PROSPECTUS
December ^ 14, 1998
INVESCO SECTOR FUNDS, INC. ^
INVESCO Technology ^ Fund - Class I^
The ^ INVESCO Technology ^ Fund - Class I ^(the " ^ Fund") is actively
managed to seek capital appreciation. The ^ Fund normally invests 80% or more of
its total assets in companies principally engaged in a specific business sector.
Most of the holdings are in common stocks, but the ^ Fund has the flexibility to
invest in other types of securities.
The ^ Fund offers two classes of shares. This Prospectus relates to
Class I shares of the Fund only. Class II shares are subject to an annual
distribution fee of 0.25% of the Fund's average daily net assets attributable to
Class II shares; Class I shares are not subject to any distribution fee.
The ^ Fund is a series of INVESCO Sector Funds, Inc. (formerly, INVESCO
Strategic Portfolios, ^ Inc.), (the " ^ Company"), a diversified, managed,
no-load mutual fund consisting of eight separate funds, each of which represents
a separate portfolio of investments. A separate Prospectus is available upon
request from INVESCO Distributors, Inc. for the Company's other ^ Funds: INVESCO
Energy ^ Fund, INVESCO Environmental Services ^ Fund, INVESCO Financial Services
^ Fund, INVESCO Gold ^ Fund, INVESCO Health Sciences ^ Fund, INVESCO Leisure ^
Fund, INVESCO Technology - Class II ^ Fund and INVESCO Utilities ^ Fund.
Institutional investors may purchase shares of any or all of the ^ Funds. Retail
investors may purchase any or all of the ^ Funds with the exception of ^
Technology ^ Fund - Class I^. Additional ^ Funds may be offered in the future.
This Prospectus provides you with the basic information you should know
before investing in the ^ Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the ^ Funds, dated December ^ 14, 1998, has been filed with the Securities
and Exchange Commission, and is incorporated by reference into this Prospectus.
To request a free copy, write to INVESCO Distributors, Inc., P.O. Box 173706,
Denver, Colorado 80217-3706; call 1-800-525-8085; or visit our web site at:
http://www.invesco.com.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE ^ FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES OF THE ^ FUND
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
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CONTENTS
ESSENTIAL INFORMATION........................................ .................2
ANNUAL ^ FUND EXPENSES.........................................................3
INVESTMENT OBJECTIVE AND STRATEGY..............................................4
INVESTMENT POLICIES AND RISKS..................................................4
THE FUND AND ITS MANAGEMENT....................................................7
FUND PRICE AND PERFORMANCE....................................................10
HOW TO BUY SHARES.............................................................10
FUND SERVICES.................................................................11
HOW TO SELL SHARES............................................................11
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS......................................12
ADDITIONAL INFORMATION........................................................14
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ESSENTIAL INFORMATION
Investment Goal And Strategy: The ^ Fund is actively managed to seek
capital appreciation. Employing an aggressive investment philosophy, the ^ Fund
normally invests at least 80% of its total assets in equity securities of
companies principally engaged in technology-related businesses. There is no
guarantee that the ^ Fund will meet its investment objective. See "Investment
Objective And Strategy" and "Investment Policies And Risks."
Designed For: Investors seeking capital appreciation. While not a
complete investment program, this ^ Fund may be a valuable element of your
investment portfolio. You also may wish to consider the ^ Fund as part of a
systematic investing strategy. The ^ Fund may be a suitable investment for many
types of retirement programs, including various ^ individual retirement accounts
("IRAs"), 401(k), Profit Sharing, Money Purchase Pension, and 403(b) plans.
Time Horizon: Stock prices fluctuate on a daily basis, and the ^ Fund's
price per share therefore varies daily. Potential shareholders should consider
this a medium- to long-term investment.
Risks: The ^ Fund generally uses an aggressive investment strategy and
may experience relatively rapid portfolio turnover. Because the ^ Fund focuses
on narrow business segments, it may experience greater short-term volatility
than more diversified funds. Rapid portfolio turnover may result in higher
brokerage commissions and the acceleration of taxable capital gains. The returns
on foreign investments may be influenced by currency fluctuations and other
risks of investing overseas. These policies make the ^ Fund unsuitable for that
portion of your savings dedicated to current income or to preservation of
capital over the short-term. See "Investment Objective And Strategy" and
"Investment Policies And Risks."
Organization and Management: The ^ Fund is a series of the ^ Company. The
Fund is owned by its shareholders. The ^ Company employs INVESCO Funds Group,
Inc. ("INVESCO"), founded in 1932, to serve as investment adviser, administrator
and transfer agent. INVESCO Distributors, Inc. ("IDI"), founded in 1997 as a
wholly-owned subsidiary of INVESCO, is the ^ Fund's distributor.
The ^ Fund's investments are selected by its portfolio managers. See "The
Fund And Its Management."
INVESCO and IDI are indirect, wholly-owned subsidiaries of AMVESCAP PLC, an
international investment management company that managed approximately ^ $241
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billion in assets as of ^ September 30, 1998. AMVESCAP PLC is based in London
with money managers located in Europe, North America, South America and Asia.
The Fund offers all of the following services at no charge:
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
See "How To Buy Shares" and "How To Sell Shares."
Permissible Investors: Qualified retirement plans and other institutional
investors as determined appropriate by INVESCO.
ANNUAL ^ FUND EXPENSES
The ^ Fund is no-load; there are no fees to purchase, exchange or
redeem shares.
Like any company, the ^ Fund has operating expenses such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts and other expenses. These expenses are paid from the ^ Fund's assets.
Lower expenses therefore benefit investors by increasing the ^ Fund's total
return.
We calculate annual operating expenses as a percentage of the ^ Fund's
estimated assets for the current fiscal year. To keep expenses competitive,
INVESCO will voluntarily reimburse the ^ Fund for amounts in excess of 0.95% of
the average net assets of the Fund.
Annual ^ Fund Operating Expenses
(as a percentage of average net assets)
Management Fee ^ 0.70%
12b-1 Fees None
Other Expenses(1) ^ 0.25%
Total ^ Fund Operating
Expenses(1) ^ 0.95%^
(1) Based on estimated expenses for the current fiscal year which may be more or
less than actual expenses. If necessary, certain ^ Fund expenses will be
absorbed voluntarily by INVESCO for at least the first fiscal year of the ^
Fund's operations in order to ensure that expenses for the ^ Fund will not
exceed 0.95% of the ^ Fund's average daily net assets pursuant to an agreement
between the ^ Company and INVESCO. If such voluntary expense limit were not in
effect, the ^ Fund's "Other Expenses" and "Total ^ Fund Operating Expenses" for
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the fiscal year ending October 31, 1999 are estimated to be ^ 0.30% and ^ 1.00%,
respectively, of the ^ Fund's average net assets. Actual expenses are not
provided because the ^ Fund did not begin a public offering of its securities
until on or about December ^ 14, 1998.
Example
A shareholder would pay the following expenses on a $1,000 investment
for the periods shown, assuming a hypothetical 5% annual return and redemption
at the end of each time period. (Of course, actual operating expenses are paid
from the ^ Fund's assets and are deducted from the amount of income available
for distribution to shareholders; they are not charged directly to shareholder
accounts.)
1 Year 3 Years
------ -------
$10 $30
The purpose of this table and example is to assist you in understanding
the various costs and expenses that you will bear directly or indirectly. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE
OR EXPENSES, AND ACTUAL ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. For more information on the ^ Fund's expenses, see "The Fund And
Its Management."
INVESTMENT OBJECTIVE AND STRATEGY
The ^ Fund seeks capital appreciation. This investment objective is
fundamental and cannot be changed without the approval of the ^ Fund's
shareholders. The investment strategy is aggressive; holdings are focused on
equity securities whose price appreciation is expected to outpace that of the
overall sector in which the ^ Fund invests. These stocks may not pay regular
dividends. The ^ Fund normally invests at least 80% of its total assets in the
equity securities (common and preferred stocks, and convertible bonds) of
companies principally engaged in technology-related industries. There is no
assurance that the ^ Fund's investment objective will be met.
The technology-related business sector typically consists of numerous
industries such as computers, communications, video, electronics, oceanography,
office and factory automation and robotics. In determining whether a company is
principally engaged in a particular business sector, INVESCO must determine that
the company derives more than 50% of its gross income or net sales from
activities in that sector; or that the company dedicates more than 50% of its
assets to the production of revenues from that sector; or, if, based on
available financial information a question exists whether a company meets one of
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these standards, INVESCO determines that the company's primary business is
within the business sector designated for investment by that ^ Fund.
The remainder of the ^ Fund's assets may be invested in any securities
or other instruments deemed appropriate by INVESCO, consistent with the ^ Fund's
investment policies and restrictions. These investments include debt securities
issued by companies principally engaged in the ^ Fund's business sector, debt or
equity securities issued by companies outside the ^ Fund's business sector,
short-term high grade debt obligations maturing no later than one year from the
date of purchase (including U.S. government and agency securities, domestic bank
certificates of deposit, commercial paper rated at least A-2 by Standard &
Poor's, a division of The McGraw-Hill Companies ("Standard & Poor's") or P-2 by
Moody's Investors Service, Inc. ("Moody's"), and repurchase agreements), and
cash.
The ^ Fund is actively traded. Economic conditions and market
circumstances vary from day to day; securities may be bought and sold relatively
frequently as their suitability as portfolio holding changes. The ^ Fund's
portfolio turnover rate may be higher than many other mutual funds and may
exceed 200%; this turnover may result in greater brokerage commissions and
acceleration of capital gains which are taxable when distributed to
shareholders. The Statement of Additional Information includes an expanded
discussion of the ^ Fund's portfolio turnover rate; its brokerage practices and
certain federal income tax matters.
When we believe market or economic conditions are unfavorable, the ^
Fund may assume a defensive position by temporarily investing up to 100% of its
total assets in high-quality money market instruments as described above or
cash, seeking to protect its assets until conditions stabilize.
INVESTMENT POLICIES AND RISKS
Industry Concentration. The ^ Fund's holdings normally will be
concentrated in businesses in the technology-related business sector. Compared
to the broad market, an individual sector may be more strongly affected by
changes in the economic climate; broad market shifts; moves in a particular,
dominant stock; or regulatory changes. Investors should be prepared for volatile
short-term movement in net asset value. The ^ Fund attempts to reduce these
risks by diversifying its investments among many individual securities; further,
the ^ Fund may not, with respect to 75% of its total assets, invest more than 5%
of its total assets in the securities of any one issuer (other than obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities).
However, of itself, an investment in the ^ Fund does not constitute a balanced
investment program.
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The ^ Fund may not invest more than 25% of its total assets in a single
industry (e.g., computer software) within the technology business sector.
Year 2000 Computer Issue. Due to the fact that many computer systems in
use today cannot recognize the Year 2000, but will, unless otherwise corrected,
revert to 1900 or 1980 or cease to function at that time, the markets for
securities in which the ^ Fund invests may be detrimentally affected by computer
failures affecting portfolio investments or trading of securities beginning
January 1, 2000. Improperly functioning trading systems may result in settlement
problems and liquidity issues. In addition, corporate and governmental data
processing errors may result in production issues for individual companies and
overall economic uncertainties. Earnings of individual issuers may be affected
by remediation costs, which may be substantial. The ^ Fund's investments may be
adversely affected.
Equity Securities. The equity securities in which the ^ Fund invests
may be issued by either established, well-capitalized companies, or newly-formed
small capitalization ("small cap") companies. These securities may be traded on
national, regional or foreign stock exchanges or in the over-the-counter market.
Small cap companies frequently have limited operating histories, product lines
and financial and managerial resources, and may face intense competitive
pressures from larger companies. The market prices of small cap stocks may be
more volatile than the stocks of larger companies both because they typically
trade in lower volumes and because small cap companies may be more vulnerable to
changes in their earnings and prospects.
Foreign Securities. Up to 25% of the ^ Fund's total assets, measured at the
time of purchase, may be invested directly in foreign equity and corporate debt
securities. Securities of Canadian issuers and American Depository Receipts
("ADRs") are not subject to this 25% limitation. ADRs are receipts representing
shares of a foreign corporation held by a U.S. bank. ADRs are denominated in
U.S. dollars and trade in the U.S. securities markets.
For U.S. investors, the returns on foreign securities are influenced not
only by the returns on the foreign investments themselves, but also by currency
fluctuations. That is, when the U.S. dollar generally rises against a foreign
currency, returns for a U.S. investor on foreign securities denominated in that
foreign currency may decrease. By contrast, in a period when the U.S. dollar
generally declines, those returns may increase.
Other aspects of international investing to consider include:
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-less publicly available information than is generally
available about U.S. issuers;
-differences in accounting, auditing and financial reporting
standards;
-generally higher commission rates on foreign portfolio
transactions and longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility; and
-investment income on certain foreign securities may be subject to
foreign withholding taxes, which may reduce dividend income or capital gains
payable to shareholders.
There is also the possibility of expropriation or confiscatory
taxation; adverse changes in investment or exchange control regulations;
political instability; potential restrictions on the flow of international
capital; and the possibility of ^ the Fund experiencing difficulties in pursuing
legal remedies and collecting judgments.
ADRs are subject to some of the same risks as direct investments in
foreign securities, including the risk that material information about the
issuer may not be disclosed in the United States and the risk that currency
fluctuations may adversely affect the value of the ADR.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
The Netherlands, Portugal and Spain are presently members of the European
Economic and Monetary Union (the "EMU"). The EMU intends to establish a common
European currency for EMU countries which will be known as the "euro." Each
participating country presently plans to adopt the euro as its currency on
January 1, 1999. The old national currencies will be sub-currencies of the euro
until July 1, 2002, at which time the old currencies will disappear entirely.
Other European countries may adopt the euro in the future.
The planned introduction of the euro presents some uncertainties and
possible risks, including whether the payment and operational systems of banks
and other financial institutions will be ready by January 1, 1999; whether
exchange rates for existing currencies and the euro will be adequately
established; and whether suitable clearing and settlement systems for the euro
will be in operation. These and other factors may cause market disruptions
before or after January 1, 1999 and could adversely affect the value of
securities held by the ^ Fund.
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In order to hedge against fluctuations in foreign exchange rates, the ^
Fund may enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts"). Forward contracts and their risks are discussed
under "Investment Policies ^ And Restrictions" in the Statement of Additional
Information.
Illiquid and Rule 144A Securities. The ^ Fund may invest up to 15% of
its total assets, measured at the time of purchase, in securities which are
illiquid because they are subject to restrictions on their resale ("restricted
securities") or because, based upon the nature of the market for such
securities, they are not readily marketable. Investments in illiquid securities
are subject to the risk that the ^ Fund may not be able to sell such securities
at the time or price desired. In addition, in order to resell a restricted
security, the ^ Fund might have to bear the expense and incur the delays
associated with registration of the security. The ^ Fund may purchase certain
securities that are not registered for sale to the general public, but that can
be resold to institutional investors ("Rule 144A Securities") without regard to
the foregoing 15% limitation, if a liquid trading market exists. The ^ Company's
board of directors has delegated to INVESCO the authority to determine the
liquidity of Rule 144A Securities pursuant to guidelines approved by the board.
In the event that a Rule 144A Security held by a ^ Fund is subsequently
determined to be illiquid, the security will be sold as soon as that can be done
in an orderly fashion consistent with the best interests of the ^ Fund's
shareholders. For more information concerning Rule 144A Securities, see
"Investment Policies And Restrictions" in the Statement of Additional
Information.
Repurchase Agreements. The ^ Fund may invest money, for as short a time
as overnight, using repurchase agreements ("repos"). With a repo, the ^ Fund
buys a debt instrument, agreeing simultaneously to sell it back to the prior
owner at an agreed-upon price and date. The ^ Fund could incur costs or delays
in seeking to sell the instrument if the prior owner defaults on its repurchase
obligation. To reduce that risk, securities that are the subject of the
repurchase agreement will be maintained with the ^ Company's custodian in an
amount at least equal to the repurchase price under the agreement (including
accrued interest). These agreements are entered into only with member banks of
the Federal Reserve System, registered broker-dealers and registered U.S.
government securities dealers that are deemed creditworthy under standards
established by the ^ Company's board of directors.
Securities Lending. The ^ Fund may seek to earn additional income by
lending securities to qualified brokers, dealers, banks, or other financial
institutions, on a fully collateralized basis. For further information on this
policy, see "Investment Policies And Restrictions" in the Statement of
Additional Information.
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Options, Futures and Other Financial Instruments. The ^ Fund may use
various types of financial instruments, some of which are derivatives, to
attempt to manage the risk of its investments or, in certain circumstances, for
investment (e.g., as a substitute for investing in securities). The following
financial instruments may be used: options, futures contracts, forward
contracts, swaps, caps, floors and collars (collectively, "Financial
Instruments"). For descriptions and other information on these Financial
Instruments and strategies and their risk considerations, see the Statement of
Additional Information. Financial Instruments may be used in an attempt to
manage the ^ Fund's foreign currency exposure as well as other risks of the ^
Fund's investments that can cause fluctuation in its net asset value. The ^ Fund
may use Financial Instruments to increase or decrease its exposure to changing
security prices, interest rates, currency exchange rates or other factors. The
policies in this section do not apply to other types of instruments sometimes
referred to as derivatives, such as indexed securities, mortgage-backed and
other asset-backed securities, and stripped interest and principal of debt.
The ^ Fund's ability to use Financial Instruments may be limited by
market conditions, regulatory limits and tax considerations. The ^ Fund might
not use any of these Financial Instruments, and there can be no assurance that
any strategy using a Financial Instrument will fully achieve its objective.
Subject to the further limitations stated in the Statement of
Additional Information, generally, the ^ Fund is authorized to use any type of
Financial Instrument. However, as a non-fundamental policy, the ^ Fund will only
use a particular Financial Instrument (other than those related to foreign
currency) if the ^ Fund is authorized to take a position in the type of asset to
which the return on, or value of, the Financial Instrument is primarily related.
Therefore, for example, if the ^ Fund is authorized to invest in a particular
type of security (such as an equity security), it could take a position in an
option on an index relating to equity securities. With respect to foreign
currency Financial Instruments, as a non-fundamental policy the ^ Fund will only
use these Financial Instruments if the ^ Fund is authorized to invest in foreign
securities. In addition, the ^ Fund presently has a non-fundamental policy to
utilize only exchange-traded Financial Instruments, other than forward currency
contracts. This policy would not, however, prevent the ^ Fund from investing in
a security, such an indexed security, with an imbedded component, such as a cap
or a floor.
Delayed Delivery or When-Issued Purchases. Debt securities may at times be
purchased or sold by the ^ Fund with settlement taking place in the future. The
^ Fund may invest up to 10% of its net assets in when-issued debt securities.
