INVESCO STRATEGIC PORTFOLIOS, INC.
Supplement to Prospectus
dated March 1, 1997
The Section of the Fund's Prospectus entitled "Annual Fund Expenses" is amended
to delete the first paragraph and substitute the following paragraph in its
place:
The Portfolios whose shares are offered through this prospectus are
the Energy, Environmental Services, Financial Services, Gold, Health
Sciences, Leisure, Technology and Utilities Portfolios. These Portfolios
are 100% no-load; there are no fees to purchase, exchange or redeem shares.
Effective November 1, 1997, the Portfolios (other than the Environmental
Sciences Portfolio) are authorized to pay a Rule 12b-1 distribution fee of
up to one quarter of one percent of each Fund's average net assets each
year. (See "How To Buy Shares.")
The Section of the Fund's Prospectus entitled "Investment Policies and Risks -
Industry Concentration" is amended to substitute the following language for the
first full paragraph of that Section:
Industry Concentration. Each Portfolio's holdings normally will be
concentrated in a single, specific business sector. Compared to the broad
market, an individual sector may be more strongly affected by changes in
the economic climate; broad market shift; moves in a particular, dominant
stock; or regulatory changes. Investors should be prepared for volatile
short-term movement in net asset value. Each Portfolio attempts to reduce
these risks by diversifying its investments among many individual
securities; further, with respect to 75% of each Portfolio's total assets,
other than the INVESCO Environmental Services Portfolio (for which the
following diversification provisions apply to 100% of that Portfolio's
assets), each Portfolio may not purchase securities of a single issuer if
such purchase would cause a Portfolio to have more than 5% of the value of
its total assets invested in the securities of such issuer. However, of
itself, an investment in one or more of the Portfolios does not constitute
a balanced investment program.
The Section of the Fund's Prospectus entitled "Investment Policies and Risks" is
amended to add the following information at the end of the Section:
Options and Futures. Each Portfolio, other than the INVESCO
Environmental Services Portfolio, may write, purchase or sell put and call
options on individual securities, security indexes and currencies, or
financial futures or options on financial futures, or undertake forward
currency contracts. These practices and their risks are discussed under
"Investment Policies and Restrictions" in the Statement of Additional
Information.
The section of the Fund's Prospectus entitled "The Fund And Its Management"
is amended to (1) delete the eighth paragraph, and (2) substitute the following
paragraphs in its place:
Health Sciences: The Portfolio is managed by John Schroer, a Chartered
Financial Analyst, who is the head of INVESCO's Health Team. Mr. Schroer
has been the portfolio manager of the Portfolio since October 1997
(co-portfolio manager of the Portfolio since 1994) and has primary
responsibility for the day- to-day management of the
<PAGE>
Portfolio's holdings. Mr. Schroer also manages INVESCO VIF-Health Sciences
Fund and INVESCO Global Health Sciences Fund and is a senior vice president
of INVESCO Trust Company and a vice president of INVESCO Global Health
Sciences Fund. Mr. Schroer was previously an assistant vice president with
Trust Company of the West. Mr. Schroer received a M.B.A. and B.S. from the
University of Wisconsin-Madison.
The Section of the Fund's Prospectus entitled "How to Buy Shares" is
amended to add the following information at the end of the Section:
Distribution Expenses. Each Portfolio, other than the INVESCO
Environmental Services Portfolio, is authorized under a Plan and Agreement
of Distribution pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "Plan") to use its assets to finance certain activities relating
to the distribution of its shares to investors. The Plan applies to New
Assets (new sales of shares, exchanges into each Portfolio and
reinvestments of dividends and capital gains distributions) of the
Portfolio after November 1, 1997. Under the Plan, monthly payments may be
made by the Portfolio to IDI to permit IDI, at its discretion, to engage in
certain activities, and provide certain services approved by the board of
directors in connection with the distribution of the Portfolio's shares to
investors. These activities and services may include the payment of
compensation (including incentive compensation and/or continuing
compensation based on the amount of customer assets maintained in the
Portfolios) to securities dealers and other financial institutions and
organizations, which may include IFG and IDI affiliated companies, to
obtain various distribution-related and/or administrative services for the
Portfolios. Such services may include, among other things, processing new
shareholder account applications, preparing and transmitting to the
Portfolios' Transfer Agent computer processable tapes of all transactions
by customers, and serving as the primary source of information to customers
in answering questions concerning the Portfolios and their transactions
with the Portfolios.
