October 31, 1998
INVESCO
STRATEGIC
FUNDS
ENERGY
ENVIRONMENTAL SERVICES
FINANCIAL SERVICES
GOLD
HEALTH SCIENCES
LEISURE
TECHNOLOGY
UTILITIES
No-load funds investing in targeted industry sectors.
INVESCO
You should know what INVESCO knows (tm)
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Market Overview November 1998
"It was the best of times, it was the worst of times." For many investors,
the opening of Charles Dickens' A Tale of Two Cities best describes their
investments in 1998. On one hand, investments in many large, domestic blue chip
companies have performed well. However, for investors in emerging markets and
small-cap stocks, it has been a rather different story.
This has been a year that tested the skills of even the most experienced
investor, with the domestic equity markets reaching unprecedented heights in the
spring of '98, suffering a severe correction, and then rallying again. But what
has really changed in 1998?
o Economy: The domestic economy continues to expand even though many
developing nations are enduring recessions. With U.S. unemployment at record low
levels and real wages accelerating, consumers have been willing to spend. It is
important to remember that consumer spending is responsible for approximately
two-thirds of Gross Domestic Product. In addition, lower interest rates on
mortgages have enticed homeowners to refinance, increasing their disposable
income.
o Interest rates: As the global financial crisis intensified during the
last year, the threat of an overheating economy diminished, and interest rates
declined significantly -- with Treasury yields reaching levels not seen since
the 1960s. In addition, worries over the bailout of the hedge fund Long-Term
Capital Management combined with a global credit crunch caused the Federal
Reserve Board to lower the Fed funds rate by 25 basis points three times in a
seven-week period in the fall of '98. This was the first move by the Fed since
it increased the Fed funds rate in the spring of '97.
o Corporate Earnings: The strong U.S. dollar, intense price competition
worldwide, and slowing global economies have decreased revenues for many
multinationals, squeezing corporate profits. Furthermore, increasing wages (due
to the tight labor market) are also putting pressure on profit margins, and the
growth rate in corporate earnings has slowed.
o Market Volatility: The last four years have been rewarding for
investors, as domestic equity markets produced above-average returns with
limited volatility. However, this year volatility returned to the markets;
August 1998 marked the worst month for equities since October 1987. For the
long-term investor, volatility is just part of the price of doing business when
investing in equities.
As we move into 1999, the market environment for domestic equities has
changed to an extent; yet, in many respects, it remains similar to the last four
years. Low inflation, declining interest rates, and positive domestic economic
growth lend support to the underlying fundamentals for equities. Granted, the
slowdown in many international economies may retard growth here at home, but it
appears that our economy is strong enough to weather the storm.
The U.S. remains the one global economic superpower. Compared to many
international firms, domestic companies are highly efficient, productive, and
profitable. The strong dollar and intense price competition have slowed the rate
of growth in earnings in 1998, but the earnings outlook for 1999 appears
brighter as many international economies start to recover. In addition, equity
markets are forward-looking in nature and seem to be telling us that the worst
of the global financial crisis may be over. However, investors should continue
to expect heavy day-to-day volatility in the equity markets and remain focused
on their long-term goals.
The line graphs on the following pages illustrate the value of a $10,000
investment in each of the INVESCO Strategic Funds, plus reinvested dividends and
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capital gain distributions, for the 10-year period ended 10/31/98; or, in the
case of Environmental Services Fund, from inception through 10/31/98. The charts
and other total return figures cited reflect the funds' operating expenses; but
the indexes do not have expenses, which would, of course, have lowered their
performance.
Energy Fund
Although the fund is well-diversified throughout the energy sector, it is,
of course, designed to focus narrowly on one segment of the economy. Because of
this concentration, there will be periods of time when the fund will under- or
overperform the broad market. Unlike many natural resources funds, the fund does
not invest in gold, forestry, or natural resources -- it is a pure energy fund.
For the one-year period ended 10/31/98, Energy Fund had a total return of
- -28.51%, compared to 21.96% for the S&P 500. (Of course, past performance is not
a guarantee of future results.)(1)(2)
Review & Outlook
A Conversation with Vice President and Portfolio Manager John Segner Why
has the energy sector lagged the broader market recently?
