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 (December 1, 1997 with respect to the
Environmental Services Portfolio), the Portfolios 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,
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 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 Portfolio's holdings.
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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 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 (December 1, 1997 with respect to
the Environmental Services Portfolio). 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
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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 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.
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. However, payments received by
IDI which are not used to finance the distribution of shares of the
Portfolios become part of IDI's revenues and may be used by IDI for only
permissible activities for all of the mutual funds advised by IFG subject
to review by the Portfolios' directors. 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. IDI will bear any distribution- and
service-related expenses in excess of the amounts which are compensated
pursuant to the Plan. The Plan also authorizes any financing of
distribution which may result from IDI's use of its own resources,
including profits from investment advisory fees received from the Funds,
provided that such fees are legitimate and not excessive. For more
information, see "How Shares Can Be Purchased" in the Statement of
Additional Information.
This Supplement supersedes the Supplement dated November 3, 1997.
The date of this Supplement is December 1, 1997.
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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 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 (December 1, 1997 with respect to the
Environmental Services Portfolio). 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 (November 25, 1997 with respect to
the Environmental Services Portfolio). The following disclosures regarding
the Plan relate to all of the Portfolios.
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 (December 1, 1997 with respect
to the Environmental Services Portfolio), 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.
<PAGE>
The Plan was not implemented until November 1, 1997 (December 1,
1997 with respect to the Environmental Services Portfolio). Therefore, for
the fiscal year ended August 31, 1997, no 12b-1 amounts were paid by the
Portfolios.
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
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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.
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
<PAGE>
(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":
Each of the Portfolios has 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.
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
<PAGE>
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.
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").
<PAGE>
Futures and Options on Futures. As described in the Portfolios'
Prospectus, 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.
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
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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.
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
<PAGE>
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);
(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;
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(3) buy or sell commodities or commodity contracts (however, the
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
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 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;
(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
<PAGE>
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, 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 a
modified S&P industry code classification schema which uses various
sources to classify securities.
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.
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
<PAGE>
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 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.
<PAGE>
Futures Contracts differ from options in that they are bilateral agreements,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, Futures Contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their term.
The purchase or sale of a Futures Contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalent, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index or instrument underlying the Futures Contract fluctuates, making positions
in the Futures Contract more or less valuable, a process known as "marking to
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.
<PAGE>
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.
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.
This Supplement supersedes the Supplement dated November 3, 1997.
The date of this Supplement is December 1, 1997.