In addition, other permissible activities and services include
advertising, the preparation and distribution of sales literature, printing
and distributing prospectuses to prospective investors, and such other
services and promotional activities for the Portfolios as may from time to
time be agreed upon by IDI and the Board, including public relations
efforts and marketing programs to communicate with investors and
prospective investors. These services and activities may be conducted by
the staff of IFG, IDI or their affiliates or by third parties.
Under the Plan, the Portfolios' payments to IDI on behalf of each
Portfolio are limited to an amount computed at an annual rate of 0.25% of
each Portfolio's average net New Assets during the month. IDI is not
entitled to payment for overhead expenses under the Plan, but may be paid
for all or a portion of the compensation paid for salaries and other
employee benefits for the personnel of IDI whose primary responsibilities
involve marketing shares of the INVESCO funds, including the Portfolios.
Payment amounts by each Portfolio under the Plan, for any month, may be
made to compensate IDI for permissible activities engaged in and services
provided by IDI during the rolling 12-month period in which that month
falls, although this period is expanded to 24 months for obligations
incurred during the first 24 months of each Portfolio's operations.
Therefore, any obligations incurred by IDI in excess of the limitations
described above will not be paid by the Portfolios under the Plan, and will
be borne by IDI. In addition, IDI may from time to time make
additional payments from its revenues to securities
dealers and other financial institutions that provide
<PAGE>
distribution-related and/or administrative services for the Portfolios. No
further payments will be made by the Portfolios under the Plan in the event
of its termination. Also, any payments made by the Portfolios may not be
used to finance directly the distribution of shares of any other portfolio
of the Fund or other mutual fund advised by IFG or distributed by IDI.
Payments made by each Portfolio under the Plan for compensation of
marketing personnel, as noted above, are based on an allocation formula
designed to ensure that all such payments are appropriate.
The date of this Supplement is November 3, 1997.
<PAGE>
INVESCO STRATEGIC PORTFOLIOS, INC.
Supplement to Statement of Additional Information dated March 1, 1997
The Section of the Fund's Statement of Additional Information entitled "How
Shares Can Be Purchased" is amended to add the following language after the
existing language in the Section:
Each of the Portfolios, except the Environmental Services Portfolio,
has adopted a Plan and Agreement of Distribution (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act, which was implemented on November 1, 1997.
The Plan was approved on May 16, 1997, at a meeting called for such purpose
by a majority of the directors of the Fund, including a majority of the
directors who neither are "interested persons" of the Fund nor have any
financial interest in the operation of the Plan ("12b-1 directors"). The
Plan was approved by the shareholders of these Portfolios on October 28,
1997. The following disclosures regarding the Plan relate to all of the
Portfolios, except for the Environmental Services Portfolio.
The Plan provides that the Portfolios may make monthly payments to
INVESCO Distributors, Inc. ("IDI") of amounts computed at an annual rate no
greater than 0.25% of each Portfolio's new sales of shares, exchanges into
the Portfolio and reinvestments of dividends and capital gain distributions
added after November 1, 1997, to reimburse the Portfolios for expenses
incurred by them in connection with the distribution of their shares to
investors. Payments by a Portfolio under the Plan, for any month, may only
be made to compensate or pay expenditures incurred during the rolling
12-month period in which that month falls. For the fiscal year ended August
31, 1997, the Portfolios had not made any payments to INVESCO Funds Group,
Inc. ("IFG") (the predecessor of IDI as distributor of shares of the
Portfolios) under the Plan. As noted in the Prospectus, one type of
expenditure permitted by the Plan is the payment of compensation to
securities companies, and other financial institutions and organizations,
which may include IDI-affiliated companies, in order to obtain various
distribution-related and/or administrative services for the Portfolios.