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The payment obligation and the interest rate that will be received on the
securities generally are fixed at the time the ^ Fund enters into the
commitment. When the ^ Fund purchases a security on a when-issued or delayed
delivery basis, it immediately assumes the risk of ownership, including the risk
of price fluctuation. Between the date of purchase and the settlement date, the
value of a when-issued the security is subject to market fluctuations, and no
interest is payable to the ^ Fund prior to the settlement date.
Investment Restrictions. Certain restrictions, which are identified in
the Statement of Additional Information, are fundamental and may not be altered
without the approval of the ^ Fund's shareholders. For example, the ^ Fund may
not borrow money except from banks for temporary or emergency purposes (but not
for investment) in an amount not to exceed 10% of its net assets. In addition,
except for the ^ Fund's policies regarding investments in foreign securities and
foreign currencies, the investment objective and policies described in this
Prospectus under "Investment Objective And Strategy" and "Investment Policies
And Risks" are fundamental and may not be changed without a vote of the ^ Fund's
shareholders.
For a further discussion of risks associated with an investment in the
^ Fund, see "Investment Policies And Restrictions" and "Investment Practices" in
the Statement of Additional Information.
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THE FUND AND ITS MANAGEMENT
The ^ Company is a no-load mutual fund, registered with the Securities
and Exchange Commission as a diversified, open-end management investment
company. It was incorporated on August 10, 1983, under the laws of Maryland.
The ^ Company's board of directors has responsibility for overall
supervision of the ^ Fund and reviews the services provided by the adviser.
Under an agreement with the ^ Company, INVESCO, 7800 E. Union Avenue, Denver,
Colorado 80237, serves as investment manager for the ^ Fund; it is primarily
responsible for providing the ^ Fund with portfolio management and various
administrative services.
INVESCO and IDI are indirect, wholly-owned subsidiaries of AMVESCAP
PLC. AMVESCAP PLC is a publicly-traded holding company that, through its
subsidiaries, engages in the business of investment management on an
international basis. INVESCO PLC changed its name to AMVESCO PLC on March 3,
1997 and to AMVESCAP PLC on May 8, 1997, as part of a merger between a direct
subsidiary of INVESCO PLC and A I M Management Group Inc. that created one of
the largest independent investment management businesses in the world. INVESCO
continued to operate under its existing name. AMVESCAP PLC had approximately ^
$241 billion in assets under management as of ^ September 30, 1998. INVESCO was
established in 1932 and, as of ^ August 31, 1998, managed 14 mutual funds,
consisting of 49 separate portfolios, with combined assets of approximately ^
$17.1 billion on behalf of ^ over 899,000 shareholders.
The ^ Fund is managed by members of INVESCO's Sector Team, which is ^
co-led by Daniel B. Leonard and John R. Schroer. The following individuals are
primarily responsible for the day-to-day management of the ^ Fund's holdings:
Daniel B. Leonard has been a ^ portfolio manager of the ^ Fund since 1998
^. In addition, Mr. Leonard has been portfolio manager of the INVESCO Sector
Technology ^ Fund - Class II since ^ 1998, co-portfolio manager from ^ 1996 to
1998 and portfolio manager from 1993 to 1996. Mr. Leonard also manages INVESCO
Strategic Gold ^ Fund and co-manages INVESCO VIF - Technology Fund and INVESCO
Strategic Financial Services ^ Fund. Mr. Leonard is also a senior vice president
of INVESCO Funds Group, Inc. Mr. Leonard was previously a portfolio manager
(1977-1983; 1985-1991) and senior vice president (1975-1983; 1985-1991) of
INVESCO Funds Group, Inc. and a vice president (1977-1983) of INVESCO Trust
Company. Mr. Leonard received a B.A. from Washington & Lee University.
Effective January 1, 1999, William R. Keithler, a Chartered Financial
Analyst, will be the portfolio manager of the Technology Fund. He also manages
the INVESCO VIF -- Technology Fund and is a senior vice president of INVESCO.
Bill was previously a portfolio manager with Berger Associates (1993 - 1998) and
a portfolio manager with INVESCO (1986 - 1993). He received an M.S. from the
University of Wisconsin -- Madison and a B.A. from Webster College.
^
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INVESCO permits investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires INVESCO's personnel to conduct their
personal investment activities in a manner that INVESCO believes is not
detrimental to the Fund or INVESCO's other advisory clients. See the Statement
of Additional Information for more detailed information.
The ^ Fund pays INVESCO a monthly management fee which is based upon a
percentage of the ^ Fund's average net assets determined daily. The management
fee is computed at the annual rate of 0.75% on the first $350 million of the ^
Fund's average net assets, 0.65% on the next $350 million of the ^ Fund's
average net assets and 0.55% on the ^ Fund's net assets in excess of $700
million.
Under a Distribution Agreement, IDI provides services relating to the
distribution and sale of the ^ Fund's shares. IDI, established in 1997, is a
registered broker-dealer that acts as distributor for all retail funds advised
by INVESCO.
Under a Transfer Agency Agreement, INVESCO acts as registrar, transfer
agent and dividend disbursing agent for the ^ Fund. The ^ Fund pays an annual
fee of $20.00 per shareholder account or, where applicable, per participant in
an omnibus account. Registered broker-dealers, third party administrators of
tax-qualified retirement plans and other entities, including affiliates of
INVESCO, may provide equivalent services to the ^ Fund. In these cases, INVESCO
may pay, out of the fee it receives from the ^ Fund, an annual sub-transfer
agency fee or recordkeeping fee to the third party.
Under an Administrative Services Agreement, INVESCO handles additional
administrative, recordkeeping, and internal sub-accounting services for the
Fund.
The management and custodial services provided to the ^ Fund by INVESCO
and the ^ Fund's custodian, and the services provided to shareholders by IDI and
INVESCO, depend on the continued functioning of their computer systems. Many
computer systems in use today cannot recognize the Year 2000, but will revert to
1900 or 1980 or will cease to function due to the manner in which dates were
encoded and are calculated. That failure could have a negative impact on the
handling of the ^ Fund's securities trades, its share pricing and its account
services. The ^ Fund and its service providers have been actively working on
necessary changes to their computer systems to deal with the Year 2000 issue and
expect that their systems will be adapted before that date, but there can be no
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assurance that they will be successful. Furthermore, services may be impaired at
that time as a result of the interaction of their systems with the noncomplying
computer systems of others. INVESCO plans to test as many such interactions as
practicable prior to December 31, 1999 and to develop contingency plans for
reasonably anticipated failures.
^ Fund expenses, which are accrued daily, are deducted from total
income before dividends are paid. If necessary, certain ^ Fund expenses will be
absorbed voluntarily by INVESCO in order to ensure that the ^ Fund's total
operating expenses will not exceed 0.95%. This commitment may be changed
following consultation with the ^ Company's board of directors.
INVESCO places orders for the purchase and sale of portfolio securities
with brokers and dealers based upon INVESCO's evaluation of such brokers' and
dealers' financial responsibility coupled with their ability to effect
transactions at the best available prices. The ^ Fund may place orders for
portfolio transactions with qualified brokers and dealers that recommend the ^
Fund or sell shares of the ^ Fund to clients, or act as agent in the purchase of
^ Fund shares for clients, if INVESCO believes that the quality of the execution
of the transaction and level of commission are comparable to those available
from other qualified brokerage firms. For further information, see "Investment
Practices - Placement of Portfolio Brokerage" in the Statement of Additional
Information.
Rule 18f-3 under the 1940 Act ("Rule 18f-3") permits a fund to use a
multiclass system, including separate class arrangements for distribution of
shares and related exchange privileges applicable to the classes. The ^ Fund's
Plan Pursuant to Rule 18f-3 provides that advisory and administrative services
fees that are expenses of the ^ Fund but are not otherwise attributable to a
particular class of ^ Fund shares shall be allocated to each class on the basis
of its net asset value relative to the net asset value of the ^ Fund.
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the ^ Fund may vary
daily. The price per share is also known as the Net Asset Value ("NAV"). INVESCO
prices the ^ Fund every day that the New York Stock Exchange is open, as of the
close of regular trading (generally, 4:00 p.m., New York time). NAV is
calculated by adding together the current market value of the ^ Fund's assets,
including accrued interest and dividends; subtracting liabilities, including
accrued expenses; and dividing that dollar amount by the total number of
outstanding shares of the ^ Fund.
Performance Data. To keep shareholders and potential investors informed, we
will occasionally advertise the ^ Fund's total return for one-, five-, and
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ten-year periods (or since inception). Total return figures show the rate of
return on an investment in the ^ Fund, assuming reinvestment of all dividends
and capital gain distributions for the periods cited. Cumulative total return
shows the actual rate of return on an investment; average annual total return
represents the average annual percentage change of an investment. Both
cumulative and average annual total returns tend to "smooth out" fluctuations in
the ^ Fund's investment results, because they do not show the interim variations
in performance over the periods cited.
When we quote mutual fund rankings published by Lipper Analytical
Services, Inc., we may compare the ^ Fund to others in its categories of Science
and Technology, as well as to the broad-based Lipper general fund groupings.
These rankings allow you to compare the ^ Fund's performance to that of its
peers. Other independent financial media also produce performance- or
service-related comparisons, which you may see in our promotional materials. For
more information, see "Fund Performance" in the Statement of Additional
Information.
Performance figures are based on historical investment results and are
not intended to suggest future performance.
HOW TO BUY SHARES
The ^ Fund offers two classes of shares. Each class represents an
identical interest in the INVESCO Technology ^ Fund and has the same rights,
except that each class bears its own distribution and shareholder servicing
charges. The income attributable to each class and the dividends payable on the
shares of each class will be reduced by the amount of the distribution fee or
service fee, if applicable, payable by that class.
In deciding which class of shares to purchase, you should consider,
among other things, (i) the length of time you expect to hold your shares, (ii)
the provisions of the distribution plan applicable to the class, if any, and
(iii) the eligibility requirements that apply to purchases of a particular
class.
THIS ^ FUND IS OFFERED ONLY TO INSTITUTIONAL INVESTORS AND QUALIFIED
RETIREMENT PLANS. THIS ^ FUND IS NOT AVAILABLE TO RETAIL INVESTORS.
Your new ^ Fund shares will be priced at the NAV next determined after
your order is received in proper form. There is no charge to invest, exchange or
redeem shares when you make transactions directly through INVESCO. However, if
you invest in a ^ Fund through a securities broker, you may be charged a
commission or transaction fee. INVESCO may from time to time make payments from
<PAGE>
its revenues to securities dealers and other financial institutions that provide
distribution-related and/or administrative services for the Fund. For all new
accounts, please send a completed application form. Please specify the ^ Fund
whose shares you wish to purchase.
INVESCO reserves the right to increase, reduce or waive the minimum
investment requirements in its sole discretion, where it determines this action
is in the best interests of the ^ Fund. Further, INVESCO reserves the right in
its sole discretion to reject any order for the purchase of ^ Fund shares
(including purchases by exchange) when, in its judgment, such rejection is in
the ^ Fund's best interests.
Exchange Policy. You may exchange your shares in the ^ Fund for those
in another INVESCO fund or portfolio, on the basis of their respective net asset
values at the time of the exchange. Before making any exchange, be sure to
review the prospectuses of the funds involved and consider their differences.
Please note these policies regarding exchanges of fund shares:
(1) The fund accounts must be identically registered.
(2) You may make four exchanges out of each fund during each
calendar year.
(3) An exchange is the redemption of shares from one fund followed
by the purchase of shares in another. Therefore, any gain or
loss realized on the exchange is recognizable for federal
income tax purposes (unless, of course, your account is
tax-deferred).
(4) In order to prevent abuse of this policy to the
disadvantage of other shareholders, the ^ Fund reserves
the right to temporarily or permanently terminate the
exchange option of any shareholder who requests more than
four exchanges in a year, or at any time the ^ Fund
determines the actions of the shareholder are detrimental
to ^ Fund performance and shareholders. The ^ Fund will
determine whether to do so based on a consideration of
both the number of exchanges any particular shareholder,
or group of shareholders, has requested and the time
period over which those exchange requests have been made,
together with the level of expense to the ^ Fund which
will result from effecting additional exchange requests.
The ^ Fund is intended to be a long-term investment
vehicle and is not designed to provide investors the
means of speculation on short-term market movements.
<PAGE>
(5) Notice of all modifications or terminations that would
affect all ^ Fund shareholders will be given at least 60
days prior to the effective date of the change in policy,
except in unusual circumstances (such as when redemptions
of the exchanged shares are suspended under Section 22(e)
of the Investment Company Act of 1940, or when sales of
the fund into which you are exchanging are temporarily
suspended).
FUND SERVICES
Shareholder Accounts. INVESCO will maintain a share account
that reflects your current holdings.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges and redemptions. If you choose certain recurring
transaction plans, your transactions will be confirmed on your quarterly
Investment Summary.
Investment Summaries. Each calendar quarter, shareholders receive a
written statement which consolidates and summarizes account activity and value
at the beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and capital gain distributions
are automatically invested in additional ^ Fund shares at the NAV on the
ex-dividend or ex-distribution date, unless you choose to have dividends and/or
capital gain distributions automatically reinvested in another INVESCO fund or
paid by check (minimum of $10.00).
Telephone Transactions. All shareholders may exchange and redeem ^ Fund
shares by telephone, unless they expressly decline these privileges. By signing
the new account Application or a Telephone Transaction Authorization Form, or
otherwise using these privileges, the investor has agreed that, if the ^ Fund
has followed reasonable procedures, such as recording telephone instructions and
sending written transaction confirmations, it will not be liable for following
telephone instructions that it believes to be genuine. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions.
HOW TO SELL SHARES
The following chart shows several convenient ways to redeem your ^ Fund
shares. Shares of the ^ Fund may be redeemed at any time at the NAV next
determined after a request in proper form is received at the Fund's office. The
<PAGE>
NAV at the time of the redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the ^ Fund's investment
performance.
<TABLE>
<CAPTION>
How To Sell Shares
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Method Minimum Redemption Please Remember
- ----------------------------------------------------------------------------------------------------
By Telephone
Call us toll-free ^ $250 (or, if This option is not
at 1-800-525-8085. less, full available for
liquidation of the shares held in ^
account) for a IRAs.
redemption ^ check.
- ----------------------------------------------------------------------------------------------------
In Writing
Mail your request Any amount. The
to INVESCO Funds redemption request
Group, Inc., P.O. must be signed by
Box 173706 all registered
Denver, CO owners of the
80217-3706. You may account. Payment
also send your will be mailed to
request by your address of
overnight courier record, or to a
to 7800 E. Union pre-designated
Ave., Denver, CO bank.
80237.
- ----------------------------------------------------------------------------------------------------
By Exchange
Between this and This ^ Fund is See "Exchange
another of the available only to Policy," page 10.
INVESCO funds. Call institutional
1-800-525-8085 for investors and
prospectuses of qualified
other INVESCO retirement plans.
funds. You may also
establish an
automatic monthly
exchange service
between two INVESCO
funds; call INVESCO
for further details
and the correct
form.
- ----------------------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------------------
Periodic Withdrawal
Plan
You may call us to This option is not
request the available to ^
appropriate form shareholders of the
and more ^ Fund.
information at
1-800-525-8085.
- ----------------------------------------------------------------------------------------------------
Payment To Third
Party
Mail your request Any amount. All registered
to INVESCO Funds account owners must
Group, Inc., P.O. sign the request,
Box 173706 with a signature
Denver, CO guarantee from an
80217-3706. eligible guarantor
financial
institution,
such as a
commercial bank
or recognized
national or
regional securities
firm.
====================================================================================================
</TABLE>
While the ^ Fund will attempt to process telephone redemptions
promptly, there may be times -- particularly in periods of severe economic or
market disruption -- when you may experience delays in redeeming shares by
phone.
Payments of redemption proceeds will be mailed within seven days
following receipt of the redemption request in proper form. However, payment may
be postponed under unusual circumstances --for instance, if normal trading is
not taking place on the New York Stock Exchange or during an emergency as
defined by the Securities and Exchange Commission. If your shares were purchased
by a check which has not yet cleared, payment will be made promptly upon
clearance of the purchase check (which will take up to 15 days).
^
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
Taxes. The ^ Fund intends to distribute to shareholders substantially
all of its net investment income, net capital gains and net gains from foreign
currency transactions, if any. Distribution of substantially all net investment
income to shareholders allows the ^ Fund to maintain its tax status as a
<PAGE>
regulated investment company. The ^ Fund does not expect to pay any federal
income or excise taxes because of its distribution policy and tax status as a
regulated investment company.
Shareholders must include all dividends and other distributions as
taxable income for federal, state and local income tax purposes, unless ^ their
accounts are exempt from income taxes. Dividends and other distributions are
taxable whether they are received in cash or automatically reinvested in shares
of the ^ Fund or another fund in the INVESCO group.
Net realized capital gains of the ^ Fund are classified as short-term
and long-term gains depending upon how long the ^ Fund held the security that
gave rise to the gains. Short-term capital gains are included in income from
dividends and interest as ordinary income and are taxed at the taxpayer's
marginal tax rate. ^ During 1997, the Taxpayer Relief Act established a new
maximum capital gains tax rate of 20%. Depending on the holding period of the
asset giving rise to the gain, a capital gain was taxable at a maximum rate of ^
either 20% or 28%. Beginning January 1, 1998, ^ all long-term gains realized ^
on the sale of securities held ^ more than 12 months will be taxable at a
maximum rate of 20%. In addition, legislation signed in October 1998 provides
that all capital gain distributions from a mutual fund paid to shareholders
during 1998 will be taxed at a maximum rate of 20%. Accordingly, all capital
gain distributions paid in 1998 will be taxable at a maximum rate of 20%. Note
that the rate of capital gains tax is dependent on the shareholder's marginal
tax rate and may be lower than the above rates. At the end of each year,
information regarding the tax status of dividends and other distributions is
provided to shareholders. Shareholders should consult their tax advisers as to
the effect of distributions by the ^ Fund.
Shareholders may realize capital gains or losses when they sell their
shares at more or less than the price originally paid. Capital gains on shares
held for more than one year will be long-term capital gains, in which event they
will be subject to federal income tax at the rates indicated above.
The ^ Fund may be subject to withholding of foreign taxes on dividends
or interest it receives on foreign securities. Foreign taxes withheld may be
treated as an expense of the ^ Fund.
Individuals and certain other non-corporate shareholders may be subject
to backup withholding of 31% on dividends, capital gain distributions and other
distributions and redemption proceeds. You can avoid backup withholding on your
account by ensuring that we have a correct, certified tax identification number,
unless you are subject to backup withholding for other reasons.
<PAGE>
We encourage you to consult a tax adviser with respect to these
matters. For further information see "Dividends, Other Distributions And Taxes"
in the Statement of Additional Information.