Declining energy prices and decreased global demand created negative
sentiment towards the sector in the last 12 months. The global currency crisis
produced slowing economic growth, and in many cases recessions, in the world's
fastest growing economies. These economies, especially in the Asian/Pacific Rim
region, had been increasing their energy consumption at accelerating rates in
the last decade; but with these economies in turmoil, energy consumption
decreased. This created a supply/demand imbalance in the crude oil market, and
oil prices plummeted to levels not seen in 10 years. Although many industries in
the energy sector are experiencing positive fundamentals, the negative sentiment
created by falling energy prices depressed valuations in the sector as a whole.
Energy Fund
Average Annualized Total Return
as of 10/31/98(2)
1 year -28.51%
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5 years 5.93%
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10 years 5.70%
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What changes have you made to the portfolio?
I try to keep the portfolio well-diversified across the entire energy
sector to give our shareholders a broad representation. During the last 12
months, I have become increasingly more positive on the natural gas industry; as
a result, I have increased the fund's exposure to this area.
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Why are you positive on the natural gas industry?
I feel that this industry is entering a major growth cycle for the
following reasons:
o The demand for natural gas is increasing as nations seek cleaner burning
fuels to replace environmentally unfriendly fuels, such as coal, which create
severe pollution problems. In many third-world countries, the pollution in major
cities is so bad that people need to wear masks to protect their lungs.
o Existing natural gas wells are becoming depleted. Although new natural
gas reserves are being found worldwide, it appears that most of the low-cost
wells have been found; the new wells are higher-cost production sites.
o Natural gas needs to be found relatively close to its end destination.
Unlike crude oil, it is not feasible to ship large quantities of natural gas
across the ocean in tankers at current prices. Instead, natural gas needs to be
carried by pipelines to its final destination.
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Energy Fund to the value of a $10,000 investment
in the S&P 500 Index, assuming in each case reinvestment of all dividends
and capital gain distributions, for the ten year period ended 10/31/98.
What areas produced the biggest disappointments in the last year?
Oil services and exploration & production companies hindered the fund's
performance. Declining crude prices hurt bottom-line results, and valuations
contracted since these firms' earnings are highly dependent on crude prices.
What's your near-term outlook?
I'm cautiously optimistic over the near-term, but very positive on the
sector over the longer-term. Even though crude oil prices suffered significant
declines in the last year, global demand for oil is still increasing -- albeit
at a slower rate. Furthermore, the depressed prices for energy have forced many
firms to reduce their capital spending, as it is not economically viable to
produce oil and gas at the current prices. This will gradually decrease the
supply of oil and gas on the open market and bring supply and demand back into
balance.
In addition, oil inventories are decreasing and OPEC's production quotas
are starting to decrease their supply. For the patient long-term investor,
improving fundamentals within this sector may offer opportunities for
significant appreciation over the next five to 10 years.
The fund is managed by Vice President John S. Segner. He received a BS
from the University of Alabama and an MBA from the University of Texas at
Austin. Before joining INVESCO in 1997, John served as Managing Director and
Principal for The Mitchell Group, and was a co-manager of an institutional
energy portfolio worth over $250 million. Prior to The Mitchell Group, he held
responsibilities with Texaco Inc., Amerada Hess Corporation, and First Tennessee
National Corporation.
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Environmental Services Fund
Environmental Services Fund
Average Annualized Total Return
as of 10/31/98(2)
1 year -12.09%
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5 years 9.86%
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10 years 4.01%
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For the one-year period ended 10/31/98, Environmental Services Fund had a
total return of -12.09%, compared to 21.96% for the S&P 500. (Of course, past
performance is not a guarantee of future results.)(1)(2)
Review & Outlook
A Conversation with Senior Vice President and Portfolio Manager John
Schroer
What changes have been made to the portfolio?
During the last 12 months, probably the biggest change was an adjustment
to the fund's allocation strategy. Seeking to increase the growth
characteristics of the portfolio, we modified holdings so that 40% of its assets
are in sewage & waste companies, 40% in water, and 20% in higher-growth
companies which may or may not have exposure to the environmental services
sector.