Each Portfolio is authorized by the Plan to use its assets to finance the
payments made to obtain those services. Payments will be made by IDI to
broker-dealers who sell shares of a Portfolio and may be made to banks,
savings and loan associations and other depository institutions. Although
the Glass-Steagall Act limits the ability of certain banks to act as
underwriters of mutual fund shares, the Portfolios do 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 one or more of the Portfolios possibly could decrease to the extent that
the banks would no longer invest customer assets in a particular Portfolio.
Neither the Fund nor its investment adviser will give any preference to
banks or other depository institutions which enter into such arrangements
when selecting investments to be made by each Portfolio.
The Plan was not implemented until November 1, 1997. Therefore, for
the fiscal year ended August 31, 1997, no 12b-1 amounts were paid by the
Portfolios.
<PAGE>
The nature and scope of services which are provided by securities
dealers and other organizations may vary by dealer but include, among other
things, processing new stockholder account applications, preparing and
transmitting to the Fund's Transfer Agent computer-processable tapes of
each Portfolio's transactions by customers, serving as the primary source
of information to customers in answering questions concerning each
Portfolio, and assisting in other customer transactions with each
Portfolio.
The Plan provides that it shall continue in effect with respect to
each Portfolio for so long as such continuance is approved at least
annually by the vote of the board of directors cast in person at a meeting
called for the purpose of voting on such continuance. The Plan can also be
terminated at any time with respect to any Portfolio, without penalty, if a
majority of the 12b-1 directors, or shareholders of such Portfolio, vote to
terminate the Plan. The Fund may, in its absolute discretion, suspend,
discontinue or limit the offering of its shares of any Portfolio 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 particular Portfolio, the investment climate for
any particular Portfolio, general market conditions, and the volume of
sales and redemptions of a Portfolio's shares. The Plan may continue in
effect and payments may be made under the Plan following any such temporary
suspension or limitation of the offering of a Portfolio's shares; however,
neither Portfolio is contractually obligated to continue the Plan for any
particular period of time. Suspension of the offering of a Portfolio's
shares would not, of course, affect a shareholder's ability to redeem his
shares. So long as the Plan is in effect, the selection and nomination of
persons to serve as independent directors of the Fund shall be committed to
the independent directors then in office at the time of such selection or
nomination. The Plan may not be amended to increase materially the amount
of any Portfolio's payments thereunder without approval of the shareholders
of that Portfolio, and all material amendments to the Plan must be approved
by the board of directors, including a majority of the 12b-1 directors.
Under the agreement implementing the Plan, IDI or the Portfolios, the
latter by vote of a majority of the 12b-1 directors, or of the holders of a
majority of a Portfolio's outstanding voting securities, may terminate such
agreement as to that Portfolio without penalty upon 30 days' written notice
to the other party. No further payments will be made by a Portfolio under
the Plan in the event of its termination as to that Portfolio.
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it shall remain in effect as
such, so as to authorize the use of each Portfolio's assets in the amounts
and for the purposes set forth therein, notwithstanding the occurrence of
an assignment, as defined by the 1940 Act, and rules thereunder. To the
extent it constitutes an agreement pursuant to a plan, each Portfolio's
obligation to make payments to IDI shall terminate automatically, in the
event of such "assignment," in which case the Portfolios may continue to
make payments pursuant to the Plan to IDI or another organization only upon
the approval of new arrangements, which may or may not be with IDI,
regarding the use of the amounts authorized to be paid by it under the
Plan, by the directors, including a majority of the 12b-1 directors, by a
vote cast in person at a meeting called for such purpose.
<PAGE>
Information regarding the services rendered under the Plan and the
amounts paid therefor by the Portfolios are provided to, and reviewed by,
the directors on a quarterly basis. On an annual basis, the directors
consider the continued appropriateness of the Plan and the level of
compensation provided therein.