Dividends and Other Distributions. The ^ Fund earns net investment
income in the form of interest and dividends on investments. Dividends paid by
the ^ Fund will be based solely on the net investment income earned by it. The ^
Fund's policy is to distribute substantially all of this income, less expenses,
to shareholders on an annual basis, at the discretion of the ^ Company's board
of directors. Dividends are automatically reinvested in additional shares of the
^ Fund at the net asset value on the payable date unless otherwise requested.
In addition, the ^ Fund realizes capital gains and losses when it sells
securities or derivatives for more or less than it paid. If total gains on sales
exceed total losses (including losses carried forward from previous years), the
^ Fund has a net realized capital gain. Net realized capital gains, if any,
together with gains realized on certain foreign currency transactions, if any,
are distributed to shareholders at least annually, usually in December. Capital
gain distributions are automatically reinvested in additional shares of the ^
Fund at the net asset value on the payable date unless otherwise requested.
Dividends and other distributions are paid to shareholders who hold
shares on the record date of the distribution, regardless of how long the shares
have been held by the shareholder. The ^ Fund's share price will then drop by
the amount of the distribution on the ex-dividend or ex-distribution date. If a
shareholder purchases shares immediately prior to the distribution, the
shareholder will, in effect, have "bought" the distribution by paying the full
purchase price, a portion of which is then returned in the form of a taxable
distribution.
ADDITIONAL INFORMATION
Voting Rights. All shares of the ^ Company have equal voting rights
based on one vote for each share owned. Voting with respect to certain matters,
such as ratification of independent accountants and the election of directors,
will be by all of the ^ funds voting together. In other cases, such as voting
upon an investment advisory contract, voting is on a ^ fund-by-fund basis. To
the extent permitted by law, when not all ^ funds are affected by a matter to be
voted upon, only shareholders of the ^ fund or funds affected by the matter will
be entitled to vote thereon. The ^ Company is not generally required and does
not expect to hold regular annual meetings of shareholders. However, when
requested to do so in writing by the holders of 10% or more of the outstanding
<PAGE>
shares of the Fund or as may be required by applicable law or the ^ Company's
Articles of Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the ^ Company. The Fund will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
Master/Feeder Option. As a matter of fundamental policy, the ^ Company
may, in the future, seek to achieve the ^ Fund's investment objective by
investing all of the ^ Fund's assets in another investment company having
substantially the same fundamental investment objective, policies and
limitations. It is expected that any such investment company would be managed by
INVESCO in substantially the same manner as the ^ Fund. If permitted by
applicable law, any such investment may be made in the sole discretion of the ^
Company's board of directors without a vote of the ^ Fund's shareholders.
However, shareholders will be given at least 30 days prior notice of any such
investment. Such an investment would be made only if the board of directors
determines it to be in the best interests of the ^ Fund and its shareholders
based on potential cost savings, operational efficiencies or other factors. No
assurance can be given that costs would be materially reduced if this option
were implemented.
<PAGE>
PROSPECTUS
December 14, 1998
^ INVESCO Sector Funds, Inc.
INVESCO TECHNOLOGY FUND -
CLASS I^
A no-load mutual fund
seeking appreciation
of capital.
INVESCO ^
INVESCO Distributors, Inc.(sm)
Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
1-800-525-8085
PAL(R): 1-800-424-8085
http://www.invesco.com
In Denver, visit one of our
convenient Investor Centers:
Cherry Creek,
155-B Fillmore Street;
Denver Tech Center,
7800 East Union Avenue,
Lobby Level INVESCO
In addition, all documents You should know what INVESCO
filed by the Fund with the knows.(TM)
Securities and Exchange
Commission can be located ^
on a web site maintained by
the Commission at
http://www.sec.gov.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December ^ 14, 1998
INVESCO SECTOR FUNDS, INC.
(formerly, INVESCO Strategic Portfolios, Inc.)
Address: Mailing Address:
7800 E. Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
- --------------------------------------------------------------------------------
INVESCO SECTOR FUNDS, INC. (formerly, Invesco Strategic Portfolios,
Inc.)(the "Company") is a no-load, open-end, diversified management investment
company currently consisting of eight separate Funds of investments. It seeks to
provide investors with capital appreciation (and, with respect to the Utilities
Fund, income) through the investment of assets of its professionally managed
portfolios primarily in equity securities. Each of the Company's separate Funds
concentrates its investments in securities of companies principally engaged in
the business sector of that Fund. Retail investors may purchase shares of any or
all Funds with the exception of the ^ Technology Fund - Class I^. Institutional
investors may purchase shares of any or all Funds. The following are available:
ENERGY Fund LEISURE Fund
ENVIRONMENTAL SERVICES Fund ^TECHNOLOGY Fund-Class I^
FINANCIAL SERVICES Fund ^TECHNOLOGY Fund-Class II^
GOLD Fund UTILITIES Fund
HEALTH SCIENCES Fund
Additional funds may be offered in the future.
<PAGE>
A Prospectus dated March 1, 1998 for the Energy, Environmental Services,
Financial Services, Gold, Health Sciences, Leisure, ^ Technology Fund - Class II
^ and Utilities Fund and a Prospectus dated December ^ 14, 1998, for the ^
Technology Fund -Class I ^ which provide the basic information you should know
before investing in the respective Funds, may be obtained without charge from
INVESCO Distributors, Inc., Post Office Box 173706, Denver, Colorado 80217-3706.
This Statement of Additional Information is not a prospectus, but contains
information in addition to and more detailed than that set forth in the
Prospectuses. It is intended to provide you additional information regarding the
activities and operations of the Funds and should be read in conjunction with
the Prospectuses.
Investment Adviser: INVESCO Funds Group, Inc.
Distributor: INVESCO Distributors, Inc.
<PAGE>
^ TABLE OF CONTENTS
Page
INVESTMENT POLICIES AND RESTRICTIONS...........................................4
THE FUNDS AND THEIR MANAGEMENT................................................32
HOW SHARES CAN BE PURCHASED...................................................48
HOW SHARES ARE VALUED.........................................................52
FUND PERFORMANCE..............................................................53
SERVICES PROVIDED BY THE FUNDS................................................56
TAX-DEFERRED RETIREMENT PLANS.................................................57
HOW TO REDEEM SHARES..........................................................57
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES......................................58
INVESTMENT PRACTICES..........................................................62
ADDITIONAL INFORMATION........................................................66
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
In selecting securities for investment, each Fund's investment adviser
attempts to identify companies that have better-than-average earnings growth
potential. Each Fund seeks to purchase the securities of companies that are
thought to be best situated in the relevant industry grouping for that Fund to
benefit from the predicted economic environment.
Foreign Securities. The Gold and Environmental Services Funds may invest in
foreign securities without limitation on the percentage of assets which may be
so invested. Each of the other Funds (Energy, Financial Services, Health
Sciences, Leisure, ^ Technology Fund - Class I^ and Technology - Class II and
Utilities) may invest up to 25% of its total assets, measured at the time of
purchase, directly in foreign securities. Securities of Canadian issuers and
securities purchased by means of American Depository Receipts ("ADRs") are not
subject to this 25% limitation. As described in the section of the Funds'
Prospectuses entitled "Investment Policies And Risks," foreign securities
involve certain risks not associated with investment in domestic companies.
Foreign companies generally are not subject to uniform accounting, auditing, and
financial reporting standards comparable to those applicable to domestic
companies. Securities of many foreign companies may be less liquid and more
volatile than securities of comparable domestic companies. With respect to
certain foreign countries, there may be a possibility of political developments
which could affect investments in those countries. Finally, it may be more
difficult for a Fund to obtain or enforce a judgment against a foreign issuer
than against a domestic issuer. In determining individual portfolio investments,
however, the investment advisers will carefully consider all of the above.
Securities denominated in foreign currency, whether issued by a foreign
or a domestic issuer, may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and costs will be incurred
in connection with conversions between various currencies.
Restricted/144A Securities. As discussed in the Funds' Prospectuses, each
Fund may invest in restricted securities, including restricted securities that
can be resold to institutional investors pursuant to Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities").
In recent years, a large institutional market has developed for Rule
144A Securities. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend on an efficient
institutional market in which Rule 144A Securities can readily be resold or on
<PAGE>
an issuer's ability to honor a demand for repayment. Therefore, the fact that
there are contractual or legal restrictions on resale to the general public or
certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for Rule 144A Securities
may provide both readily ascertainable values for Rule 144A Securities and the
ability to liquidate an investment in order to satisfy share redemption orders.
An insufficient number of qualified institutional buyers interested in
purchasing a Rule 144A Security held by a Fund, however, could adversely
affect the marketability of such portfolio security and the Fund might be
unable to dispose of such security promptly or at reasonable prices.
American Depository Receipts. As discussed in the Prospectuses, the Funds
may invest in American Depository Receipts ("ADRs"). ADRs are receipts
representing shares of a foreign corporation held by a U.S. bank that entitle
the holder to all dividends and capital gains net of certain fees paid to the
bank. ADRs are denominated in U.S. dollars and trade in the U.S. securities
markets. ADRs may be issued in sponsored or unsponsored programs. In sponsored
programs, the issuer makes arrangements to have its securities traded in the
form of ADRs; in unsponsored programs, the issuer may not be directly involved
in the creation of the program. Although the regulatory requirements with
respect to sponsored and unsponsored programs are generally similar, the issuers
of unsponsored ADRs are not obligated to disclose material information in the
United States and, therefore, such information may not be reflected in the
market value of the ADRs.
Forward Foreign Currency Contracts. As discussed in the section of the
Prospectuses entitled "Investment Policies And Risks," the Funds may enter into
forward foreign currency contracts, which are included in the types of
instruments sometimes known as derivatives, to purchase or sell foreign
currencies as a hedge against possible variations in foreign exchange rates. A
forward foreign currency contract ("forward contract") is an agreement between
the contracting parties to exchange an amount of currency at some future time at
an agreed-upon rate. The rate can be higher or lower than the spot rate between
the currencies that are the subject of the contract. A forward contract
generally has no deposit requirement, and such transactions do not involve
commissions. By entering into a forward contract for the purchase or sale of the
amount of foreign currency invested in a foreign security transaction, a Fund
can hedge against possible variations in the value of the dollar versus the
<PAGE>
subject currency either between the date the foreign security is purchased or
sold and the date on which payment is made or received or during the time the
Fund holds the foreign security. The Funds will not speculate in forward
currency contracts. The Funds will not attempt to hedge all of their foreign
portfolio positions and will enter into such transactions only to the extent, if
any, deemed appropriate by INVESCO. The Funds will not enter into forward
contracts for a term of more than one year. Investors should be aware that
hedging against a decline in the value of a currency in the foregoing manner
does not eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. Furthermore, such hedging
transactions preclude the opportunity for gain if the value of the hedged
currency should rise. No predictions can be made with respect to whether the
total of such transactions will result in a better or a worse position than had
a Fund not entered into any forward contracts. Forward contracts may, from time
to time, be considered illiquid, in which case they would be subject to a Fund's
limitation on investing in illiquid securities, discussed in the Prospectus.
Repurchase Agreements. As discussed in the Prospectuses, the Funds may
enter into repurchase agreements with respect to debt instruments eligible for
investment by the Funds with member banks of the Federal Reserve System,
registered broker-dealers, and registered government securities dealers. A
repurchase agreement may be considered a loan collateralized by securities. The
resale price reflects an agreed upon interest rate effective for the period the
instrument is held by a Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the collateral securities acquired
by a Fund (including accrued interest earned thereon) must have a total value
equal to the value of the repurchase agreement, and are held as collateral by
the Company's custodian bank until the repurchase agreement is completed.
Securities Lending. Each Fund also may lend its securities to qualified
brokers, dealers, banks or other financial institutions. This practice permits a
Fund to earn income which, in turn, can be invested in additional securities to
pursue the Fund's investment objectives. Loans of securities by a Fund will be
collateralized by cash, letters of credit or securities issued or guaranteed by
the U.S. government or its agencies equal to at least 100% of the current market
value of the loaned securities, plus accrued interest and dividends, determined
on a daily basis. Lending securities involves certain risks, the most
significant of which is the risk that a borrower may fail to return a portfolio
security. INVESCO monitors the creditworthiness of borrowers in order to
<PAGE>
minimize such risks. A Fund will not lend any security if, as a result of the
loan, the aggregate value of securities then on loan would exceed 33 1/3% of the
Fund's total assets (taken at market value).
Gold Bullion. As is also discussed in its Prospectus, the Gold Fund may
invest up to 10% of its total assets in gold bullion. The two largest national
producers of gold bullion are the Republic of South Africa and the Commonwealth
of Independent States (the former Soviet Union). Changes in political and
economic conditions affecting either country may have a direct impact on that
country's sales of gold bullion. The Gold Fund will purchase gold bullion from,
and sell gold bullion to, banks (both U.S. and foreign) and dealers who are
members of, or affiliated with members of, a regulated U.S. commodities
exchange, in accordance with applicable investment laws. Values of gold bullion
held by the Gold Fund are based upon daily quotes provided by banks or brokers
dealing in such commodities.
Gas and Electric Utilities. The gas and electric public utilities
industries are subject to various uncertainties, including: difficulty in
obtaining adequate returns on invested capital; frequent difficulty in obtaining
approval of rate increases by public service commissions; increased costs,
delays and restrictions as a result of environmental considerations; difficulty
and delay in securing financing of large construction projects; difficulties of
the capital markets in absorbing utility debt and equity securities;
difficulties in obtaining fuel for electric generation at reasonable prices;
difficulty in obtaining natural gas for resale; and special risks associated
with the construction and operation of nuclear power generating facilities,
including technical and cost factors of such construction and operation and the
possibility of imposition of additional governmental requirements for
construction and operation. Recent and ongoing deregulation of the gas and
electric utilities industry has increased competition in the power generation
and utilities businesses, which generally exposes these companies to increased
business risk from competitors.
Futures and Options. Each of the Funds has adopted a policy which permits
each Fund to purchase or sell put and call options on individual securities,
securities indexes and currencies, or financial futures or options on financial
futures. The following sub-sections entitled "Put and Call Options," "Futures
and Options on Futures," and "Options on Futures Contracts," apply to each of
the Funds, except the Environmental Services and ^ Technology - Class I ^ Funds.
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
<PAGE>
"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 a Fund will generally purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option at
any particular time. In such event it might not be possible to effect closing
transactions in a particular option with the result that a Fund would have to
exercise the option in order to realize any profit. This would result in such
Fund's incurring brokerage commissions upon the disposition of underlying
securities acquired through the exercise of a call option or upon the purchase
<PAGE>
of underlying securities upon the exercise of a put option. If a Fund as covered
call option writer is unable to effect a closing purchase transaction in a
secondary market, unless such Fund is required to deliver the securities
pursuant to the assignment of an exercise notice, it will not be able to sell
the underlying security until the option expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or particular classes 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 ("OCC"), based
on forecasts provided by the U.S. exchanges, believes that its facilities are
adequate to handle the volume of reasonably anticipated options transactions,
and such exchanges have advised the OCC that they believe their facilities will
also be adequate to handle reasonably anticipated volume.
Futures Contracts and Options on Futures Contracts. As described in the
Funds' prospectuses, each Fund may enter into futures contracts, and purchase
and sell ("write") options to buy or sell futures contracts. The Funds will
comply with and adhere to all limitations in the manner and extent to which they
effect 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 Fund 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%
<PAGE>
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 Fund may use futures and options
thereon 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 Fund purchases or sells a security, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Instead, the
Fund will be required to deposit in its segregated asset account an amount of
cash or qualifying securities (currently U.S. Treasury bills), currently in a
minimum amount of $15,000. This is called "initial margin." Such initial margin
is in the nature of a performance bond or good faith deposit on the contract.
However, since losses on open contracts are required to be reflected in cash in
the form of variation margin payments, a Fund may be required to make additional
payments during the term of the contracts to its broker. Such payments would be
required, for example, where, during the term of an interest rate futures
contract purchased by a Fund, there was a general increase in interest rates,
thereby making such Fund's securities less valuable. In all instances involving
the purchase of futures contracts by a Fund, an amount of cash together with
such other securities as permitted by applicable regulatory authorities to be
utilized for such purpose, at least equal to the market value of the futures
contracts, will be deposited in a segregated account with such Fund's custodian
to collateralize the position. At any time prior to the expiration of a futures
contract, a Fund may elect to close its position by taking an opposite position
which will operate to terminate its position in the futures contract.
Where futures are purchased to hedge against a possible increase in the
price of a security before a Fund is able in an orderly fashion to invest in the
security, it is possible that the market may decline instead. If the Fund, as a
result, concluded not to make the planned investment at that time because of
concern as to possible further market decline or for other reasons, the Fund
would realize a loss on the futures contract that is not offset by a reduction
in the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation or no correlation at all between movements in the futures contracts
<PAGE>
and the portion of the portfolio being hedged, the price of a futures contract
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 price of futures contracts, the value
of futures contracts as a hedging device may be reduced.
In addition, if a Fund has insufficient available cash, it may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it may be disadvantageous to do so.
As noted above, a Fund may buy and write options on futures contracts for
hedging purposes. The purchase of a call option on a futures contract is similar
in some respects to the purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the price of the
futures contract upon which it is based or the price of the underlying
instrument, ownership of the option may or may not be less risky than ownership
of the futures contract or the underlying instrument. As with the purchase of
futures contracts, when a Fund is not fully invested it may buy a call option on
a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, a
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in such Fund'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
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the Fund is
<PAGE>
considering buying. If a call or put option which a Fund has written is
exercised, such Fund will incur a loss which will be reduced by the amount of
the premium it received. Depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value of the futures
positions, a Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices.
The amount of risk a Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transactions 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.
For a more complete discussion of the risks involved in futures and options
on futures and other securities, refer to Appendix A ("Description of Futures,
Options and Forward Contracts").
Options, Futures and Other Financial Instruments and Their Strategic Uses
^(Technology Fund - Class I ^ Only)
General. As discussed in its Prospectus, INVESCO may use various types of
financial instruments, some of which are derivatives, to attempt to manage the
risk of the Fund's investments or, in certain circumstances, for investment
(e.g., as a substitute for investing in securities). These financial instruments
include options, futures contracts (sometimes referred to as "futures"), forward
contracts, swaps, caps, floors and collars (collectively, "Financial
Instruments"). The policies in this section do not apply to other types of
instruments sometimes referred to as derivatives, such as indexed securities,
mortgage-backed and other asset-backed securities, and stripped interest and
principal of debt.
Generally, the Fund is authorized to use any type of Financial Instrument.