Why do you focus on sewage & waste and water companies?
We believe that these two areas offer the best growth opportunities in the
sector. Industry consolidation continues to be a driving force in the sewage &
waste industry. Furthermore, increased competition has forced firms to become
more efficient and profitable -- enhancing their growth potential.
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Environmental Services Fund to the value of a
$10,000 investment in the S&P 500 Index, assuming in each case
reinvestment of all dividends and capital gain distributions, for the
period from inception (1/91) through 10/31/98.
For the water industry, more health-conscious consumers have increased
their awareness of water purity and its potential impact on the body. As
municipal water quality deteriorates, consumer emphasis on water purity should
increase, benefiting selected water companies.
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What's your near-term outlook?
The environmental services sector is presently more conservatively valued
than other areas of the market. This sector has little exposure to international
economies, and is less economically sensitive than most areas of the market. We
continue to believe that for the patient investor, long-term growth
opportunities exist in this sector.
Environmental Services Fund is managed by INVESCO Senior Vice President
John R. Schroer, a Chartered Financial Analyst. John started his investment
career in 1989, after earning an MBA and BA from the University of Wisconsin.
Financial Services Fund
Overall, and for the three- and 10-year periods ended 10/31/98, the fund
received the prestigious five-star rating for risk-adjusted performance by
independent mutual fund analyst Morningstar. For the five-year period ended
10/31/98 the fund received four stars.(3)
During the one-year period ended 10/31/98, Financial Services Fund had a
total return of 11.76%, compared to 21.96% for the S&P 500. (Of course, past
performance is not a guarantee of future results.)(1)(2)
Review & Outlook
A Conversation with Vice President and Portfolio Manager Jeff Morris
What changes have you made to the portfolio in the 12 months?
The financial services sector lagged the broader market over the last
year, as the risks associated with these securities increased due to the
volatility in the financial markets, as well as uncertainty concerning the broad
economy.
The fund remains focused on three main areas:
o Banks: regional and money-center banks
o Insurance: life, property & casualty, and multiline companies
o Investment and miscellaneous industries: asset managers, brokerage
firms, and government-sponsored agencies
During the last 12 months, we have used market volatility to upgrade the
quality of holdings in the portfolio. This was especially true in the insurance
industry, where we increased the fund's exposure to companies with more
growth-oriented products. Furthermore, demutualization -- the transfer of
ownership of insurance companies from policyholders to public shareholders --
should create enormous investment opportunities and foster further consolidation
in the insurance industry in the next three to five years.
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Financial Services Fund
Average Annualized Total Return
as of 10/31/98(2)
1 year 11.76%
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5 years 20.37%
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10 years 20.37%
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What changes did you make in the banking industry?
The investment risk associated with these holdings increased over the last
year. The "Year 2000" problem (the inability of computers and software to
correctly interpret the date on January 1, 2000) may force many banks to
increase their spending on this issue over the next year, potentially slowing
earnings growth. However, this problem may also increase consolidation in the
banking industry, as many banks that are not ready for the year 2000 may be
forced to merge with banks that have the financial capability to address this
problem.
In addition, the emerging markets crisis has deteriorated the quality of
balance sheets for many international banks. Thus, we have focused the portfolio
on well-run banks and thrifts that are more domestically focused with attractive
business mixes, and institutions that have exhibited economic intelligence with
the deployment of capital. Two of our favorite banks remain BankAmerica Corp and
US Bancorp.
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Financial Services Fund to the value of a
$10,000 investment in the S&P 500 Index, assuming in each case
reinvestment of all dividends and capital gain distributions, for the ten
year period ended 10/31/98.
Didn't asset managers and brokerage firms suffer significant losses when
the market corrected?
Yes, these firms' revenues and earnings are dependent on robust financial
markets. When the markets corrected, these securities experienced a significant
contraction in prices. However, we reduced the fund's exposure to these
companies in June and July, and re-acquired these stocks in August and September
as the market oversold these institutions. When the equity markets recovered
this fall, these stocks experienced significant appreciation.
What's your near-term outlook?