The only board of directors or interested persons, as that term is
defined in Section 2(a)(19) of the 1940 Act, of the Fund who have a direct
or indirect financial interest in the operation of the Plan are the
officers and directors of the Fund listed herein under the section entitled
"The Fund And Its Management-- Officers and Directors of the Fund" who are
also officers either of IDI or companies affiliated with IDI. The benefits
which the Portfolios believe will be reasonably likely to flow to them and
their shareholders under the Plan include the following:
(1) Enhanced marketing efforts, if successful, should result in
an increase in net assets through the sale of additional
shares and afford greater resources with which to pursue the
investment objectives of the Portfolios;
(2) The sale of additional shares reduces the likelihood that
redemption of shares will require the liquidation of
securities of the Portfolios in amounts and at times that
are disadvantageous for investment purposes;
(3) The positive effect which increased Portfolio assets will
have on its revenues could allow IFG and its affiliated
companies:
(a) To have greater resources to make the financial
commitments necessary to improve the quality and level
of each Portfolio's shareholder services (in both
systems and personnel),
(b) To increase the number and type of mutual funds
available to investors from IFG and its affiliated
companies (and support them in their infancy), and
thereby expand the investment choices available to all
shareholders, and
(c) To acquire and retain talented employees who desire to
be associated with a growing organization; and
(4) Increased Portfolio assets may result in reducing each
investor's share of certain expenses through economies of
scale (e.g. exceeding established breakpoints in the
advisory fee schedule and allocating fixed expenses over a
larger asset base), thereby partially offsetting the costs
of the Plan.
The Section of the Fund's Statement of Additional Information entitled
"Investment Policies and Restrictions" is hereby amended to add the following
language following after "Investment Policies and Restrictions-Gas and Electric
Utilities":
<PAGE>
Each of the Portfolios, except the Environmental Services Portfolio,
have adopted a policy which permits each Portfolio to write, purchase, or
sell put and call options on individual securities, securities indexes and
currencies, or financial futures or options on financial futures, or
undertake forward currency contracts. The following sub-Sections entitled
"Put and Call Options," "Futures and Options on Futures," and "Options on
Futures Contracts," apply to each of the Portfolios, except the
Environmental Services Portfolio.
Put and Call Options. An option on a security provides the purchaser,
or "holder," with the right, but not the obligation, to purchase, in the
case of a "call" option, or sell, in the case of a "put" option, the
security or securities underlying the option, for a fixed exercise price up
to a stated expiration date. The holder pays a non-refundable purchase
price for the option, known as the "premium." The maximum amount of risk
the purchaser of the option assumes is equal to the premium plus related
transaction costs, although the entire amount may be lost. The risk of the
seller, or "writer," however, is potentially unlimited, unless the option
is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the
exercise price, in the case of a put option. If the writer's obligation is
not so covered, it is subject to the risk of the full change in value of
the underlying security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the
purchase price of the underlying security, in the case of a call option, or
to deliver the security in return for the purchase price, in the case of a
put option. Conversely, the writer is required to deliver the security, in
the case of a call option, or to purchase the security, in the case of a
put option. Options on securities which have been purchased or written may
be closed out prior to exercise or expiration by entering into an
offsetting transaction on the exchange on which the initial position was
established, subject to the availability of a liquid secondary market.
Options on securities are traded on national securities exchanges,
such as the Chicago Board of Options Exchange and the New York Stock
Exchange, which are regulated by the Securities and Exchange Commission.
The Options Clearing Corporation guarantees the performance of each party
to an exchange-traded option, by in effect taking the opposite side of each
such option. A holder or writer may engage in transactions in
exchange-traded options on securities and options on indices of securities
only through a registered broker/dealer which is a member of the exchange
on which the option is traded.
An option position in an exchange-traded option may be closed out only
on an exchange which provides a secondary market for an option of the same
series. Although the Portfolio will generally purchase or write only those
options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for
any particular option at any particular time. In such event it might not be
possible to effect closing transactions in a particular option with the
result that the Portfolio would have to exercise the option in order to
realize any profit. This would result in the Portfolio's incurring
brokerage commissions upon the disposition of underlying securities
acquired through the exercise of a call option or upon the purchase of
underlying securities upon the exercise of a put option. If the Portfolio
as covered call option writer is unable to effect
a closing purchase transaction in a secondary
<PAGE>
market, unless the Portfolio is required to deliver the securities pursuant
to the assignment of an exercise notice, it will not be able to sell the
underlying security until the option expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of
options (or particular class or series of options) in which event the
secondary market on that exchange (or in the class or series of options)
would cease to exist, although outstanding options on that exchange which
had been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at a particular time, render certain of
the facilities of any of the clearing corporations inadequate and thereby
result in the institution by an exchange of special procedures which may
interfere with the timely execution of customers' orders. However, the
Options Clearing Corporation, based on forecasts provided by the U.S.
