until February 15, 2000. Average annual total
return performance for each of the periods indicated was computed by finding the
average annual compounded rates of return that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $10,000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown above were determined
by solving the above formula for "T" for each time period indicated.
In conjunction with performance reports, comparative data between a 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.
In conjunction with performance reports and/or analyses of shareholder services
for a Fund, comparative data between that Fund's performance for a given period
and recognized indices of investment results for the same period, and/or
assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company, S&P,
Lipper Inc., Lehman Brothers, National Association of Securities Dealers
Automated Quotations, Frank Russell Company, Value Line Investment Survey, the
American Stock Exchange, Morgan Stanley Capital International, Wilshire
Associates, the Financial Times Stock Exchange, the New York Stock Exchange, the
Nikkei Stock Average and Deutcher Aktienindex, all of which are unmanaged market
indicators. In addition, rankings, ratings, and comparisons of investment
<PAGE>
performance and/or assessments of the quality of shareholder service made by
independent sources may be used in advertisements, sales literature or
shareholder reports, including reprints of, or selections from, editorials or
articles about the Fund. These sources utilize information compiled (i)
internally; (ii) by Lipper Inc.; or (iii) by other recognized analytical
services. The Lipper Inc. mutual fund rankings and comparisons which may be used
by the Funds in performance reports will be drawn from the following mutual fund
groupings, in addition to the broad-based Lipper general fund groupings:
Blue Chip Growth Fund Large-Cap Growth Funds
Dynamics Fund Mid-Cap Growth Funds
Endeavor Fund Mid-Cap Growth Funds
Growth & Income Fund Large-Cap Core Funds
Small Company Growth Fund Small-Cap Growth Funds
S&P 500 Index Fund S&P 500 Funds
Value Equity Fund Multi-Cap Growth 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
IBBOTSON ASSOCIATES, INC.
INSTITUTIONAL INVESTOR
INVESTMENT COMPANY DATA, INC.
INVESTOR'S BUSINESS DAILY
KIPLINGER'S PERSONAL FINANCE
LIPPER 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
<PAGE>
U.S. NEWS AND WORLD REPORT
UNITED MUTUAL FUND SELECTOR
USA TODAY
THE WALL STREET JOURNAL
WIESENBERGER INVESTMENT COMPANIES SERVICES
WORKING WOMAN
WORTH
FINANCIAL STATEMENTS
The financial statements for the Funds for the fiscal year ended July 31, 1999,
are incorporated herein by reference from INVESCO Stock Funds, Inc.'s Annual
Report to Shareholders dated July 31, 1999.
<PAGE>
APPENDIX A
BOND RATINGS
The following is a description of Moody's and S&P's bond ratings:
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.
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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.