I remain cautious for the near-term, as some important questions need to
be answered. Probably the biggest uncertainty is whether the Federal Reserve
Board can avert an economic slowdown in the U.S. The recent reduction in the
Federal Funds rate and the discount rate should help the economy, but 1999 may
be a difficult year as slowing global economies will put pressure on the U.S.
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Longer-term, the drivers for growth in this sector remain intact and
should support this sector over the next five to 10 years. These trends are:
o The aging of the population
o Industry consolidation
o Deregulation
o Technological innovation
o Globalization
Vice President Jeffrey G. Morris is lead manager of Financial Services
Fund. Jeff joined INVESCO in 1991, served as a research analyst from 1994 to
1995, and became a vice president in 1997. He earned a BS from Colorado State
University and MS from the University of Colorado - Denver. He is a Chartered
Financial Analyst.
Jeff is assisted by INVESCO Senior Vice President Daniel B. Leonard. Dan
joined INVESCO in 1975; his investment experience extends back to 1960. He
attended the New York University Graduate School of Business and holds a BA from
Washington & Lee University.
Gold Fund
Gold Fund
Average Annualized Total Return
as of 10/31/98(2)
1 year -39.98%
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5 years -15.55%
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10 years -6.00%
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For the one-year period ended 10/31/98, Gold Portfolio had a total return
of -39.98%, compared to 21.96% for the S&P 500. (Of course, past performance is
not a guarantee of future results.)(1)(2)
Review & Outlook
A conversation with Senior Vice President and Portfolio Manager Dan
Leonard.
Why have the securities of gold companies performed so poorly in the last
year?
Like any stock, the share price of a gold company is highly dependent on
the firm's ability to make money. For these companies, their bottom-line results
are predominantly influenced by the prevailing price of gold. During the past 12
months, gold prices declined to levels not seen in 18 years, and as a result,
security prices contracted.
What caused the price of gold to drop so much?
I think there were two main reasons for the decline:
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o First, many European central banks sold a portion of their gold reserves
in the last year as they prepared for the European Monetary Union.
o Second, the Asian financial crisis caused consumers in that region to
decrease their demand for gold jewelry as their economies entered recessions. In
fact, certain Asian governments, like South Korea, asked their citizens to turn
in their gold jewelry to the government, so it could be melted down and sold for
hard currency.
Did this decline in the price of gold change your investment strategy?
No. The fund continued to use its growth gold philosophy. This strategy
focuses on the junior- to mid-sized gold exploration companies around the world.
Unfortunately, these securities have experienced greater declines than most gold
stocks, but when the price of gold recovers, these stocks may outperform other
gold companies.
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Gold Fund to the value of a $10,000 investment
in the S&P 500 Index, assuming in each case reinvestment of all dividends
and capital gain distributions, for the ten year period ended 10/31/98
It appears that the price of gold is starting to recover?
In my opinion, the price hit bottom a few months ago, and we are starting
to see the initial signs of a rally.
The supply-demand imbalance that was present earlier in the year has
finally washed out of the system. In addition, I believe that numerous foreign
governments are starting to realize that if currencies in the emerging markets
were partially backed by gold, the currency crisis might have been avoided for
many nations. Furthermore, demand for gold jewelry is increasing in Europe, and
it appears that China may be purchasing gold in the open market.
What's your near-term strategy and outlook?
We will continue with the fund's growth gold philosophy for the
foreseeable future. I am very optimistic in the outlook for the gold sector.
Demand is starting to increase, and investors are beginning to become more
cognizant of gold's salient features.
Gold Fund is managed by Senior Vice President Daniel B. Leonard. He joined
INVESCO in 1975; his investment experience extends back to 1960. He attended the
New York University Graduate School of Business and holds a BA from Washington &
Lee University.