exchanges, believes that its facilities are adequate to handle the volume
of reasonably anticipated options transactions, and such exchanges have
advised such clearing corporation that they believe their facilities will
also be adequate to handle reasonably anticipated volume. For a more
complete discussion of the risks involved in futures and options on futures
and other securities, refer to Appendix B ("Description of Futures, Options
and Forward Contracts").
Futures and Options on Futures. As described in the Portfolios'
Prospectuses, each Portfolio may enter into futures contracts, and purchase
and sell ("write") options to buy or sell futures contracts. The Portfolios
will comply with and adhere to all limitations in the manner and extent to
which it effects transactions in futures and options on such futures
currently imposed by the rules and policy guidelines of the Commodity
Futures Trading Commission ("CFTC") as conditions for exemption of a mutual
fund, or investment advisers thereto, from registration as a commodity pool
operator. No Portfolio will, as to any positions, whether long, short or a
combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value
of its assets after taking into account unrealized profits and losses on
options it has entered into. In the case of an option that is
"in-the-money," as defined in the Commodity Exchange Act (the "CEA"), the
in-the-money amount may be excluded in computing such 5%. (In general a
call option on a future is "in-the-money" if the value of the future
exceeds the exercise ("strike") price of the call; a put option on a future
is "in-the-money" if the value of the future which is the subject of the
put is exceeded by the strike price of the put.) Each Portfolio may use
futures and options thereon solely for bona fide hedging or for other
non-speculative purposes within the meaning and intent of the applicable
provisions of the CEA.
<PAGE>
Unlike when a Portfolio purchases or sells a security, no price is
paid or received by a Portfolio upon the purchase or sale of a futures
contract. Instead, the Portfolio will be required to deposit in its
segregated asset account an amount of cash or qualifying securities
(currently U.S. Treasury bills), currently in a minimum amount of $15,000.
This is called "initial margin." Such initial margin is in the nature of a
performance bond or good faith deposit on the contract. However, since
losses on open contracts are required to be reflected in cash in the form
of variation margin payments, a Portfolio may be required to make
additional payments during the term of the contracts to its broker. Such
payments would be required, for example, where, during the term of an
interest rate futures contract purchased by a Portfolio, there was a
general increase in interest rates, thereby making such Portfolio's
securities less valuable. In all instances involving the purchase of
futures contracts by a Portfolio, an amount of cash together with such
other securities as permitted by applicable regulatory authorities to be
utilized for such purpose, at least equal to the market value of the
futures contracts, will be deposited in a segregated account with such
Portfolio's custodian to collateralize the position. At any time prior to
the expiration of a futures contract, a Portfolio may elect to close its
position by taking an opposite position which will operate to terminate its
position in the futures contract. For a more complete discussion of the
risks involved in futures and options on futures and other securities,
refer to Appendix B ("Description of Futures, Options and Forward
Contracts").
Where futures are purchased to hedge against a possible increase in
the price of a security before a Portfolio is able in an orderly fashion to
invest in the security, it is possible that the market may decline instead.
If the Portfolio, as a result, concluded not to make the planned investment
at that time because of concern as to possible further market decline or
for other reasons, the Portfolio would realize a loss on the futures
contract that is not offset by a reduction in the price of securities
purchased.
In addition to the possibility that there may be an imperfect
correlation or no correlation at all between movements in the futures
contracts and the portion of the portfolio being hedged, the price of
futures may not correlate perfectly with movements in the prices due to
certain market distortions. All participants in the futures market are
subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between underlying instruments and the value of the futures
contract. Moreover, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market and may therefore
cause increased participation by speculators in the futures market. Such
increased participation may also cause temporary price distortions. Due to
the possibility of price distortion in the futures market and because of
the imperfect correlation between movements in the underlying instrument
and movements in the prices of futures contracts, the value of futures
contracts as a hedging device may be reduced.