However, as a non-fundamental policy, the Fund will only use a particular
Financial Instrument (other than those related to foreign currency) if the Fund
is authorized to take a position in the type of asset to which the return on, or
value of, the Financial Instrument is primarily related. Therefore, for example,
if the Fund is authorized to invest in a particular type of security (such as an
<PAGE>
equity security), it could take a position in an option on an index relating to
equity securities. With respect to foreign currency Financial Instruments, as a
non-fundamental policy the Fund will only use these Financial Instruments if the
Fund is authorized to invest in foreign securities. In addition, the Fund
presently has a non-fundamental policy to utilize only exchange-traded Financial
Instruments, other than forward currency contracts. This policy would not,
however, prevent the Fund from investing in a security, such as an indexed
security, with an imbedded component, such as a cap or a floor.
Hedging strategies can be broadly categorized as "short" hedges and "long"
or "anticipatory" hedges. A short hedge involves the use of a Financial
Instrument in order to partially or fully offset potential variations in the
value of one or more investments held in the Fund's portfolio. A long or
anticipatory hedge involves the use of a Financial Instrument in order to
partially or fully offset potential increases in the acquisition cost of one or
more investments that the Fund intends to acquire. In an anticipatory hedge
transaction, the Fund does not already own a corresponding security. Rather, it
relates to a security or type of security that the Fund intends to acquire. If
the Fund does not eliminate the hedge by purchasing the security as anticipated,
the effect on the Fund's portfolio is the same as if a long position were
entered into. Financial Instruments may also be used, in certain circumstances,
for investment (e.g., as a substitute for investing in securities).
Financial Instruments on individual securities generally are used to
attempt to hedge against price movements in one or more particular securities
positions that the Fund already owns or intends to acquire. Financial
Instruments on indexes, in contrast, generally are used to attempt to hedge all
or a portion of a portfolio against price movements of the securities within a
market sector in which the Fund has invested or expects to invest.
The use of Financial Instruments is subject to applicable regulations of
the Securities and Exchange Commission ("SEC"), the several exchanges upon which
they are traded, and the Commodity Futures Trading Commission ("CFTC"). In
addition, the Fund's ability to use Financial Instruments will be limited by tax
considerations. See "Dividends, Capital Gains Distributions and Taxes."
In addition to the instruments and strategies described below, INVESCO may
use other similar or related techniques to the extent that they are consistent
with the Fund's investment objective and permitted by the Fund's investment
limitations and applicable regulatory authorities. The Fund's Prospectus or
<PAGE>
Statement of Additional Information ("SAI") will be supplemented to the extent
that new products or techniques become employed involving materially different
risks than those described below or in the Prospectus.
Special Risks. Financial Instruments and their use involve special
considerations and risks, certain of which are described below.
(1) If INVESCO employs a Financial Instrument that correlates
imperfectly with the Fund's investments, a loss could result,
regardless of whether or not the intent was to manage risk.
Financial Instruments may increase the volatility of the Fund. In
addition, these techniques could result in a loss if there is not
a liquid market to close out a position that the Fund has
entered.
(2) There might be imperfect correlation between price movements of a
Financial Instrument and price movements of the investments being
hedged. For example, if the value of a Financial Instrument used
in a short hedge increased by less than the decline in value of
the hedged investment, the hedge would not be fully successful.
This might be caused by certain kinds of trading activity that
distorts the normal price relationship between the security being
hedged and the Financial Instrument. Similarly, the effectiveness
of hedges using Financial Instruments on indexes will depend on
the degree of correlation between price movements in the index
and price movements in the securities being hedged.
The Fund presently has a non-fundamental policy to utilize
only exchange-traded Financial Instruments, other than forward
currency contracts. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely
that the standardized contracts available will not match the
Fund's current or anticipated investments exactly. The Fund is
authorized to use options and futures contracts related to
securities with issuers, maturities or other characteristics
different from the securities in which it typically invests. This
involves a risk that the options or futures position will not
track the performance of the Fund's portfolio investments.
The direction of options and futures price movements can
also diverge from the direction of the movements of the prices of
their underlying instruments, even if the underlying instruments
match the Fund's investments well. Options and futures prices are
<PAGE>
affected by such factors as current and anticipated short-term
interest rates, changes in volatility of the underlying
instrument, and the time remaining until expiration of the
contract, which may not affect security prices the same way.
Imperfect correlation may also result from differing levels of
demand in the options and futures markets and the securities
markets, from structural differences in how options and futures
and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. The Fund may take positions
in options and futures contracts with a greater or lesser face
value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this
may not be successful in all cases.
(3) If successful, the above-discussed hedging strategies can reduce
risk of loss by wholly or partially offsetting the negative
effect of unfavorable price movements of portfolio securities.
However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For
example, if the Fund entered into a short hedge because INVESCO
projected a decline in the price of a security in the Fund's
portfolio, and the price of that security increased instead, the
gain from that increase would likely be wholly or partially
offset by a decline in the value of the short position in the
Financial Instrument. Moreover, if the price of the Financial
Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss.
(4) The Fund's ability to close out a position in an exchange-traded
Financial Instrument prior to expiration or maturity depends on
the degree of liquidity of the market.
(5) As described below, the Fund is required to maintain assets as
"cover," maintain segregated accounts or make margin payments
when it takes positions in Financial Instruments involving
obligations to third parties (i.e., Financial Instruments other
than purchased options). If the Fund were unable to close out its
positions in such Financial Instruments, it might be required to
continue to maintain such assets or segregated accounts or make
such payments until the position expired. These requirements
might impair the Fund's ability to sell a portfolio security or
make an investment at a time when it would otherwise be favorable
to do so, or require that the Fund sell a portfolio security at a
disadvantageous time.
<PAGE>
Cover. Positions in Financial Instruments, other than purchased options,
expose the Fund to an obligation to another party. The Fund will not enter into
any such transactions unless it owns either (1) an offsetting ("covered")
position in securities, currencies or other options, futures contracts or
forward contracts, or (2) cash and liquid assets with a value, marked-to-market
daily, sufficient to cover its potential obligations to the extent not covered
as provided in (1) above. The Fund will comply with SEC guidelines regarding
cover for these instruments and will, if the guidelines so require, set aside
cash or liquid assets in a segregated account with its custodian in the
prescribed amount as determined daily.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Financial Instrument is open unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Fund's assets to cover or in segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Options. The Fund may engage in certain strategies involving options to
attempt to manage the risk of its investments or, in certain circumstances, for
investment (e.g., as a substitute for investing in securities). A call option
gives the purchaser the right to buy, and obligates the writer to sell, the
underlying investment at the agreed-upon exercise price during the option
period. A put option gives the purchaser the right to sell, and obligates the
writer to buy, the underlying investment at the agreed-upon exercise price
during the option period. Purchasers of options pay an amount, known as a
premium, to the option writer in exchange for the right under the option
contract. See "Options on Indexes" below with regard to cash settlement of
option contracts on index values.
The purchase of call options can serve as a hedge against a price rise of
the underlier and the purchase of put options can serve as a hedge against a
price decline of the underlier. Writing call options can serve as a limited
short hedge because declines in the value of the hedged investment would be
offset to the extent of the premium received for writing the option. However, if
the security or currency appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised and the
Fund will be obligated to sell the security or currency at less than its market
value.
<PAGE>
Writing put options can serve as a limited long or anticipatory hedge
because increases in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
or currency depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the Fund
will be obligated to purchase the security or currency at more than its market
value.
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the price volatility of the underlying investment and
general market and interest rate conditions. Options that expire unexercised
have no value.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Company to realize profits or
limit losses on an option position prior to its exercise or expiration.
Risks of Options on Securities. Options embody the possibility of large
amounts of exposure, which will result in the Fund's net asset value being more
sensitive to changes in the value of the related investment.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. If the Fund is not able to
enter into an offsetting closing transaction on an option it has written, it
will be required to maintain the securities subject to the call or the liquid
assets underlying the put until a closing purchase transaction can be entered
into or the option expires. However, there can be no assurance that such a
market will exist at any particular time.
If the Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by the Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
<PAGE>
Options on Indexes. Puts and calls on indexes are similar to puts and calls
on securities or futures contracts except that all settlements are in cash and
changes in value depend on changes in the index in question. When the Fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, upon exercise of the call, the purchaser will receive from the
Fund an amount of cash equal to the positive difference between the closing
price of the index and the exercise price of the call times a specified multiple
("multiplier"), which determines the total dollar value for each point of such
difference. When the Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When the Fund buys a put on
an index, it pays a premium and has the right, prior to the expiration date, to
require the seller of the put to deliver to the Fund an amount of cash equal to
the positive difference between the exercise price of the put and the closing
price of the index times the multiplier. When the Fund writes a put on an index,
it receives a premium and the purchaser of the put has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash equal to
the positive difference between the exercise price of the put and the closing
level of the index times the multiplier.
The risks of purchasing and selling options on indexes may be greater
than options on securities. Because index options are settled in cash, when the
Fund writes a call on an index it cannot fulfill its potential settlement
obligations by delivering the underlying securities. The Fund can offset
some of the risk of writing a call index option by holding a diversified
portfolio of securities similar to those on which the underlying index is based.
However, the Fund cannot, as a practical matter, acquire and hold a
portfolio containing exactly the same securities as underlie the index and, as a
result, bears a risk that the value of the securities held will vary from the
value of the index.
Even if the Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level. As with other kinds of options, the Fund as the
call writer will not learn that the Fund has been assigned until the next
business day. The time lag between exercise and notice of assignment poses no
risk for the writer of a covered call on a specific underlying security, such as
common stock, because in that case the writer's obligation is to deliver the
underlying security, not to pay its value as of a moment in the past. In
<PAGE>
contrast, the writer of an index call will be required to pay cash in an amount
based on the difference between the closing index value on the exercise date and
the exercise price. By the time it learns that it has been assigned, the index
may have declined. This "timing risk" is an inherent limitation on the ability
of index call writers to cover their risk exposure.
If the Fund has purchased an index option and exercises it before
the closing index value for that day is available, it runs the risk that the
level of the underlying index may subsequently change. If such a change causes
the exercised option to fall out-of-the-money, the Fund nevertheless will
be required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the assigned
writer.
Futures Contracts and Options on Futures Contracts. When the Fund purchases
or sells a futures contract, it incurs an obligation respectively to take or
make delivery of a specified amount of the obligation underlying the contract at
a specified time and price. When the Fund writes an option on a futures
contract, it becomes obligated to assume a position in the futures contract at a
specified exercise price at any time during the term of the option. If the Fund
writes a call, on exercise it assumes a short futures position. If it writes a
put, on exercise it assumes a long futures position.
The purchase of futures or call options on futures can serve as a long or
an anticipatory hedge, and the sale of futures or the purchase of put options on
futures can serve as a short hedge. Writing call options on futures contracts
can serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indexes. Similarly, writing put options on
futures contracts can serve as a limited long or anticipatory hedge.
In addition, futures strategies can be used to manage the duration and
associated interest rate risk of the Fund's fixed-income portfolio. If INVESCO
wishes to shorten the duration of the Fund's fixed-income portfolio, the Fund
may sell an appropriate debt futures contract or a call option thereon, or
purchase a put option on that futures contract. If INVESCO wishes to lengthen
the duration of the Fund's fixed-income portfolio, the Fund may buy an
appropriate debt futures contract or a call option thereon, or sell a put option
thereon.
At the inception of a futures contract, the Fund is required to deposit
"initial margin" in an amount generally equal to 10% or less of the contract
value. Initial margin must also be deposited when writing a call or put option
<PAGE>
on a futures contract, in accordance with applicable exchange rules. Subsequent
"variation margin" payments are made to and from the futures broker daily as the
value of the futures or written option position varies, a process known as
"marking-to-market." Unlike margin in securities transactions, initial margin on
futures contracts and written options on futures contracts does not represent a
borrowing on margin, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Fund may be required to
increase the level of initial margin payments. If the Fund has insufficient cash
to meet daily variation margin requirements, it might need to sell securities in
order to do so at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures used
by the Fund may be closed only on an exchange or board of trade that provides a
market. However, there can be no assurance that a liquid market will exist for a
particular contract at a particular time. In such event, it may not be possible
to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or an option on a futures
contract can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily price
limits do not limit potential losses because prices could move to the daily
limit for several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or an option on a
futures contract position due to the absence of a liquid market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to continue to
maintain the position being hedged by the futures contract or option or to
continue to maintain cash or securities in a segregated account.
To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
<PAGE>
exchange, in each case that is not for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
Risks of Futures Contracts and Options Thereon. The ordinary spreads at a
given time between prices in the cash and futures markets (including the options
on futures markets), due to differences in the natures of those markets, are
subject to the following factors. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions, which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Due to the possibility of distortion, a hedge may not be successful.
Additionally, INVESCO may be incorrect in its expectations as to the extent of
various interest rate, currency exchange rate or stock market movements or the
time span within which the movements take place.
Index Futures. The risk of imperfect correlation between movements in the
price of index futures and movements in the price of the securities that are the
subject of a hedge increases as the composition of the Fund's portfolio diverges
from the index. The price of the index futures may move proportionately more
than or less than the price of the securities being hedged. If the price of the
index futures moves proportionately less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective. However, if
the price of the securities being hedged has moved in an unfavorable direction,
the Company would be in a better position than if it had not hedged at all. If
the price of the securities being hedged has moved in a favorable direction,
this advantage will be partially offset by movement of the price of the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge.
<PAGE>
Where index futures are purchased in an anticipatory hedge, it is possible
that the market may decline instead. If the Fund then decides not to invest in
the securities at that time because of concern as to possible further market
decline or for other reasons, it will realize a loss on the futures contract
that is not offset by a reduction in the price of the securities it had
anticipated purchasing.
Foreign Currency Hedging Strategies--Special Considerations. The Fund may
use options and futures contracts on foreign currencies, as mentioned
previously, and forward currency contracts, as described below, to attempt to
hedge against movements in the values of the foreign currencies in which the
Fund's securities are denominated or, in certain circumstances, for investment
(e.g., as a substitute for investing in securities denominated in foreign
currency). Currency hedges can protect against price movements in a security
that the Fund owns or intends to acquire that are attributable to changes in the
value of the currency in which it is denominated.
The Fund might seek to hedge against changes in the value of a particular
currency when no Financial Instruments on that currency are available or such
Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, the Fund may seek to hedge against price movements
in that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the value of which INVESCO believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Financial Instrument
will not correlate perfectly with movements in the price of the currency subject
to the hedging transaction may be increased when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
<PAGE>
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts and Foreign Currency Deposits. The Fund may
enter into forward currency contracts to purchase or sell foreign currencies for
a fixed amount of U.S. dollars or another foreign currency. A forward currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days (term) from the date of the
forward currency contract agreed upon by the parties, at a price set at the time
the forward currency contract is entered. Forward currency contracts are
negotiated directly between currency traders (usually large commercial banks)
and their customers.
Such transactions may serve as long or anticipatory hedges; for example,
the Fund may purchase a forward currency contract to lock in the U.S. dollar
price of a security denominated in a foreign currency that the Fund intends to
acquire. Forward currency contracts may also serve as short hedges; for example,
the Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security or a dividend
or interest payment denominated in a foreign currency.
The Fund may also use forward currency contracts to hedge against a decline
in the value of existing investments denominated in foreign currency. Such a
hedge would tend to offset both positive and negative currency fluctuations, but
would not offset changes in security values caused by other factors. The Fund
could also hedge the position by entering into a forward currency contract to
sell another currency expected to perform similarly to the currency in which the
Fund's existing investments are denominated. This type of hedge could offer
advantages in terms of cost, yield or efficiency, but may not hedge currency
exposure as effectively as a simple hedge against U.S. dollars. This type of
hedge may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.
<PAGE>
The Fund may also use forward currency contracts in one currency or a
basket of currencies to attempt to hedge against fluctuations in the value of
securities denominated in a different currency if INVESCO anticipates that there
will be a positive correlation between the two currencies.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When the Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of some or all of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that the Company will in fact be able to close out a forward
currency contract at a favorable price prior to maturity. In addition, in the
event of insolvency of the counterparty, the Fund might be unable to close out a
forward currency contract. In either event, the Fund would continue to be
subject to market risk with respect to the position, and would continue to be
required to maintain a position in securities denominated in the foreign
currency or to maintain cash or liquid assets in a segregated account.
The precise matching of forward currency contract amounts and the value of
the securities, dividends or interest payments involved generally will not be
possible because the value of such securities, dividends or interest payments,
measured in the foreign currency, will change after the forward currency
contract has been established. Thus, the Fund might need to purchase or sell
foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Forward currency contracts may substantially change the Fund's investment
exposure to changes in currency exchange rates and could result in losses to the
<PAGE>
Fund if currencies do not perform as INVESCO anticipates. There is no assurance
that INVESCO's use of forward currency contracts will be advantageous to the
Fund or that it will hedge at an appropriate time.
The Fund may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.
Combined Positions. The Fund may purchase and write options in combination
with each other, or in combination with futures or forward currency contracts,
to manage the risk and return characteristics of its overall position. For
example, the Fund may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs.
Turnover. The Fund's options and futures activities may affect its turnover
rate and brokerage commission payments. The exercise of calls or puts written by
the Fund, and the sale or purchase of futures contracts, may cause it to sell or
purchase related investments, thus increasing its turnover rate. Once the Fund
has received an exercise notice on an option it has written, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price. The
exercise of puts purchased by the Fund may also cause the sale of related
investments, also increasing turnover; although such exercise is within the
Fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. The Fund
will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than those
that would apply to direct purchases or sales.
Swaps, Caps, Floors and Collars. The Fund is authorized to enter into
swaps, caps, floors and collars. However, these instruments are not
exchange-traded and the Fund presently has a non-fundamental policy to utilize
only exchange-traded Financial Instruments.
Swaps involve the exchange by one party with another party of their
respective commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of a cap or a floor
<PAGE>
entitles the purchaser, to the extent that a specified index exceeds in the case
of a cap, or falls below in the case of a floor, a predetermined value, to
receive payments on a notional principal amount from the party selling such
instrument. A collar combines elements of buying a cap and selling a floor.
Investment Restrictions. As described in the section of the Prospectuses
entitled "Investment Policies And Risks," the Funds operate under certain
investment restrictions. For purposes of the following restrictions, all
percentage limitations apply immediately after a purchase or initial investment.
Any subsequent change in a particular percentage resulting from fluctuations in
value does not require elimination of any security from the Fund.
The following restrictions are fundamental and may not be changed with
respect to the Energy, Environmental Services, Financial Services, Gold, Health
Sciences, Leisure, ^ Technology Fund - Class II ^ and Utilities Funds without
prior approval of a majority of the outstanding voting securities of the Fund,
as defined in the Investment Company Act of 1940, as amended (the "1940 Act").