Health Sciences Fund
The fund received the prestigious five star rating for risk-adjusted
performance by independent mutual fund analyst Morningstar for the overall,
five-year, and 10-year periods ended 10/31/98. For the three-year period ended
10/31/98, the fund received four stars.(3)
For the one-year period ended 10/31/98, Health Sciences Fund achieved a
total return of 28.58%, compared to 21.96% for the S&P 500. (Of course, past
performance is not a guarantee of future results.)(1)(2)
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Health Sciences Fund
Average Annualized Total Return
as of 10/31/98(2)
1 year 28.58%
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5 years 22.96%
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10 years 23.42%
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Review & Outlook
A Conversation with Senior Vice President and Portfolio Manager John
Schroer
Can you discuss the factors responsible for the fund's strong relative and
absolute performance in 1998?
The fund has performed very well this year for two reasons.
o First, health care stocks in general have been strong performers versus
the broader market averages. For the last 12 months, global economic uncertainty
and financial market turmoil have been the backdrop for most investments.
However, due to the nature of health care demand, business trends in this sector
are relatively immune to short-term changes in the economic environment. This
stability and safety have provided much of the relative outperformance of health
care stocks.
o Second, the portfolio has been overweighted in the pharmaceutical and
medical devices & supplies industries. The pharmaceutical area posted another
strong year of absolute returns as a result of strong unit volume growth and
increasing visibility on the future product pipelines. Medical devices &
supplies posted returns that, while volatile, were quite positive for the
portfolio. Conversely, we underweighted biotechnology and health care services.
While these groups underperformed the market, our selective investments within
these sectors contributed meaningfully to the overall performance of the fund.
Why does the fund have such a high percentage of its assets in
pharmaceuticals?
There are two driving forces creating value for shareholders in the
pharmaceutical industry. First is the well-documented effect of demographics.
The baby boom generation currently averages between 35 to 50 years old. It is
during this period of an individual's life that the most pronounced acceleration
in pharmaceutical consumption takes place. These therapies are generally chronic
treatments for illnesses ranging from cardiovascular disease to depression, and
represent the largest categories within the pharmaceutical industry. This driver
to unit volume growth for the industry should continue into the foreseeable
future. Second, the new product introductions experienced by the industry over
the last 18 months continue to drive revenues and earnings in the near-term. The
pharmaceutical industry, which has historically spent a high percentage of
revenues on research and development, continues to grow the research and
development budgets faster than industry revenue growth. This expanding
commitment has, and is expected to continue to, result in new products. The
pipeline of new products is full of promising technology, which should drive
industry revenue growth into the next century.
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Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Health Sciences Fund to the value of a $10,000
investment in the S&P 500 Index, assuming in each case reinvestment of all
dividends and capital gain distributions, for the ten year period ended
10/31/98.
What are a few of your favorite drug firms?
We concentrate the fund's investments in pharmaceutical companies that
have strong new product pipelines, clinically superior products in commercially
attractive categories, and strong research and development activities. A
sampling of our favorites:
o Merck & Co.
o Lilly (Eli) & Co.
o Warner-Lambert Co.
o Schering-Plough Corp.
o Pfizer Inc.
What's your near-term strategy and outlook?
The fund will remain primarily focused on market-leading pharmaceuticals
and medical devices & supplies companies. We continue to believe that, over the
longer-term, the health care sector has significant growth potential as changing
demographics and innovative new technologies should create meaningful investment
opportunities.
Health Sciences Fund is managed by INVESCO Senior Vice President John R.
Schroer, a Chartered Financial Analyst. John started his investment career in
1989, after earning an MBA and BA from the University of Wisconsin.
Leisure Fund
For the one-year period ended 10/31/98, the fund had a total return of
15.16%, compared to 21.96% for the S&P 500. (Of course, past performance is not
a guarantee of future results.)(1)(2)
Leisure Fund
Average Annualized Total Return
as of 10/31/98(2)
1 year 15.16%
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5 years 10.49%
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10 years 17.98%
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Review & Outlook
A discussion with Portfolio Manager and Vice President Mark Greenberg
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What has changed in the past year?
I have made only minor changes in the portfolio in the last 12 months.
Because of the Asian financial crisis, I reduced the fund's exposure to the
gaming and lodging industries. Many of these companies derive a significant
portion of their revenue from Asian travelers, and with depressed Asian
currencies and contracting economies, these visitors are staying at home.
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Leisure Fund to the value of a $10,000
investment in the S&P 500 Index, assuming in each case reinvestment of all
dividends and capital gain distributions, for the ten year period ended
10/31/98.