In addition, if a Portfolio has insufficient available cash, it may at
times have to sell securities to meet variation margin requirements. Such
sales may have to be effected at a time when it may be disadvantageous to
do so.
<PAGE>
Options on Futures Contracts. A Portfolio may buy and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based
or the price of the underlying instrument, ownership of the option may or
may not be less risky than ownership of the futures contract or the
underlying instrument. As with the purchase of futures contracts, when a
Portfolio is not fully invested it may buy a call option on a futures
contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures
contract. If the futures price at the expiration of the option is below the
exercise price, a Portfolio will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in such Portfolio's holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of
the security or foreign currency which is deliverable under, or of the
index comprising, the futures contract. If the futures price at expiration
of the option is higher than the exercise price, a Portfolio will retain
the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio is
considering buying. If a call or put option which a Portfolio has written
is exercised, such Portfolio will incur a loss which will be reduced by the
amount of the premium it received. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of the futures positions, a Portfolio's losses from existing options
on futures may to some extent be reduced or increased by changes in the
value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities.
For example, a Portfolio may buy a put option on a futures contract to
hedge its portfolio against the risk of falling prices.
The amount of risk a Portfolio assumes when it buys an option on a
futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above,
the purchase of an option also entails the risk that changes in the value
of the underlying futures contract will not be reflected fully in the value
of the options bought.
The Section of the Fund's Statement of Additional Information entitled
"Investment Policies and Restrictions - Investment Restrictions" contains a list
of investment restrictions. That list has been amended and restated to read as
follows:
(1) issue senior securities as defined in the 1940 Act (except
insofar as the Fund may be deemed to have issued a senior
security by reason of entering into a repurchase agreement,
or borrowing money, in accordance with the restrictions
described below, and in accordance with the position of the
staff of the Securities and Exchange Commission set forth in
Investment Company Act Release No. 10666);
<PAGE>
(2) mortgage, pledge or hypothecate portfolio securities or
borrow money, except borrowings from banks for temporary or
emergency purposes (but not for investment) are permitted in
an amount not exceeding with respect to the Financial
Services, Health Sciences, Leisure, Technology or Utilities
Portfolios 10%, or, with respect to the Energy,
Environmental Services and Gold Portfolios, 33 1/3% of the
value of the Portfolio's total assets, i.e., its total
assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed
the relevant 10% or 33-1/3% limitation by reason of a
decline in total assets will be reduced within three
business days to the extent necessary to comply with the
relevant 10% or 33-1/3% limitation. A Portfolio will not
purchase additional securities while any borrowings on
behalf of that Portfolio exist;
(3) buy or sell commodities or commodity contracts (however, the
Portfolio may purchase securities of companies which invest
in the foregoing). The Environmental Services Portfolio also
may not buy or sell oil, gas or other mineral interests or
exploration programs (however, this Portfolio may purchase
securities of companies which invest in the foregoing). This
restriction shall not prevent the Portfolios, except the
Environmental Services Portfolio, from purchasing or selling
options on individual securities, security indexes, and
currencies, or financial futures or options on financial
futures, or undertaking forward currency contracts. This
restriction shall also not prevent the Environmental
Services Portfolio from entering into forward contracts for
the purchase or sale of foreign currencies and the Gold
Portfolio from investing up to 10% of its total assets in
gold bullion;
(4) purchase the securities of any company if as a result of
such purchase more than 10% of total assets would be
invested in securities which are subject to legal or
contractual restrictions on resale ("restricted securities")
and in securities for which there are no readily available
market quotations; or enter into a repurchase agreement
maturing in more than seven days, if as a result, such
repurchase agreements, together with restricted securities
and securities for which there are not readily available
market quotations, would constitute more than 10% of total
assets;
(5) sell short or buy on margin. This restriction shall not
prevent the Portfolios, except the Environmental Services
Portfolio, from purchasing or selling options on futures, or
writing, purchasing, or selling puts and calls;
(6) buy or sell real estate or interests therein (however,
securities issued by companies which invest in real estate
or interests therein may be purchased and sold);
(7) invest in the securities of any other investment company
except for a purchase or acquisition in accordance with a