Under these restrictions, these Funds may not:
(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 Funds 10%, or, with
respect to the Energy, Environmental Services and Gold Funds,
33-1/3% of the value of the Fund'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 Fund will not purchase additional securities while any
borrowings on behalf of that Fund exist;
<PAGE>
(3) buy or sell commodities or commodity contracts (however, the Fund
may purchase securities of companies which invest in the
foregoing). The Environmental Services Fund also may not buy or
sell oil, gas or other mineral interests or exploration programs
(however, the Environmental Services Fund may purchase securities
of companies which invest in the foregoing). This restriction
shall not prevent the Funds 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 not prevent
the Gold Fund 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 no 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 Funds 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 Company may be deemed an underwriter under the Securities Act
of 1933 in disposing of a portfolio security;
<PAGE>
(10) make loans to any person, except through the purchase of debt
securities in accordance with the investment policies of the
Funds, 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 Fund's total assets (taken at current
value). No more than 10% of a Fund's total 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 Company 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 Company and its
investment adviser, as a group, own more than 5% of such
securities;
(12) with respect to seventy-five percent (75%) of each Fund'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 Fund to have more than 5% of the
value of its total assets invested in the securities of such
issuer or to own more than 10% of the outstanding voting
securities of such issuer;
(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 Fund 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 Fund 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 Fund also includes illiquid
securities (those which cannot be sold in the ordinary course of business within
seven days at approximately the valuation given to them by the Company) 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 INVESCO the authority to determine that a liquid market exists
<PAGE>
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 a 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 a 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.
An additional investment restriction adopted by the Company on behalf of
each of the Funds, and which may be changed by the Directors at their
discretion, provides that the Funds will not:
(a) enter into any futures contracts, options on futures, puts and calls if
immediately thereafter the aggregate margin deposits on all outstanding
derivative positions held by the Fund and premiums paid on outstanding
positions, after taking into account unrealized profits and losses, would
exceed 5% of the market value of the total assets of the Fund, or (b) enter
into any derivative positions if the aggregate net amount of Fund's
commitments under outstanding derivative positions of the Fund would exceed
the market value of the total assets of the Fund.
^ INVESCO Technology Fund - Class I^
The following restrictions are fundamental and may not be changed with
respect to the ^ INVESCO Technology Fund - Class I ^ without the prior approval
of a majority of the outstanding voting securities of the Fund, as defined in
the 1940 Act. The ^ INVESCO Technology Fund - Class I ^ will not:
(1) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities or municipal securities) if, as a
result, more than 25% of the Fund's total assets would be
invested in the securities of companies whose principal business
activities are in the same industry;
<PAGE>
(2) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities, or securities of other investment companies)
if, as a result, (i) more than 5% of the Company's total assets
would be invested in the securities of that issuer, or (ii) the
Fund would hold more than 10% of the outstanding voting
securities of that issuer;
(3) underwrite securities of other issuers, except insofar as it may
be deemed to be an underwriter under the Securities Act of 1933,
as amended, in connection with the disposition of the Fund's
portfolio securities;
(4) borrow money, except that the Fund may borrow money in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings).
(5) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(6) lend any security or make any loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to the purchase of debt securities or
to repurchase agreements;
(7) purchase or sell physical commodities; however, this policy shall
not prevent the Fund from purchasing and selling foreign
currency, futures contracts, options, forward contracts, swaps,
caps, floors, collars and other financial instruments;
(8) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the Fund from investing in securities or other
instruments backed by real estate or securities of companies
engaged in the real estate business).^
In addition, the INVESCO ^ Technology Fund - Class I ^ has the following
non-fundamental policies, which may be changed without shareholder approval:
(a) The Fund may not sell securities short (unless it owns or has the
right to obtain securities equivalent in kind and amount to the
securities sold short) or purchase securities on margin, except
<PAGE>
that (i) this policy does not prevent the Fund from entering into
short positions in foreign currency, futures contracts, options,
forward contracts, swaps, caps, floors, collars and other
financial instruments, (ii) the Fund may obtain such short-term
credits as are necessary for the clearance of transactions, and
(iii) the Fund may make margin payments in connection with
futures contracts, options, forward contracts, swaps, caps,
floors, collars and other financial instruments;
(b) The Fund may borrow money only from a bank or by engaging in
reverse repurchase agreements with any party (reverse repurchase
agreements will be treated as borrowings for purposes of
fundamental limitation (4)). The Fund will not purchase any
security while borrowings represents more than 5% of its total
assets are outstanding.
(c) The Fund does not currently intend to purchase any security if,
as a result, more than 15% of its net assets would be invested in
securities that are deemed to be illiquid because they are
subject to legal or contractual restrictions on resale or because
they cannot be sold or disposed of in the ordinary course of
business at approximately the prices at which they are valued.
In applying restriction (c) above, the Fund also includes illiquid
securities (those which cannot be sold in the ordinary course of business within
seven days at approximately the valuation given to them by the Fund) among the
securities subject to the 10% of total assets limit. The board of directors has
delegated to the Fund's investment adviser the authority to determine that a
liquid market exists for securities eligible for resale pursuant to Rule 144A
under the 1933 Act, or any successor to such rule, and that such securities are
not subject to the Fund's 15% of total assets limitations on investing in
securities that are not readily marketable, discussed below. Under guidelines
established by the board of directors, the adviser will consider the following
factors, among others, in making this determination: (1) the unregistered nature
of a Rule 144A security; (2) the frequency of trades and quotes for the
security; (3) the number of dealers willing to purchase or sell the security and
the number of other potential purchasers; (4) dealer undertakings to make a
market in the security; and (5) the nature of the security and the nature of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). However, Rule 144A
Securities are still subject to the Fund's 15% of total assets limitation on
investments in restricted securities (securities for which there are legal or
contractual restrictions on resale).
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
The Company. The Company was incorporated under the laws of Maryland on
August 10, 1983 as "Financial Strategic Portfolios, Inc." On December 2, 1994
the Company changed its name to INVESCO Strategic Portfolios, Inc. On October
29, 1998, the Company changed its name to INVESCO Sector Funds, Inc.
The Investment Adviser. INVESCO Funds Group, Inc., a Delaware
corporation ("INVESCO"), is employed as the Company's investment adviser.
INVESCO was established in 1932 and also serves as an investment adviser to
INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO
Combination Stock & Bond Funds, Inc. (formerly, INVESCO Flexible Funds, Inc.),
INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc.,
INVESCO Growth Funds, Inc. (formerly, INVESCO Growth Fund, Inc.), INVESCO
Industrial Income Fund, Inc., INVESCO International Funds, Inc., INVESCO Money
Market Funds, Inc., INVESCO Specialty Funds, Inc., INVESCO Stock Funds, Inc.
(formerly, INVESCO Equity Funds, Inc.), INVESCO Tax-Free Income Funds, Inc.,
INVESCO Value Trust, and INVESCO Variable Investment Funds, Inc.
The Investment Sub-Adviser. Prior to February 3, 1998, Institutional Trust
Company, d.b.a. INVESCO Trust Company, ("ITC") provided sub-advisory services to
the Funds. Effective February 3, 1998, ITC no longer provided sub-advisory
services to the Funds and INVESCO provides such day-to-day portfolio management
services as the investment adviser to the Funds. This change in no way changed
the basis upon which investment advice is provided to the Funds, the cost of
those services to the Funds or the persons actually performing the investment
advisory and other services previously provided by ITC.
The Distributor. Effective September 30, 1997, (upon inception with
respect to the ^ Technology Fund - Class I^) INVESCO Distributors, Inc.
("IDI") became the Funds' distributor. IDI, established in 1997, is a
registered broker-dealer that acts as distributor for all retail mutual funds
advised by INVESCO. Prior to September 30, 1997, INVESCO served as the
Funds' distributor.
INVESCO and IDI are indirect wholly-owned subsidiaries of AMVESCAP PLC,
a publicly-traded holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. INVESCO PLC changed
its name to AMVESCO PLC on March 3, 1997 and to AMVESCAP PLC on May 8, 1997, as
part of a merger between a direct subsidiary of INVESCO PLC and A I M Management
Group, Inc. that created one of the largest investment management businesses in
the world with approximately $261 billion in assets under management as of June
<PAGE>
30, 1998. INVESCO was established in 1932 and as of July 31, 1998, managed 14
mutual funds, consisting of 49 separate portfolios, on behalf of over 884,099
shareholders.
AMVESCAP PLC's other North American subsidiaries include the following:
--INVESCO Retirement and Benefit Services, Inc. ("IRBS") of Atlanta,
Georgia, develops and provides domestic and international defined contribution
retirement plan services to plan sponsors, institutional retirement plan
sponsors, institutional plan providers and foreign governments.
--INVESCO Retirement Plan Services ("IRPS") of Atlanta, Georgia, a division
of IRBS, provides recordkeeping and investment selection services to defined
contribution plan sponsors of plans with between $2 million and $200 million in
assets. Additionally, IRPS provides investment consulting services to
institutions seeking to provide retirement plan products and services.
--ITC of Denver, Colorado, a division of IRBS, provides retirement account
custodian and/or trust services for individual retirement accounts ("IRAs") and
other retirement plan accounts. This includes services such as recordkeeping,
tax reporting and compliance. ITC acts as trustee or custodian to these plans.
ITC accepts contributions and provides, through INVESCO, complete transfer
agency functions (correspondence, subaccounting, telephone communications and
processing of distributions).
--INVESCO Capital Management, Inc. of Atlanta, Georgia manages
institutional investment portfolios, consisting primarily of discretionary
employee benefit plans for corporations and state and local governments, and
endowment funds. INVESCO Capital Management, Inc. is the sole shareholder of
INVESCO Services, Inc., a registered broker-dealer.
--INVESCO Management & Research, Inc. of Boston, Massachusetts primarily
manages pension and endowment accounts.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
--INVESCO Realty Advisors, Inc. of Dallas, Texas is responsible for
providing advisory services in the U.S. real estate markets for pension plans
and public pension funds, as well as endowment and foundation accounts.
--INVESCO (NY), Inc., New York, is an investment adviser for separately
managed accounts, such as corporate and municipal pension plans, Taft-Hartley
<PAGE>
Plans, insurance companies, charitable institutions and private individuals.
INVESCO NY also offers the opportunity for its clients to invest both directly
and indirectly through partnerships in primarily private investments or
privately negotiated transactions. INVESCO NY further serves as investment
adviser to several closed-end investment companies, and as sub-adviser with
respect to certain commingled employee benefit trusts. INVESCO NY specializes in
the fundamental research investment approach, with the help of quantitative
tools.
--A I M Advisors, Inc. of Houston, Texas provides investment advisory and
administrative services for retail and institutional mutual funds.
--A I M Capital Management, Inc. of Houston, Texas provides investment
advisory services to individuals, corporations, pension plans and other private
investment advisory accounts and also serves as a sub-adviser to certain retail
and institutional mutual funds, one Canadian mutual fund and one portfolio of an
open-end registered investment company that is offered to separate accounts of
insurance companies that issue variable annuity and/or variable life products.
--A I M Distributors, Inc. and Company Management Company of Houston, Texas
are registered broker-dealers that act as the principal underwriters for retail
and institutional mutual funds.
The corporate headquarters of AMVESCAP PLC are located at 11 Devonshire
Square, London, EC2M4YR, England.
As indicated in the Funds' Prospectuses, INVESCO permits investment and
other personnel to purchase and sell securities for their own accounts in
accordance with a compliance policy governing personal investing by directors,
officers and employees of INVESCO and its North American affiliates. The policy
requires officers, inside directors, investment and other personnel of INVESCO
and its North American affiliates to pre-clear all transactions in securities
not otherwise exempt under the policy. Requests for trading authority will be
denied when, among other reasons, the proposed personal transaction would be
contrary to the provisions of the policy or would be deemed to adversely affect
any transaction then known to be under consideration for or to have been
effected on behalf of any client account, including any of the Funds.
In addition to the pre-clearance requirement described above, the policy
subjects officers, inside directors, investment and other personnel of INVESCO
and its North American affiliates to various trading restrictions and reporting
<PAGE>
obligations. All reportable transactions are reviewed for compliance with the
policy. The provisions of this policy are administered by and subject to
exceptions authorized by INVESCO.
Investment Advisory Agreement. INVESCO serves as investment adviser to the Funds
pursuant to an investment advisory agreement dated February 28, 1997 (the
"Agreement") with the Company which was approved on November 6, 1996, by a vote
cast in person by a majority of the directors of the Company, including a
majority of the directors who are not "interested persons" of the Company or
INVESCO at a meeting called for such purpose. The Agreement was approved by
shareholders of each Fund of the Company on January 31, 1997, for an initial
term expiring February 28, 1999.^ Thereafter, the Agreement may be continued
from year to year with respect to each Fund as long as such continuance is
specifically approved at least annually by the board of directors of the
Company, or by a vote of the holders of a majority, as defined in the 1940 Act,
of the outstanding shares of the Fund. Any such continuance also must be
approved by a majority of the Company's directors who are not parties to the
Agreement or interested persons (as defined in the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such
continuance. The Agreement may be terminated at any time without penalty by
either party or by a Fund with respect to that Fund, upon sixty (60) days'
written notice and terminates automatically in the event of an assignment to the
extent required by the 1940 Act and the rules thereunder.
The Agreement provides that INVESCO shall manage the investment portfolios
of the Company's Funds in conformity with the Funds' investment policies.
Further, INVESCO shall perform all administrative, internal accounting
(including computation of net asset value), clerical, statistical, secretarial
and all other services necessary or incidental to the administration of the
affairs of the Company excluding, however, those services that are the subject
of separate agreement between the Company and INVESCO or any affiliate thereof,
including the distribution and sale of Company shares and provision of transfer
agency, dividend disbursing agency, and registrar services, and services
furnished under an Administrative Services Agreement with INVESCO discussed
below. Services provided under the Agreement include, but are not limited to:
supplying the Company with officers, clerical staff and other employees, if any,
who are necessary in connection with the Company's operations; furnishing office
space, facilities, equipment and supplies; providing personnel and facilities
required to respond to inquiries related to shareholder accounts; conducting
periodic compliance reviews of the Company's operations; preparation and review
of required documents, reports and filings by INVESCO's in-house legal and
accounting staff (including the prospectus, statement of additional information,
<PAGE>
proxy statements, shareholder reports, tax returns, reports to the SEC and other
corporate documents of the Company), except insofar as the assistance of
independent accountants or attorneys is necessary or desirable; supplying basic
telephone service and other utilities; and preparing and maintaining certain of
the books and records required to be prepared and maintained by the Company
under the 1940 Act. Expenses not assumed by INVESCO are borne by the Company.
As full compensation for its advisory services to the Company, INVESCO
receives a monthly fee. The fee is calculated daily at an annual rate of: 0.75%
on the first $350 million of the average net assets of each Fund; 0.65% on the
next $350 million of the average net assets of each Fund; and 0.55% of each
Fund's average net assets in excess of $700 million. The advisory fee is
calculated daily at the applicable annual rate and paid monthly.
Administrative Services Agreement. INVESCO, either directly or through
affiliated companies, also provides certain administrative, sub-accounting and
recordkeeping services to the Company pursuant to an Administrative Services
Agreement dated February 28, 1997 (the "Administrative Agreement"). The
Administrative Agreement was approved on November 6, 1996, by a vote cast in
person by all of the directors of the Company, including all of the directors
who are not "interested persons" of the Company or INVESCO at a meeting called
for such purpose. The Administrative Agreement was for an initial term expiring
February 28, 1998 and has been extended by action of the board of directors
until May 15, 1999. Thereafter, the Administrative Agreement may be continued
from year to year as long as each such continuance is specifically approved by
the board of directors of the Company, including a majority of the directors who
are not parties to the Administrative Agreement or interested persons (as
defined in the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such continuance. The Administrative Agreement may
be terminated at any time without penalty by INVESCO on sixty (60) days' written
notice, or by the Company upon thirty (30) days' written notice, and terminates
automatically in the event of an assignment unless the Company's board of
directors approves such assignment.
The Administrative Agreement provides that INVESCO shall provide the
following services to the Company: (a) such sub-accounting and recordkeeping
services and functions as are reasonably necessary for the operation of the
Company; and (b) such sub-accounting, recordkeeping, and administrative services
and functions, which may be provided by affiliates of INVESCO, as are reasonably
necessary for the operation of Company shareholder accounts maintained by
certain retirement plans and employee benefit plans for the benefit of
participants in such plans.
<PAGE>
As full compensation for services provided under the Administrative
Agreement, the Company pays a fee to INVESCO consisting of a base fee of $10,000
per year per Fund, plus an additional incremental fee computed daily and paid
monthly, by each Fund, at an annual rate of 0.015% of the average net assets of
the Fund.
Transfer Agency Agreement. INVESCO also performs transfer agent, dividend
disbursing agent, and registrar services for the Company pursuant to a Transfer
Agency Agreement dated February 28, 1997, which was approved by the board of
directors of each Fund of the Company, including a majority of the Company's
directors who are not parties to the Transfer Agency Agreement or "interested
persons" of any such party, on November 6, 1996, for an initial term expiring
February 28, 1998, which has been extended by action of the board of directors
until May 15, 1999. Thereafter, the Transfer Agency Agreement may be continued
from year to year as to each Fund as long as such continuance is specifically
approved at least annually by the board of directors of the Company, or by a
vote of the holders of a majority of the outstanding shares of the Fund. Any
such continuance must also be approved by a majority of the Company's directors
who are not parties to the Transfer Agency Agreement or interested persons (as
defined by the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such continuance. The Transfer Agency Agreement may
be terminated at any time without penalty by either party upon sixty (60) days'
written notice and terminates automatically in the event of assignment.
The Transfer Agency Agreement provides that each Fund shall pay to INVESCO
a fee of $20.00 per shareholder account or, where applicable, per participant in
an omnibus account. This fee is paid monthly at a rate of 1/12 of the annual fee
and is based upon the actual number of shareholder accounts and omnibus account
participants in existence during each month.
Set forth below is a table showing the advisory fees, transfer agency fees
and administrative services fees paid by each of the Company's Funds for the
fiscal years ended October 31, 1997, 1996 and 1995.
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31, 1997 Year Ended October 31, 1996 Year Ended October 31, 1995
--------------------------- --------------------------- ---------------------------
Adminis- Adminis- Adminis-
Transfer trative Transfer trative Transfer trative
Advisory Agency Services Advisory Agency Services Advisory Agency Services
Fees Fees(1) Fees Fees Fees Fees Fees Fees Fees
--------- --------- ------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Energy $1,788,892 $710,090 $45,876 $813,779 $385,446 $26,275 $454,001 $304,482 $19,080
Environmental
Services(2) 188,133 208,784 13,763 237,561 227,295 14,751 234,331 250,666 14,686
Financial
Services 5,705,247 1,995,619 137,504 3,306,980 1,298,961 78,234 2,128,548 1,083,492 52,704
Gold 1,703,349 982,788 44,069 2,136,116 889,509 52,965 1,544,711 826,471 40,898
Health
Sciences 6,276,181 2,910,149 152,539 7,016,028 2,584,098 172,697 4,221,937 1,991,219 99,730
Leisure 1,598,185 1,048,771 41,964 2,026,976 1,133,674 50,540 2,063,891 1,099,340 51,278
Technology
- Class I(3) 0 0 0 0 0 0 0 0 0
Technology
- Class II 6,217,324 2,686,039 150,934 4,677,778 1,863,571 110,454 3,210,186 1,236,694 76,216
Utilities(3) 1,063,655 530,316 31,273 1,032,013 471,705 30,640 952,421 481,868 29,048
----------- ----------- -------- ----------- ---------- -------- ---------- ---------- --------
Totals $24,540,966 $11,072,556 $617,922 $21,247,231 $8,854,259 $536,556 $14,810,026 $7,274,232 $383,640
</TABLE>
(1) Includes amounts earned as credits by the Funds from security brokerage
transactions under certain broker/service arrangements with third parties.
<PAGE>
(2) These amounts do not reflect the voluntary expense limitations applicable to
the Environmental Services and Utilities Funds described in the Funds'
Prospectus.
(3) The ^ Technology Fund - Class I^ paid INVESCO no advisory, transfer agency
or administrative fees as of October 31, 1997 since the Fund did not commence a
public offering of its shares until December ^ 14, 1998.
<PAGE>
Officers and Directors of the Company. The overall direction and
supervision of the Company is the responsibility of the board of directors,
which has the primary duty of seeing that the general investment policies and
programs of each of the Funds are carried out and that the Funds are properly
administered. The officers of the Company, all of whom are officers and
employees of, and are paid by, INVESCO, are responsible for the day-to-day
administration of the Company and each of the Funds. The investment adviser for
each Fund has the primary responsibility for making investment decisions on
behalf of that Fund. These investment decisions are reviewed by the investment
committee of INVESCO.
All of the officers and directors of the Company hold comparable positions
with INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO
Combination Stock & Bond Funds, Inc. (formerly, INVESCO Flexible Funds, Inc.),
INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc.,
INVESCO Growth Funds, Inc. (formerly, INVESCO Growth Fund, Inc.), INVESCO
Industrial Income Fund, Inc., INVESCO International Funds, Inc., INVESCO Money
Market Funds, Inc., INVESCO Specialty Funds, Inc., INVESCO Stock Funds, Inc.
(formerly, INVESCO Equity Funds, Inc.), INVESCO Tax-Free Income Funds, Inc.,
INVESCO Value Trust, and INVESCO Variable Investment Funds, Inc. All of the
directors and officers of the Company also serve as trustees of INVESCO Value
Trust and INVESCO Treasurer's Series Trust. Set forth below is information with
respect to each of the Company's officers and directors. Unless otherwise
indicated, the address of the directors and officers is Post Office Box 173706,
Denver, Colorado 80217-3706. Their affiliations represent their principal
occupations during the past five years.
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive Officer and
Director of AMVESCAP PLC, London, England, and of various subsidiaries thereof.
Chairman of the Board of INVESCO Global Health Sciences Fund. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. Trustee of INVESCO Global
Health Sciences Fund. Formerly, Chairman of the Executive Committee and Chairman
of the Board of Security Life of Denver Insurance Company, Denver, Colorado;
Director of ING America Life Insurance Company. Address: Security Life Center,
1290 Broadway, Denver, Colorado. Born: January 12, 1928.
VICTOR L. ANDREWS,**@ Director. Professor Emeritus, Chairman Emeritus and
Chairman of the CFO Roundtable of the Department of Finance at Georgia State
University, Atlanta, Georgia; President, Andrews Financial Associates, Inc.
(consulting firm); since October 1984, Director of the Center for the Study of
Regulated Industry of Georgia State University; formerly, member of the
faculties of the Harvard Business School and the Sloan School of Management of
<PAGE>
MIT. Dr. Andrews is also a director of the Southeastern Thrift and Bank Company,
Inc. and The Sheffield Companys, Inc. Address: 34 Seawatch Drive, Savannah,
Georgia. Born: June 23, 1930.
BOB R. BAKER,+** Director. President and Chief Executive Officer of AMC
Cancer Research Center, Denver, Colorado, since January 1989; until mid-December
1988, Vice Chairman of the Board of First Columbia Financial Corporation (a
financial institution), Englewood, Colorado. Formerly, Chairman of the Board and
Chief Executive Officer of First Columbia Financial Corporation. Address: 1600
Pierce Street, Lakewood, Colorado. Born: August 7, 1936.
LAWRENCE H. BUDNER,#@@ Director. Trust Consultant; prior to June 30, 1987,
Senior Vice President and Senior Trust Officer of InterFirst Bank, Dallas,
Texas. Address: 7608 Glen Albens Circle, Dallas, Texas. Born: July 25, 1930.
WENDY L. GRAMM, Ph.D.,**@ Director. Self-employed (since 1993); Professor
of Economics and Public Administration, University of Texas at Arlington.
Formerly, Chairman, Commodity Futures Trading Commission from 1988 to 1993,
administrator for Information and Regulatory Affairs at the Office of Management
and Budget from 1985 to 1988, Executive Director of the Presidential Task Force
on Regulatory Relief and Director of the Federal Trade Commission's Bureau of
Economics. Dr. Gramm is also a director of the Chicago Mercantile Exchange,
Enron Corporation, IBP, Inc., State Farm Insurance Company, State Farm Life
Insurance Company, Independent Women's Forum, International Republic Institute,
and the Republican Women's Federal Forum. Dr. Gramm is also a member of the
Board of Visitors, College of Business Administration, University of Iowa, and a
member of the Board of Visitors, Center for Study of Public Choice, George Mason
University. Address: 4201 Yuma Street, N.W., Washington, D.C. Born: January 10,
1945.
KENNETH T. KING,+#@@ Director. Formerly, Chairman of the Board of The
Capitol Life Insurance Company, Providence Washington Insurance Company, and
Director of numerous subsidiaries thereof in the U.S. Formerly, Chairman of the
Board of The Providence Capitol Companies in the United Kingdom and Guernsey.
Chairman of the Board of the Symbion Corporation (a high technology company)
until 1987. Address: 4080 North Circulo Manzanillo, Tucson, Arizona. Born:
November 16, 1925.
JOHN W. MCINTYRE,+#@@ Director. Retired. Formerly, Vice Chairman of the
Board of Directors of The Citizens and Southern Corporation and Chairman of the
Board and Chief Executive Officer of The Citizens and Southern Georgia
Corporation and Citizens and Southern National Bank. Trustee of INVESCO Global
<PAGE>
Health Sciences Company and Gables Residential Trust. Address: 7 Piedmont
Center, Suite 100, Atlanta, Georgia. Born: September 14, 1930.
LARRY SOLL, Ph.D.,**@ Director. Retired. Formerly, Chairman of the Board
(1987 to 1994), Chief Executive Officer (1982 to 1989 and 1993 to 1994) and
President (1982 to 1989) of Synergen Corp. Director of Synergen since its
incorporation in 1982. Director of ISI Pharmaceuticals, Inc. Trustee of INVESCO
Global Health Sciences Company. Address: 345 Poorman Road, Boulder, Colorado.
Born: April 26, 1942.
MARK H. WILLIAMSON,+* President, CEO and Director. President, CEO and
Director of IDI; President, CEO and Director of INVESCO and President of INVESCO
Global Health Sciences Fund. Formerly, Chairman and CEO of NationsBanc Advisors,
Inc. (1995 to 1997) and Chairman of NationsBanc Investments, Inc. (1997 to
1998). Born: May 24, 1951.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995), General
Counsel (since 1989) and Secretary (since 1989) of INVESCO and Senior Vice
President, General Counsel and Secretary of IDI (since 1997); Vice President
(May 1989 to April 1995) of INVESCO; Senior Vice President, (since 1995),
General Counsel (since 1989) and Secretary (1989 to 1998) of ITC. Formerly,
employee of a U.S. regulatory agency, Washington, D.C. (June 1973 through May
1989). Born: September 25, 1947.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
(since 1988). Senior Vice President and Treasurer of IDI (since 1997). Senior
Vice President and Treasurer of ITC (1988 to 1998) Born: October 1, 1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO (since 1995) and of IDI (since 1997) and Trust Officer of ITC (1995 to
1998); and formerly (August 1992 to July 1995) Vice President of INVESCO.
Formerly, Vice President of 440 Financial Group from June 1990 to August 1992
and Assistant Vice President of Putnam Companies from November 1986 to June
1990. Born: August 21, 1956.
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO (since
1984). Formerly, Trust Officer of ITC. Born: September 14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO (since 1984)
and of IDI (since 1997). Formerly, Trust Officer of ITC. Born: February 3, 1948.
*These directors are "interested persons" of the Company as defined in the
Investment Company Act of 1940.
<PAGE>
#Member of the audit committee of the Company.
@Member of the derivatives committee of the Company.
@@Member of the soft dollar brokerage committee of the Company.
+Member of the executive committee of the Company. On occasion, the
executive committee acts upon the current and ordinary business of the Company
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
**Member of the management liaison committee of the Company.
As of September 24, 1998, officers and directors of the Company, as a
group, beneficially owned less than 1% of the Company's outstanding shares and
less than 1% of the outstanding shares of the Company and of each Fund of the
Company.
Director Compensation
The following table sets forth, for the fiscal year ended October 31, 1997:
the compensation paid by the Company to its eligible independent directors for
services rendered in their capacities as directors of the Company; the benefits
accrued as Company expenses with respect to the Defined Benefit Deferred
Compensation Plan discussed below; and the estimated annual benefits to be
received by these directors upon retirement as a result of their service to the
Company. In addition, the table sets forth the total compensation paid by all of
the mutual funds distributed by IDI (including the Company), INVESCO Advisor
Companys, Inc., INVESCO Treasurer's Series Trust, and INVESCO Global Health
Sciences Fund (collectively, the "INVESCO Complex") to these directors for
services rendered in their capacities as directors or trustees during the year
ended December 31, 1996. As of December 31, 1996, there were 49 funds in the
INVESCO Complex. Dr. Soll became an independent director of the Company
effective May 15, 1997. Dr. Gramm became an independent director of the Company
effective July 29, 1997.
<PAGE>
<TABLE>
<CAPTION>
Total
Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
tion From Company Upon Paid To
Company(1) Expenses(2) Retirement(3) Directors(1)
<S> <C> <C> <C> <C>
Fred A. Deering, $17,590 $6,297 $6,131 $98,850
Vice Chairman of
the Board
Victor L. Andrews 17,459 5,950 7,097 84,350
Bob R. Baker 17,955 5,313 9,511 84,850
Lawrence H. Budner 16,862 5,950 7,097 80,350
Daniel D. Chabris(4) 17,382 6,790 5,044 84,850
A. D. Frazier, Jr.(5) 3,576 0 0 81,500
Wendy L. Gramm 3,459 0 0 0
Kenneth T. King 14,864 6,539 5,561 71,350
John W. McIntyre 16,277 0 0 90,350
Larry Soll 6,672 0 0 17,500
-------- ------- ------- --------
Total $132,096 $36,839 $40,441 $693,950
% of Net Assets 0.0034%(6) 0.0009%(6) 0.0045%(7)
</TABLE>
(1)The vice chairman of the board, the chairmen of the audit, management
liaison and compensation committees, and the members of the executive and
valuation committees each receive compensation for serving in such capacities in
addition to the compensation paid to all independent directors.
(2)Represents estimated benefits accrued with respect to the Defined
Benefit Deferred Compensation Plan discussed below, and not compensation
deferred at the election of the directors.
(3)These figures represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding INVESCO Global Health
Sciences Fund, which does not participate in this retirement plan) upon the
directors' retirement, calculated using the current method of allocating
director compensation among the funds in the INVESCO Complex. These estimated
benefits assume retirement at age 72 and that the basic retainer payable to the
directors will be adjusted periodically for inflation, for increases in the
<PAGE>
number of funds in the INVESCO Complex, and for other reasons during the period
in which retirement benefits are accrued on behalf of the respective directors.
This results in lower estimated benefits for directors who are closer to
retirement and higher estimated benefits for directors who are further from
retirement. With the exception of Messrs. Frazier and McIntyre and Drs. Gramm
and Soll, each of these directors has served as a director/trustee of one or
more of the funds in the INVESCO Complex for the minimum five-year period
required to be eligible to participate in the Defined Benefit Deferred
Compensation Plan.
(4)Mr. Chabris retired as a director effective September 30, 1998.
(5)Effective February 28, 1997, Mr. Frazier resigned as a director of the
Company.
(6)Totals as a percentage of the Company's net assets as of October 31,
1997.
(7)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1996.
Messrs. Brady and Williamson, as "interested persons" of the Company and
the other funds in the INVESCO Complex, receive compensation as officers or
employees of INVESCO or its affiliated companies, and do not receive any
director's fees or other compensation from the Company or the other funds in the
INVESCO Complex for their service as directors.
The boards of directors/trustees of the mutual funds managed by INVESCO and
INVESCO Treasurer's Series Trust have adopted a Defined Benefit Deferred
Compensation Plan for the non-interested directors and trustees of the funds.
Under this plan, each director or trustee who is not an interested person of the
funds (as defined in the 1940 Act) and who has served for at least five years (a
"qualified director") is entitled to receive, upon termination of service as a
director (normally, at the retirement age of 72 or the retirement age of 73 to
74, if the retirement date is extended by the boards for one or two years but
less than three years), continuation of payments for one year (the "first year
retirement benefit") of the annual basic retainer and annualized board meeting
fees payable by the funds to the qualified director at the time of his or her
retirement (the "basic retainer"). Commencing with any such director's second
year of retirement, and commencing with the first year of retirement of a
director whose retirement has been extended by the board for three years, a
qualified director shall receive quarterly payments at an annual rate equal to
50% of the basic retainer and annualized board meeting fees. These payments will
<PAGE>
continue for the remainder of the qualified director's life or ten years,
whichever is longer (the "reduced retainer payments"). If a qualified director
dies or becomes disabled after age 72 and before age 74 while still a director
of the funds, the first year retirement benefit and the reduced retainer
payments will be made to him or her or to his or her beneficiary or estate. If a
qualified director becomes disabled or dies either prior to age 72 or during his
74th year while still a director of the funds, the director will not be entitled
to receive the first year retirement benefit; however, the reduced retainer
payments will be made to his or her beneficiary or estate. The plan is
administered by a committee of three directors who are also participants in the
plan and one director who is not a plan participant. The cost of the plan will
be allocated among the INVESCO and INVESCO Treasurer's Series Trust Funds in a
manner determined to be fair and equitable by the committee. The Company began
making payments to Mr. Chabris as of October 1, 1998. The Company has no stock
options or other pension or retirement plans for management or other personnel
and pays no salary or compensation to any of its officers.
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO and
INVESCO Treasurer's Series Trust Funds. The deferred amounts are being invested
in the shares of all of the INVESCO and INVESCO Treasurer's Series Trust Funds.
Each independent director is, therefore, an indirect owner of shares of each
INVESCO Fund.
The Company has an audit committee that is comprised of four of the
directors who are not interested persons of the Company. The committee meets
periodically with the Company's independent accountants and officers to review
accounting principles used by the Company, the adequacy of internal controls,
the responsibilities and fees of the independent accountants, and other matters.
The Company also has a management liaison committee which meets quarterly
with various management personnel of INVESCO in order (a) to facilitate better
understanding of management and operations of the Company, and (b) to review
legal and operational matters which have been assigned to the committee by the
board of directors, in furtherance of the board of directors' overall duty of
supervision.
The Company also has a soft dollar brokerage committee. The committee meets
periodically to review soft dollar brokerage transactions by the Funds, and to
review policies and procedures of the Funds' adviser with respect to soft dollar
brokerage transactions. It reports on these matters to the Company's board of
directors.
<PAGE>
The Company also has a derivatives committee. The committee meets
periodically to review derivatives investments made by the Companys. It monitors
derivatives usage by the Companys and the procedures utilized by the Companys'
adviser to ensure that the use of such instruments follows the policies on such
instruments adopted by the board of directors. It reports on these matters to
the Company's board of directors.
HOW SHARES CAN BE PURCHASED
The shares of each Fund are sold on a continuous basis at the net asset
value per share of the Fund next calculated after receipt of a purchase order in
good form. The net asset value per share for each Fund is computed separately
for each Fund and is determined once each day that the New York Stock Exchange
is open as of the close of regular trading on that Exchange, but may also be
computed at other times. See "How Shares Are Valued."
The Company has authorized one or more brokers to accept purchase orders on
the Funds' behalf. Such brokers are authorized to designate other intermediaries
to accept purchase orders on the Funds' behalf. The Funds will be deemed to have
received a purchase order when an authorized broker or, if applicable, a
broker's authorized designee, accepts the order. A purchase order will be priced
at each Fund's net asset value next calculated after the order has been accepted
by an authorized broker or the broker's authorized designee.
IDI acts as the Company's distributor under a distribution agreement with
the Company and bears all expenses, including the costs of printing and
distributing prospectuses incident to direct sales and distribution of Company
shares on a no-load basis.
With the exception of the ^ Technology Fund - Class I^, each of the Funds
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 Company, including a majority of the directors who
neither are "interested persons" of the Company nor have any financial interest
in the operation of the Plan ("independent directors"). The Plan was approved by
the shareholders of the Funds, except the Environmental Services Fund, on
October 28, 1997. The Plan was approved by the shareholders of the Environmental
Services Fund on November 25, 1997 and implemented on December 1, 1997. The
following disclosures regarding the Plan relate to all of the Funds except the ^
Technology Fund - Class I^.
<PAGE>
The Plan provides that the Funds may make monthly payments to IDI of
amounts computed at an annual rate no greater than 0.25% of each Fund's new
sales of shares, exchanges into the Fund and reinvestments of dividends and
capital gain distributions made after November 1, 1997 (December 1, 1997 for the
Environmental Services Fund), to compensate IDI for expenses incurred by it in
connection with the distribution of their shares to investors. Payments by a
Fund 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. 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 INVESCO- and IDI-affiliated
companies, in order to obtain various distribution-related and/or administrative
services for the Funds. Each Fund is authorized by the Plan to use its assets to
finance the payments made to obtain those services. Payments will be made by IDI
to broker-dealers who sell shares of a Fund and may be made to banks, savings
and loan associations and other depository institutions. Although the
Glass-Steagall Act limits the ability of certain banks to act as underwriters of
mutual fund shares, the Funds 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 Funds possibly could decrease
to the extent that the banks would no longer invest customer assets in a
particular Fund. Neither the Company nor its investment adviser will give any
preference to banks or other depository institutions which enter into such
arrangements when selecting investments to be made by each Fund.