plan of reorganization, merger or consolidation;
<PAGE>
(8) invest in any company for the purpose of exercising control
or management;
(9) engage in the underwriting of any securities, except insofar
as the Fund may be deemed an underwriter under the
Securities Act of 1933 in disposing of a portfolio security;
(10) make loans to any person, except through the purchase of
debt securities in accordance with the investment policies
of the Portfolios, or the lending of portfolio securities to
broker-dealers or other institutional investors, or the
entering into repurchase agreements with member banks of the
Federal Reserve System, registered broker-dealers and
registered government securities dealers. The aggregate
value of all portfolio securities loaned may not exceed
33-1/3% of a Portfolio's total net assets (taken at current
value). No more than 10% of a Portfolio's total net assets
may be invested in repurchase agreements maturing in more
than seven days;
(11) purchase securities of any company in which any officer or
director of the Fund or its investment adviser owns more
than 1/2 of 1% of the outstanding securities of such company
and in which the officers and directors of the Fund and its
investment adviser, as a group, own more than 5% of such
securities;
(12) with respect to seventy-five percent (75%) of each
Portfolio's total assets (except for the Environmental
Services Portfolio), purchase the securities of any one
issuer (except cash items and "government securities" as
defined under the 1940 Act), if the purchase would cause a
Portfolio to have more than 5% of the value of its total
assets invested in the securities of such issuer or to own
more than 10% of the outstanding voting securities of such
issuer;
(13) invest more than 5% of its total assets in an issuer having
a record, together with predecessors, of less than three
years' continuous operation.
In addition to the above restrictions, a fundamental policy of the
Technology Portfolio is not to invest more than 25% of its total assets
(taken at market value at the time of each investment) in the securities of
issuers in any one industry. In applying this restriction, the Technology
Portfolio uses an industry classification system based on the O'Neil
Database published by William O'Neil & Co., Inc.
In applying restriction (4) above, each Portfolio also includes
illiquid securities (those which cannot be sold in the ordinary course of
business within seven days at approximately the valuation given to them by
the Fund) among the securities subject to the 10% of total assets limit.
<PAGE>
With respect to investment restriction (4) above, the board of
directors has delegated to the Fund's investment adviser the authority to
determine that a liquid market exists for securities eligible for resale
pursuant to Rule 144A under the 1933 Act, or any successor to such rule,
and that such securities are not subject to the Fund's limitations on
investing in illiquid securities and securities for which there are no
readily available market quotations. Under guidelines established by the
board of directors, the adviser will consider the following factors, among
others, in making this determination: (1) the unregistered nature of a Rule
144A security; (2) the frequency of trades and quotes for the security; (3)
the number of dealers willing to purchase or sell the security and the
number of other potential purchasers; (4) dealer undertakings to make a
market in the security; and (5) the nature of the security and the nature
of marketplace trades (e.g., the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). However,
Rule 144A Securities are still subject to the Fund's limitation on
investments in restricted securities (securities for which there are legal
or contractual restrictions on resale), unless they are readily marketable
outside the United States, in which case they are not deemed to be
restricted.
Additional investment restrictions adopted by the Fund on behalf of
each of the Portfolios, except for the Environmental Services Portfolio,
and which may be changed by the Directors at their discretion provide that
such Portfolios will not:
(1) (a) enter into any futures contracts, options on futures,
puts and calls if immediately thereafter the aggregate
margin deposits on all outstanding derivative positions held
by each Portfolio and premiums paid on outstanding
positions, after taking into account unrealized profits and
losses, would exceed 5% of the market value of the total
assets of each Portfolio, or (b) enter into any derivative
positions if the aggregate net amount of each Portfolio's
commitments under outstanding derivative positions of a
Portfolio would exceed the market value of the total assets
of each Portfolio.
<PAGE>
APPENDIX B
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS
Options on Securities
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price, in the case of a put option. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such as
the Chicago Board of Options Exchange and the New York Stock Exchange, which are
regulated by the Securities and Exchange Commission. The Options Clearing
Corporation guarantees the performance of each party to an exchange-traded
option, by in effect taking the opposite side of each such option. A holder or
writer may engage in transactions in exchange-traded options on securities and
options on indices of securities only through a registered broker/dealer which
is a member of the exchange on which the option is traded.