The Plan was not implemented until November 1, 1997 (December 1, 1997 for
the Environmental Services Fund). Therefore, for the fiscal year ended October
31, 1997, no 12b-1 amounts were paid by the Funds.
The nature and scope of services which are provided by securities dealers
and other organizations may vary by dealer but include, among other things,
processing new stockholder account applications, preparing and transmitting to
the Company's Transfer Agent computer processable tapes of each Fund's
transactions by customers, serving as the primary source of information to
customers in answering questions concerning each Fund, and assisting in other
customer transactions with each Fund.
The Plan provides that it shall continue in effect with respect to each
Fund for so long as such continuance is approved at least annually by the vote
<PAGE>
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 Fund, without penalty, if a majority of the independent
directors, or shareholders of such Fund, vote to terminate the Plan. The Company
may, in its absolute discretion, suspend, discontinue or limit the offering of
its shares of any Fund at any time. In determining whether any such action
should be taken, the board of directors intends to consider all relevant factors
including, without limitation, the size of a particular Fund, the investment
climate for any particular Fund, general market conditions, and the volume of
sales and redemptions of a Fund's shares. The Plan may continue in effect and
payments may be made under the Plan following any such temporary suspension or
limitation of the offering of a Fund's shares; however, none of the Funds are
contractually obligated to continue the Plan for any particular period of time.
Suspension of the offering of a Funds shares would not, of course, affect a
shareholder's ability to redeem his shares. So long as the Plan is in effect,
the selection and nomination of persons to serve as independent directors of the
Company shall be committed to the independent directors then in office at the
time of such selection or nomination. The Plan may not be amended to increase
materially the amount of any Fund's payments thereunder without approval of the
shareholders of that Fund, and all material amendments to the Plan must be
approved by the board of directors, including a majority of the independent
directors. Under the agreement implementing the Plan, IDI or any Fund, the
latter by vote of a majority of the independent directors, or of the holders of
a majority of a Fund's outstanding voting securities, may terminate such
agreement as to that Fund without penalty upon 30 days' written notice to the
other party. No further payments will be made by a Fund under the Plan in the
event of its termination as to that Fund.
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it shall remain in effect as such, so
as to authorize the use of each Fund's assets in the amounts and for the
purposes set forth therein, notwithstanding the occurrence of an assignment, as
defined by the 1940 Act, and rules thereunder. To the extent it constitutes an
agreement pursuant to the Plan, each Fund's obligation to make payments to IDI
shall terminate automatically, in the event of such assignment, in which case
the Fund may continue to make payments pursuant to the Plan to IDI or another
organization only upon the approval of new arrangements, which may or may not be
with IDI, regarding the use of the amounts authorized to be paid by it under the
Plan, by the directors, including a majority of the 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 Funds 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 members of the board of directors or officers of the Company who
are interested persons, as that term is defined in Section 2(a)(19) of the 1940
Act, of the Company and who have a direct or indirect financial interest in the
operation of the Plan are the officers and directors of the Company listed
herein under the section entitled "The Funds And Their Management - Officers and
Directors of the Company" who are also officers either of IDI or companies
affiliated with IDI. The benefits which the Funds believe will be reasonably
likely to flow to them and to their respective 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 Funds;
(2) The sale of additional shares reduces the likelihood that
redemption of shares will require the liquidation of securities
of the Funds in amounts and at times that are disadvantageous for
investment purposes;
(3) The positive effect which increased Fund assets will have on
INVESCO's revenues could allow INVESCO and its affiliated
companies:
(a) To have greater resources to make the financial commitments
necessary to improve the quality and level of each Fund's
shareholder services (in both systems and personnel),
(b) To increase the number and type of mutual funds available to
investors from INVESCO and its affiliated companies (and
support them in their infancy), and thereby expand the
investment choices available to all shareholders, and
(c) To acquire and retain talented employees who desire to be
associated with a growing organization; and
(4) Increased Fund assets may result in reducing each investor's
share of certain expenses through economies of scale (e.g.
<PAGE>
exceeding established breakpoints in the advisory fee schedule
and allocating fixed expenses over a larger asset base), thereby
partially offsetting the costs of the Plan.
HOW SHARES ARE VALUED
As described in the section of each Fund's Prospectus entitled Fund Price
And Performance," the net asset value of shares of each Fund of the Company is
computed once each day that the New York Stock Exchange is open as of the close
of regular trading on that Exchange (generally 4:00 p.m., New York time) and
applies to purchase and redemption orders received prior to that time. Net asset
value per share is also computed on any other day on which there is a sufficient
degree of trading in the securities held by a Fund that the current net asset
value per share might be materially affected by changes in the value of the
securities held, but only if on such day the Company receives a request to
purchase or redeem shares of that Fund. Net asset value per share is not
calculated on days the New York Stock Exchange is closed, such as federal
holidays including New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The net asset value per share of each Fund is calculated by dividing the
value of all securities held by that Fund and its other assets (including
dividends and interest accrued but not collected), less the Fund's liabilities
(including accrued expenses) by the number of outstanding shares of that Fund.
Securities traded on national securities exchanges, the NASDAQ National Market
System, the NASDAQ Small Cap Market and foreign markets are valued at their last
sale prices on the exchanges or markets where such securities are primarily
traded. Securities traded in the over-the-counter market for which last sales
prices are not available, and listed securities for which no sales are reported
on a particular date, are valued at their highest closing bid prices (or, for
debt securities, yield equivalents thereof) obtained from one or more dealers
making markets for such securities. If market quotations are not readily
available, securities will be valued at their fair values as determined in good
faith by the Company's board of directors or pursuant to procedures adopted by
authority of the board of directors. The above procedures may include the use of
valuations furnished by a pricing service which employs a matrix to determine
valuations for normal institutional-size trading units of debt securities. Prior
to utilizing a pricing service, the Company's board of directors reviews the
methods used by such service to assure itself that securities will be valued at
their fair values. The Company's board of directors also periodically monitors
<PAGE>
the methods used by such pricing services. Debt securities with remaining
maturities of 60 days or less at the time of purchase are normally valued at
amortized cost.
The values of securities held by the Funds and other assets used in
computing net asset value generally are determined as of the time regular
trading in such securities or assets is completed each day. Because regular
trading in most foreign securities markets is completed simultaneously with, or
prior to, the close of regular trading on the New York Stock Exchange, closing
prices for foreign securities usually are available for purposes of computing
the Funds' net asset value. However, in the event that the closing price of a
foreign security is not available in time to calculate a Fund's net asset value
on a particular day, the Company's board of directors has authorized the use of
the market price for the security obtained from an approved pricing service at
an established time during the day which may be prior to the close of regular
trading in the security. The value of all assets and liabilities expressed in
foreign currencies will be converted into U.S. dollars at the spot rate of such
currencies against U.S. dollars provided by an approved pricing service.
FUND PERFORMANCE
As discussed in the section of each Fund's Prospectus entitled "Company
Price And Performance," the Company advertises the total return performance of
the Funds, as well as the yield of the Utilities Fund. Average annual total
return performance for each Fund for the indicated periods ended October 31,
1997, was as follows:
10 Years/
Life of
Fund 1 Year 5 Years Fund
- --------- ------ ------- ---------
Energy 40.65% 18.87% 11.01%
Environmental Services 19.13% 10.41% 6.59%(1)
Financial Services 39.80% 24.88% 24.41%
Gold (44.38%) 2.26% (2.10%)
Health Sciences 22.96% 15.49% 22.83%
Leisure 22.32% 17.46% 19.72%
^ Technology - Class I(2) - - -^
Technology - Class II ^ 20.71% 23.65% 23.92%
Utilities 14.37% 12.88% 12.41%
- -----------------
(1) The Environmental Services Fund did not commence operations until
January 2, 1991. The total return of Environmental Services for the 82-month
period from January 2, 1991 (date of inception) through October 31, 1997 was
6.59%.
<PAGE>
(2) The ^ Technology Fund - Class I ^ did not commence operations until
December ^ 14, 1998.
Average annual total return performance for each of the periods indicated
was computed by finding the average annual compounded rates of return that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1 + T) exponent n = ERV
where: P = initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown above were
determined by solving the above formula for "T" for each time period and
Fund indicated.
The yield of the Utilities Fund for the month ended October 31, 1997, was
2.48%. This yield was computed by dividing the net investment income per share
earned during the period as calculated according to a prescribed formula by the
net asset value per share on October 31, 1997. Because dividends received on the
common stocks held by the Utilities Fund are generally paid near the end of
calendar quarters and are accounted for on ex-dividend dates, such dividend
income is recognized, for purposes of yield calculations, on an annualized
basis.
In conjunction with performance reports and/or analyses for the Funds,
comparative data between a Fund's performance for a given period and recognized
indices of investment results for the same period, and/or assessments of the
quality of shareholder service, may be provided to shareholders. Such indices
include indices provided by Dow Jones & Company, Standard & Poor's, Lipper
Analytical Services, Inc., Lehman Brothers, National Association of Securities
Dealers Automated Quotations, Frank Russell Company, Value Line Investment
Survey, the American Stock Exchange, Morgan Stanley Capital International,
Wilshire Associates, the Financial Times Stock Exchange, the New York Stock
Exchange, the Nikkei Stock Average and Deutcher Aktienindex, all of which are
unmanaged market indicators. In addition, rankings, ratings and comparisons of
investment performance and/or assessments of the quality of shareholder service
made by independent sources may be used in advertisements, sales literature or
shareholder reports, including reprints of, or selections from, editorials or
articles about the Companys. These sources utilize information compiled (i)
internally; (ii) by Lipper Analytical Services, Inc.; or (iii) by other
recognized analytical services. The Lipper Analytical Services, Inc. mutual fund
<PAGE>
rankings and comparisons which may be used by the Funds in performance reports
will be drawn from the mutual fund groupings listed in each Fund's prospectus,
in addition to the broad-based Lipper general fund groupings. Sources for Fund
performance information and articles about the Funds include, but are not
limited to, the following:
American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
CNBC
CNN
Consumer Digest
Financial Times
Financial World
Forbes
Fortune
Ibbotson Associates, Inc.
Institutional Investor
Investment Company Data, Inc.
Investor's Business Daily
Kiplinger's Personal Finance
Lipper Analytical Services, Inc.'s Mutual Company Performance
Analysis
Money
Morningstar
Mutual Company Forecaster
No-Load Analyst
No-Load Company X
Personal Investor
Smart Money
The New York Times
The No-Load Company Investor
U.S. News and World Report
United Mutual Company Selector
USA Today
Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
SERVICES PROVIDED BY THE FUND
Periodic Withdrawal Plan. As described in the section of the Funds'
prospectuses entitled "How To Sell Shares," the Company offers a Periodic
Withdrawal Plan. All dividends and distributions on shares owned by shareholders
participating in this Plan are reinvested in additional shares. Because
withdrawal payments represent the proceeds from sales of shares, the amount of
<PAGE>
shareholders' investments in the Company will be reduced to the extent that
withdrawal payments exceed dividends and other distributions paid and
reinvested. Any gain or loss on such redemptions must be reported for tax
purposes. In each case, shares will be redeemed at the close of business on or
about the 20th day of each month preceding payment and payments will be mailed
within five business days thereafter.
The Periodic Withdrawal Plan involves the use of principal and is not a
guaranteed annuity. Payments under such a Plan do not represent income or a
return on investment.
Participation in the Periodic Withdrawal Plan may be terminated at any time
by sending a written request to INVESCO. Upon termination, all future dividends
and capital gain distributions will be reinvested in additional shares unless a
shareholder requests otherwise.
Exchange Policy. As discussed in the section of the Funds' prospectuses
entitled "How To Buy Shares - Exchange Policy," the Company offers shareholders
the ability to exchange shares of any Fund of the Company for shares of any
other Fund and of exchanging shares of the Company for shares of certain other
no-load mutual funds advised by INVESCO. Exchange requests may be made either by
telephone or by written request to INVESCO, using the telephone number or
address on the cover of this Statement of Additional Information. Exchanges made
by telephone must be in an amount of at least $250 if the exchange is being made
into an existing account of one of the INVESCO funds. All exchanges that
establish a new account must meet the fund's applicable minimum initial
investment requirements. Written exchange requests into an existing account have
no minimum requirements other than the fund's applicable minimum subsequent
investment requirements. Any gain or loss realized on such an exchange is
recognized for federal income tax purposes. This ability is not an option or
right to purchase securities but is a revocable privilege permitted under the
present policies of each of the funds and is not available in any state or other
jurisdiction where the shares of the mutual fund into which transfer is to be
made are not qualified for sale or when the net asset value of the shares
presented for exchange is less than the minimum dollar purchase required by the
appropriate prospectus.
TAX-DEFERRED RETIREMENT PLANS
As described in the section of the Funds' prospectuses entitled "Fund
Services," shares of the Funds may be purchased as the investment medium for
various tax-deferred retirement plans. Persons who request information regarding
these plans from INVESCO will be provided with prototype documents and other
<PAGE>
supporting information regarding the type of plan requested. Each of these plans
involves a long-term commitment of assets and is subject to possible regulatory
penalties for excess contributions, premature distributions or for insufficient
distributions after age 70-1/2. The legal and tax implications may vary
according to the circumstances of the individual investor. Therefore, the
investor is urged to consult with an attorney or tax adviser prior to the
establishment of such a plan.
HOW TO REDEEM SHARES
Normally, payments for shares redeemed will be mailed within seven (7) days
following receipt of the required documents as described in the section of each
Fund's Prospectus entitled "How To Sell Shares." The right of redemption may be
suspended and payment postponed when: (a) the New York Stock Exchange is closed
for other than customary weekends and holidays; (b) trading on that exchange is
restricted; (c) an emergency exists as a result of which disposal by the Company
of securities owned by it is not reasonably practicable, or it is not reasonably
practicable for the Company fairly to determine the value of its net assets; or
(d) the Securities and Exchange Commission (the "SEC") by order so permits.
The Company has authorized one or more brokers to accept redemption orders
on the Funds' behalf. Such brokers are authorized to designate other
intermediaries to accept redemption orders on the Funds' behalf. The Funds will
be deemed to have received a redemption order when an authorized broker or, if
applicable, a broker's authorized designee, accepts the order. A redemption
order will be priced at a Fund's net asset value next calculated after the order
has been accepted by an authorized broker or the broker's authorized designee.
It is possible that in the future conditions may exist which would, in the
opinion of the Company's investment adviser, make it undesirable for a Fund to
pay for redeemed shares in cash. In such cases, the investment adviser may
authorize payment to be made in portfolio securities or other property of the
Company. However, the Company is obligated under the 1940 Act to redeem for cash
all shares of a Fund presented for redemption by any one shareholder having a
value up to $250,000 (or 1% of the Fund's net assets if that is less) in any
90-day period. Securities delivered in payment of redemptions are selected
entirely by the investment adviser based on what is in the best interests of the
Fund and its shareholders, and are valued at the value assigned to them in
computing the Fund's net asset value per share. Shareholders receiving such
securities are likely to incur brokerage costs on their subsequent sales of the
securities.
<PAGE>
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
The Company intends to continue to conduct its business and satisfy the
applicable diversification of assets and source of income requirements to
qualify as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company so qualified
in the fiscal year ended October 31, 1997, and the Company intends to qualify
during its current fiscal year. As a result, it is anticipated that the Company
will not pay federal income or excise taxes and the Company will be accorded
conduit or "pass through" treatment for federal income tax purposes.
Dividends paid by each Fund from net investment income as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
each Fund sends shareholders information regarding the amount and character of
dividends paid in the year.
Distributions by each Fund of net capital gain (the excess of net long-term
capital gain over net short-term capital loss) are, for federal income tax
purposes, taxable to the shareholder as long-term capital gains regardless of
how long a shareholder has held shares of the Fund. During 1997, the Taxpayer
Relief Act established a new maximum capital gains tax rate of 20%. Depending on
the holding period of the asset giving rise to the gain, capital gain was
taxable at a maximum rate of either 20% or 28%. Beginning January 1, 1998, all
long-term gains on the sale of securities held for more than 12 months will be
taxable at a maximum rate of 20%. In addition, legislation signed in October of
1998 provides that all capital gain distributions from a mutual fund paid to
shareholders during 1998 will be taxed at a maximum rate of 20%. Accordingly,
all long-term gain distributions paid in 1998 will be taxable at a maximum rate
of 20%. Note that the rate of capital gains tax is dependent on the
shareholder's marginal tax rate and may be lower than the above rates. At the
end of each year, information regarding the tax status of dividends and other
distributions is provided to shareholders. Shareholders should consult their tax
adviser as to the effect of distributions by each Fund.
All dividends and other distributions are regarded as taxable to the
investor, regardless whether such dividends and distributions are reinvested in
additional shares of one of the Funds or another fund in the INVESCO group. The
<PAGE>
net asset value of Fund shares reflects accrued net investment income and
undistributed realized capital and foreign currency gains; therefore, when a
distribution is made, the net asset value is reduced by the amount of the
distribution. If the net asset value of Fund shares were reduced below a
shareholder's cost as a result of a distribution, such distribution would be
taxable to the shareholder although a portion would be, in effect, a return of
invested capital. If shares are purchased shortly before a distribution, the
full price for the shares will be paid and some portion of the price may then be
returned to the shareholder as a taxable dividend or capital gain. However, the
net asset value per share will be reduced by the amount of the distribution,
which would reduce any gain (or increase any loss) for tax purposes on any
subsequent redemption of shares.
INVESCO may provide shareholders with information concerning the average
cost basis of their shares in a Fund in order to help them prepare their tax
returns. This information is intended as a convenience to shareholders, and will
not be reported to the Internal Revenue Service (the "IRS"). The IRS permits the
use of several methods to determine the cost basis of mutual fund shares. The
cost basis information provided by INVESCO will be computed using the
single-category average cost method, although INVESCO does not recommend any
particular method of determining cost basis. Other methods may result in
different tax consequences. If a shareholder has reported gains or losses for a
Fund in past years, the shareholder must continue to use the method previously
used, unless the shareholder applies to the IRS for permission to change the
method.
If a Fund's shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and net capital gains for the one-year period
ending on October 31 of that year, plus certain other amounts.
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of a
Fund's total assets at the close of any taxable year consists of securities of
<PAGE>
foreign corporations, the Fund will be eligible to, and may, file an election
with the Internal Revenue Service that will enable its shareholders, in effect,
to receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions income taxes paid by it. Each Fund will report to its
shareholders shortly after each taxable year their respective shares of the
Fund's income from sources within, and taxes paid to, foreign countries and U.S.
possessions if it makes this election. Otherwise, foreign taxes withheld will be
treated as an expense of the Fund.