An option position in an exchange-traded option may be closed out only on
an exchange which provides a secondary market for an option of the same series.
Although the Portfolio will generally purchase or write only those options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange will exist for any particular option at
any particular time. In such event it might not be possible to effect closing
transactions in a particular option with the result that the Portfolio would
have to exercise the option in order to realize any profit. This would result in
the Portfolio's incurring brokerage commissions upon the disposition of
underlying securities acquired through the exercise of a call option or upon the
purchase of underlying securities upon the exercise of a put option. If the
Portfolio as covered call option writer is unable to effect a closing purchase
transaction in a secondary market, unless the Portfolio is required to deliver
the securities pursuant to the assignment of an exercise notice, it will not be
able to sell the underlying security until the option expires.
<PAGE>
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or particular class or series of options) in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange which had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at a particular time, render certain of the facilities of any of the
clearing corporations inadequate and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders. However, the Options Clearing Corporation, based on forecasts
provided by the U.S. exchanges, believes that its facilities are adequate to
handle the volume of reasonably anticipated options transactions, and such
exchanges have advised such clearing corporation that they believe their
facilities will also be adequate to handle reasonably anticipated volume.
In addition, options on securities may be traded over-the-counter through
financial institutions dealing in such options as well as the underlying
instruments. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with a
Portfolio. With OTC options, such variables as expiration date, exercise price
and premium will be agreed upon between a Portfolio and the transacting dealer,
without the intermediation of a third party such as the OCC. If the transacting
dealer fails to make or take delivery of the securities underlying an option it
has written, in accordance with the terms of that option as written, the
Portfolio would lose the premium paid for the option as well as any anticipated
benefit of the transaction. A Portfolio will engage in OTC option transactions
only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York.
Futures Contracts
A Futures Contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future, for a fixed price. By its terms, a Futures Contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that they are bilateral agreements,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, Futures Contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their term.
<PAGE>
The purchase or sale of a Futures Contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalent, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index or instrument underlying the Futures Contract fluctuates, making positions
in the Futures Contract more or less valuable, a process known as "marking to
the market."
A Futures Contract may be purchased or sold only on an exchange, known as a
"contract market," designated by the Commodity Futures Trading Commission for
the trading of such contract, and only through a registered futures commission
merchant which is a member of such contract market. A commission must be paid on
each completed purchase and sale transaction. The contract market clearing house
guarantees the performance of each party to a Futures Contract, by in effect
taking the opposite side of such Contract. At any time prior to the expiration
of a Futures Contract, a trader may elect to close out its position by taking an
opposite position on the contract market on which the position was entered into,
subject to the availability of a secondary market, which will operate to
terminate the initial position. At that time, a final determination of variation
margin is made and any loss experienced by the trader is required to be paid to
the contract market clearing house while any profit due to the trader must be
delivered to it.
Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities, U.S. Treasury Bills, bank certificates of deposit and commercial
paper. In addition, interest rate futures contracts include contracts on indices
of municipal securities. Foreign currency futures contracts currently are traded
on the British pound, Canadian dollar, Japanese yen, Swiss franc, German mark
and on Eurodollar deposits.
Options on Futures Contracts
An Option on a Futures Contract provides the holder with the right to enter
into a "long" position in the underlying Futures Contract, in the case of a call
option, or a "short" position in the underlying Futures Contract, in the case of
a put option, at a fixed exercise price to a stated expiration date. Upon
exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of Futures Contracts, such as payment
of variation margin deposits. In addition, the writer of an Option on a Futures
Contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
<PAGE>
An option, whether based on a Futures Contract, a stock index or a security,
becomes worthless to the holder when it expires. Upon exercise of an option, the
exchange or contract market clearing house assigns exercise notices on a random
basis to those of its members which have written options of the same series and
with the same expiration date. A brokerage firm receiving such notices then
assigns them on a random basis to those of its customers which have written
options of the same series and expiration date. A writer therefore has no
control over whether an option will be exercised against it, nor over the time
of such exercise.
The date of this Supplement is November 3, 1997.