Each Fund may invest in the stock of "passive foreign investment companies"
(PFICs"). A PFIC is a foreign corporation (other than a controlled foreign
corporation) that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, a Fund will be subject to federal income tax on a portion of any
"excess distribution" received on the stock of a PFIC or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the Company distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in such Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders.
Each Fund may elect to "mark-to-market" its stock in any PFIC.
Marking-to-market, in this context, means including in ordinary income for each
taxable year the excess, if any, of the fair market value of the PFIC stock over
a Fund's adjusted tax basis therein as of the end of that year. Once the
election has been made, a Fund also will be allowed to deduct from ordinary
income the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the end of the year, but only to the extent of any
net mark-to-market gains with respect to that PFIC stock included by a Fund for
prior taxable years. A Fund's adjusted tax basis in each PFIC's stock with
respect to which it makes this election will be adjusted to reflect that amounts
of income included and deductions taken under the election.
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time such Fund
actually collects the receivables or pays the liabilities, generally will be
<PAGE>
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and other
distributions will generally be subject to applicable state and local taxes.
Qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended, for income tax purposes does not entail government
supervision of management or investment policies.
INVESTMENT PRACTICES
Leverage. The ^ INVESCO Technology Fund - Class I ^ is permitted to borrow
for the purpose of purchasing portfolio securities. This is a speculative
technique commonly known as leverage. Since the Technology Fund's inception,
leverage has never been employed, and it may not be employed by any of the Funds
without express authorization of the Company's board of directors. Such
authorization is not presently contemplated. Should the leverage technique be
employed at some future date, it would be employed with the expectation that
portfolio gains attributable to the investment of borrowed monies will exceed
the interest costs on such monies. If this expectation were not realized and the
market value of securities so purchased declined, however, the impact of such
market decline would be increased by the amount of interest paid on such
borrowings.
Fund Turnover. There are no fixed limitations regarding portfolio turnover
for any of the Company's Funds. Brokerage costs to the Company are commensurate
with the rate of portfolio activity. Fund turnover rates for the fiscal years
ended October 31, 1997, 1996 and 1995, were as follows:
Fund 1997 1996 1995
--------- ---- ---- ----
Energy 249% 392% 300%
Environmental Services 187 142 195
Financial Services 96 141 171
Gold 148 155 72
Health Sciences 143 90 107
Leisure 25 56 119
Technology - Class II 237 168 191
Utilities 55 141 185
In computing the portfolio turnover rate, all investments with maturities
or expiration dates at the time of acquisition of one year or less are excluded.
Subject to this exclusion, the turnover rate is calculated by dividing (A) the
<PAGE>
lesser of purchases or sales of portfolio securities for the fiscal year by (B)
the monthly average of the value of portfolio securities owned by the Fund
during the fiscal year.
Placement of Fund Brokerage. INVESCO, as the Company's investment adviser,
places orders for the purchase and sale of securities with brokers and dealers
based upon INVESCO's evaluation of the brokers' and dealers' financial
responsibility, subject to such brokers' and dealers' ability to effect
transactions at the best available prices. INVESCO evaluates the overall
reasonableness of brokerage commissions or underwriting discounts (the
difference between the full acquisition price to acquire a new offering and the
discount offered to members of the underwriting syndicate) paid by reviewing the
quality of executions obtained on portfolio transactions of each applicable
Fund, viewed in terms of the size of transactions, prevailing market conditions
in the security purchased or sold, and general economic and market conditions.
In seeking to ensure that any commissions or discounts charged the Funds are
consistent with prevailing and reasonable commissions, INVESCO also endeavors to
monitor brokerage industry practices with regard to the commissions charged by
broker-dealers on transactions effected for other comparable institutional
investors. While INVESCO seeks reasonably competitive rates, the Funds do not
necessarily pay the lowest commission, spread or discount available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, INVESCO may select brokers that provide research
services to effect such transactions. Research services consist of statistical
and analytical reports relating to issuers, industries, securities and economic
factors and trends, which may be of assistance or value to INVESCO in making
informed investment decisions. Research services prepared and furnished by
brokers through which the Funds effect securities transactions may be used by
INVESCO in servicing all of their respective accounts and not all such services
may be used by INVESCO in connection with the Company's Funds.
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, INVESCO, consistent with the standard of
seeking to obtain the best execution on portfolio transactions, may place orders
with such brokers for the execution of transactions for the Company's Funds on
which the commissions are in excess of those which other brokers might have
charged for effecting the same transactions.
Fund transactions may be effected through qualified brokers and dealers who
recommend the Funds to their clients or who act as agent in the purchase of any
of the Funds' shares for their clients. When a number of brokers and dealers can
<PAGE>
provide comparable best price and execution on a particular transaction, the
Company's adviser may consider the sale of Fund shares by a broker or dealer in
selecting among qualified brokers and dealers.
Certain financial institutions (including brokers who may sell shares of
the Company, or affiliates of such brokers) are paid a fee (the "Services Fee")
for recordkeeping, shareholder communications and other services provided by the
financial institution or such affiliates to investors purchasing shares of the
Funds through no transaction fee programs ("NTF Programs") offered by the
financial institution or its affiliated broker (an "NTF Program Sponsor"). The
Services Fee is based on the average daily value of the investments in each Fund
made in the name of such NTF Program Sponsor and held in omnibus accounts
maintained on behalf of investors participating in the NTF Program. The
Company's directors have authorized each Fund to pay transfer agency fees to
INVESCO based on the number of investors who have beneficial interests in the
NTF Program Sponsor's omnibus accounts in the Company. INVESCO, in turn, pays
these transfer agency fees to the NTF Program Sponsor as a sub-transfer agency
or recordkeeping fee in payment of all or a portion of the Services Fee. In the
event that the sub-transfer agency or recordkeeping fee is insufficient to pay
all of the Services Fee with respect to these NTF Programs, the directors of the
Company have authorized the Company to apply dollars generated from the Plan to
pay the remainder of the Services Fee, subject to the maximum Rule 12b-1 fee
permitted by the Plan. INVESCO itself pays the portion of each Fund's Services
Fee, if any, that exceeds the sum of the sub-transfer agency or recordkeeping
fee and Rule 12b-1 fee. The Company's directors have further authorized INVESCO
to place a portion of the Company's brokerage transactions with certain NTF
Program Sponsors or their affiliated brokers, if INVESCO reasonably believes
that, in effecting the Company's transactions in portfolio securities, the
broker is able to provide the best execution of orders at the most favorable
prices. A portion of the commissions earned by such a broker from executing
portfolio transactions on behalf of the Company may be credited by the NTF
Program Sponsor against its Services Fee. Such credit shall be applied against
any sub-transfer agency or recordkeeping fee payable with respect to the Company
on a basis which has resulted from negotiations between INVESCO or IDI and the
NTF Program Sponsor. Thus, the Company pays sub-transfer agency or recordkeeping
fees to the NTF Program Sponsor in payment of the Services Fee only to the
extent that such fees are not offset by the Fund's credits. In the event that
the transfer agency fee paid by a Fund to INVESCO with respect to investors who
have beneficial interests in a particular NTF Program Sponsor's omnibus accounts
in that Fund exceeds the Services Fee applicable to the Fund, after application
of credits, INVESCO may carry forward the excess and apply it to future Services
<PAGE>
Fees payable to that NTF Program Sponsor with respect to the Company. The amount
of excess transfer agency fees carried forward will be reviewed for possible
adjustment by INVESCO prior to each fiscal year-end of the Fund. The Company's
board of directors has also authorized the Funds (except the ^ Technology Fund -
Class I^) to pay to IDI the full Rule 12b-1 fees contemplated by the Plan as
payment for expenses incurred by IDI in engaging in the activities and providing
the services on behalf of the Funds contemplated by the Plan, subject to the
maximum Rule 12b-1 fee permitted by the Plan, notwithstanding that credits have
been applied to reduce the portion of the 12b-1 fee that would have been used to
compensate IDI for payments to such NTF Program Sponsor absent such credits.
The aggregate dollar amounts of brokerage commissions paid by the Company
for the fiscal years ended October 31, 1997, 1996 and 1995 were $19,588,903,
$17,056,949 and $14,162,585, respectively. On a Fund basis, the aggregate amount
of brokerage commissions paid in fiscal 1997 breaks down as follows: Energy,
$2,930,676; Environmental Services, $389,416; Financial Services, $2,984,942;
Gold, $2,041,911; Health Sciences, $3,867,011; Leisure, $678,011; Technology,
$6,214,757; and Utilities, $481,479. For the year ended October 31, 1997,
brokers providing research services received $7,484,369 in commissions on
portfolio transactions effected for the Company. On a Fund basis, this breaks
down as follows: Energy, $1,056,892; Environmental Services, $81,883; Financial
Services, $972,552; Gold, $1,180,686; Health Sciences, $1,843,742; Leisure,
$122,417; Technology, $2,088,347 and Utilities, $137,850. The aggregate dollar
amount of such portfolio transactions was $4,404,563,694. On a Fund basis this
figure breaks down as follows: Energy, $553,816,858; Environmental Services,
$32,277,206; Gold, $332,821,821; Health Sciences, $1,237,093,851; Financial
Services, $789,895,358; Leisure, $48,748,634; Technology, $1,342,507,339; and
Utilities $67,402,627. The Company paid $2,344,896 in compensation to brokers
for the sale of shares of the Company during the fiscal year ended October 31,
1997. On a Fund basis this breaks down as follows: Energy, $200,136;
Environmental Services, $33,506; Financial Services, $465,330; Gold, $238,380;
Health Sciences, $458,920; Leisure, $147,816; Technology, $743,112; and
Utilities, $57,696.
At October 31, 1997 the Company's Funds held securities of their regular
brokers or dealers, or the parent companies of such brokers and dealers, as
follows:
Value of
Securities
Fund Broker or Dealer at 10/31/97
- --------- ---------------- -----------
ENERGY FUND None
ENVIRONMENTAL None
SERVICES FUND
<PAGE>
FINANCIAL SERVICES Associates Corporation of $28,460,000.00
FUND North America
State Street Boston $828,711,500.00
Corporation
Ford Motor Credit $28,463,000.00
Household Finance $30,496,000.00
Morgan Stanley Dean Witter $12,740,000.00
GOLD FUND None
HEALTH SCIENCES Household Finance $27,100,000.00
FUND
Household Finance $35,130,000.00
LEISURE FUND CIGNA $6,302,000.00
TECHNOLOGY FUND - Household Finance $42,851,000.00
CLASS II
UTILITIES FUND Associates Corporation of $4,620,000.00
North America
INVESCO does not receive any brokerage commissions on portfolio
transactions effected on behalf of the Company, and there is no affiliation
between INVESCO or any person affiliated with INVESCO or the Company and any
broker or dealer that executes transactions for the Company.
ADDITIONAL INFORMATION
Common Stock. The Company has one billion authorized shares of common stock
with a par value of $0.01 per share. Of the Company's authorized shares,
100,000,000 shares have been allocated to each of the Company's eight Funds. As
of November 30, 1997, shares outstanding for each Fund were as follows:
Fund Shares Outstanding
--------- ------------------
Energy 14,941,799
Environmental Services 1,904,144
Financial Services 38,794,048
Gold 44,994,993
Health Sciences 16,378,410
Leisure 7,868,413
^ Technology - Class I ^ 0
^ Technology - Class II ^ 30,431,538
Utilities 14,387,953
<PAGE>
The board of directors has the authority to designate additional
classes of Common Stock without seeking the approval of shareholders and may
classify and reclassify any authorized but unissued shares.
Shares of each series represent the interests of the shareholders of such
series or class of series in a particular portfolio of investments of the
Company. Each series of the Company's shares is preferred over all other series
or classes of series with respect to the assets specifically allocated to that
series or class, and all income, earnings, profits and proceeds from such
assets, subject only to the rights of creditors, are allocated to shares of that
series or class. The assets of each series or class are segregated on the books
of account and are charged with the liabilities of that series or class and with
a share of the Company's general liabilities. The board of directors determines
those assets and liabilities deemed to be general assets or liabilities of the
Company, and these items are allocated among series and classes in proportion to
the relative total assets of each series or class. In the unlikely event that a
liability allocable to one series or class exceeds the assets belonging to the
series or class, all or a portion of such liability may have to be borne by the
holders of shares of the Company's other series or class.
All shares, regardless of Fund, have equal voting rights. Voting with
respect to certain matters, such as ratification of independent accountants or
election of directors, will be by all series of the Company. When not all series
or classes are affected by a matter to be voted upon, such as approval of an
investment advisory contract or changes in a Fund's investment policies, only
shareholders of the series or class affected by the matter may be entitled to
vote. Company shares have noncumulative voting rights, which means that the
holders of a majority of the shares voting for the election of directors can
elect 100% of the directors if they choose to do so. In such event, the holders
of the remaining shares voting for the election of directors will not be able to
elect any person or persons to the board of directors. After they have been
elected by shareholders, the directors will continue to serve until their
successors are elected and have qualified or they are removed from office, in
either case by a shareholder vote, or until death, resignation, or retirement.
Directors may appoint their own successors, provided that always at least a
majority of the directors have been elected by the Company's shareholders. It is
the intention of the Company not to hold annual meetings of shareholders. The
directors will call annual or special meetings of shareholders for action by
shareholder vote as may be required by the 1940 Act or the Company's Articles of
Incorporation, or at their discretion.
<PAGE>
Principal Shareholders. As of August 31, 1998, the following entities held
more than 5% of the Company's and each Fund's outstanding equity securities.
Class and
Amount and Nature Percent
Name and Address of Ownership of Class
- ---------------- ----------------- ---------
Energy Fund
None
Gold Fund
Charles Schwab & Co. Inc. 18,816,803.6640 36.54%
Special Custody Acct. For Record
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
Health Sciences Fund
Charles Schwab & Co. Inc. 4,941,445.4110 25.05%
Special Custody Acct. For Record
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
Leisure Fund
Charles Schwab & Co. Inc. 2,140,109.8530 26.70%
Special Custody Acct. For Record
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
<PAGE>
Technology Fund - Class II
Charles Schwab & Co. Inc. 10,325,718.1760 29.27%
Special Custody Acct. For Record
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
State Street Global Adv. Tr. 3,645,668.2270 10.34%
Boeing Company Master Trust Record
200 Newport Ave. J26N
N. Quincy, MA 02170-1742
Financial Services Fund
Charles Schwab & Co. Inc. 16,415,780.3280 33.20%
Special Custody Acct. For Record
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
National Financial Services Corp. 2,583,601.6260 5.23%
The Exclusive Benefit of Cust. Record
One World Financial Center
200 Liberty St., 5th Floor
New York, NY 10281-5500
Utilities Fund
Charles Schwab & Co. Inc. 4,753,758.3780 41.76%
Special Custody Acct. For Record
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
Environmental Services Fund
Charles Schwab & Co. Inc. 504,936.3570 24.38%
Special Custody Acct. For Record
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
<PAGE>
Independent Accountants. PricewaterhouseCoopers LLP, 950 Seventeenth
Street, Denver, Colorado, has been selected as the independent accountants of
the Company. The independent accountants are responsible for auditing the
financial statements of the Company.
Custodian. State Street Bank and Trust Company, P.O. Box 351, Boston,
Massachusetts, has been designated as custodian of the cash and investment
securities of the Company. The bank is also responsible for, among other things,
receipt and delivery of the Company's investment securities in accordance with
procedures and conditions specified in the custody agreement. Under its contract
with the Company, the custodian is authorized to establish separate accounts in
foreign countries and to cause foreign securities owned by the Company to be
held outside the United States in branches of U.S. banks and, to the extent
permitted by applicable regulations, in certain foreign banks and foreign
securities depositories.
Transfer Agent. INVESCO, 7800 E. Union Avenue, Denver, Colorado 80237, acts
as registrar, dividend disbursing agent and transfer agent for the Company
pursuant to the Transfer Agency Agreement described in "The Company And Its
Management." Such services include the issuance, cancellation and transfer of
shares of the Company, and the maintenance of records regarding the ownership of
such shares.
Reports to Shareholders. The Company's fiscal year ends on October 31. The
Company distributes reports at least semiannually to its shareholders. Financial
statements regarding the Company, audited by the independent accountants, are
sent to shareholders annually.
Legal Counsel. The firm of Kirkpatrick & Lockhart, LLP, Washington, D.C. is
legal counsel for the Company. The firm of Moye, Giles, O'Keefe, Vermeire &
Gorrell, Denver, Colorado, acts as special counsel for the Company.
Financial Statements. The Company's audited financial statements and the
notes thereto for the fiscal year ended October 31, 1997, and the report of
PricewaterhouseCoopers LLP with respect to such financial statements, are
incorporated herein by reference from the Company's Annual Report to
Shareholders for the fiscal year ended October 31, 1997.
Prospectuses. The Company will furnish, without charge, a copy of a
Prospectus upon request. Such requests should be made to the Company at the
mailing address or telephone number set forth on the first page of this
Statement of Additional Information.
Registration Statement. This Statement of Additional Information and the
Prospectus do not contain all of the information set forth in the Registration
Statement the Company has filed with the Securities and Exchange Commission. The
<PAGE>
complete Registration Statement may be obtained from the Securities and Exchange
Commission upon payment of the fee prescribed by the rules and regulations of
the Commission.
<PAGE>
APPENDIX A
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS (Energy, Environmental,
Financial Services, Health Sciences, Leisure, ^ Technology - Class II ^ and
Utilities Funds)
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 purchase 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
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.
<PAGE>
An option position in an exchange-traded option may be closed out only on
an exchange which provides a secondary market for an option of the same series.
Although the Fund will generally purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option at
any particular time. In such event it might not be possible to effect closing
transactions in a particular option with the result that the Fund would have to
exercise the option in order to realize any profit. This would result in the
Fund's incurring brokerage commissions upon the disposition of underlying
securities acquired through the exercise of a call option or upon the purchase
of underlying securities upon the exercise of a put option. If the Fund as
covered call option writer is unable to effect a closing purchase transaction in
a secondary market, unless the Fund is required to deliver the securities
pursuant to the assignment of an exercise note, 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 exchange 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, believe 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 reasonable anticipated volume.
<PAGE>
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 sole (written) to dealers or
financial institutions which have enters into direct agreements with a Fund.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between a Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. If the transacting dealer fails
to make or take delivery of the securities underlying an option it has written,
in accordance with the terms of that option as written, the Fund would lose the
premium paid for the option as well as any anticipated benefit of the
transaction. A Fund will engage 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.
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 receive. 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."
<PAGE>
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, int he 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 ate. A writer therefore has no
control over whether an option will be exercised against it, nor over the time
of such exercise.