What areas have enhanced fund returns?
Three industries have significantly aided performance during the last
year, and the fund is still heavily weighted in these industries:
o Advertising: More and more companies have global competition. To be
successful in this environment, corporations must be able to distinguish their
products through branding campaigns and advertising. Two of my favorites are
market leaders Omnicom Group and WPP Group PLC.
o Cable TV Programming: Around the world, more people have TVs than have
indoor plumbing. With a variety of sports, news, movie, education, and history
channels, individuals can customize their TV viewing to meet their desires --
creating enormous opportunity for programmers. One of my favorite companies in
this industry is Tele-Communications Inc.-Liberty Media. A market leader in
cable TV programming, Liberty Media has popular channels like the Discovery
Channel and Encore. The firm has enormous long-term potential. I'm also excited
about the potential of the U.K. cable programmer Flextech PLC.
o Cruise Ships: The cruise ship industry has had a dramatic transformation
in the last 10 years. Historically, cruises were marketed to retirees. However,
through intense advertising, cruise ships are changing their image, so that now
many young families prefer cruise ships for their vacations. Since only 8% of
the U.S. population has ever taken a cruise, the potential for continued market
penetration is tremendous. Two of my favorite cruise lines are Carnival Corp and
Royal Caribbean Cruises Ltd.
Any disappointments in the last year?
Probably the biggest disappointment for the fund was its exposure to the
jewelry industry. The rapidity and severity of the Asian financial crisis, and
its effect on jewelry demand, surprised us. But we have adjusted the portfolio
accordingly, and may re-examine some jewelry stocks when the market environment
is more favorable.
Presently, what is your favorite stock?
One company that I continue to favor which has produced strong returns for
the fund this year is Heineken NV. Heineken has a great global franchise with a
proven management team. They generate an enormous amount of free cash flow, and
their margins are improving.
What is your near-term outlook?
I believe the domestic economy is going to slow, but I doubt that we are
going into a recession. Investor uncertainty may increase the day-to-day
volatility in the equity markets; however, I'm optimistic about the future for
the leisure sector, as the drivers for growth remain intact.
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Leisure Fund is managed by Mark Greenberg. With over 16 years of experience
in the leisure sector, he is a Chartered Financial Analyst and started his
investment career in 1980. Mark earned his BSBA in Finance from Marquette
University. Prior to joining INVESCO he was with Scudder, Stevens & Clark in New
York.
Technology Fund
Technology Fund
Average Annualized Total Return
as of 10/31/98(2)
1 Year -2.47%
-----------------------------------
5 years 16.10%
-----------------------------------
10 years 21.48%
-----------------------------------
For the one-year period ended 10/31/98, the fund had a total return of
- -2.47%, compared to 21.96% for the S&P 500. (Of course, past performance is not
a guarantee of future results.)(1)(2)
INVESCO is pleased to announce that William R. Keithler, a Chartered
Financial Analyst with more than 15 years of experience in the investment
industry, will rejoin INVESCO and assume the responsibilities of portfolio
manager for INVESCO Technology Fund in January 1999. Bill has an MS from the
University of Wisconsin-Madison, and a BS from Webster College. An INVESCO
senior vice president and portfolio manager from 1986 to 1993, most recently he
served as vice president and portfolio manager with Berger Associates. Senior
Vice President Daniel B. Leonard, who previously managed the fund, will remain
with the firm in a more advisory role.
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Technology Fund to the value of a $10,000
investment in the S&P 500 Index, assuming in each case reinvestment of all
dividends and capital gain distributions, for the ten year period ended
10/31/98.
Review & Outlook
A conversation with Senior Vice President Dan Leonard
Why have technology stocks had such a difficult year?
During the last 12 months, we have witnessed a decrease in the demand for
technology-related products from emerging and developing nations throughout the
world. This is a direct result of the global financial crisis which slowed many
of the world's emerging and developing economies -- in many cases producing
recessions. Historically, these countries, especially in the Asian/Pacific Rim
region, were rapidly growing economies that were heavily dependent on technology
products to fuel their growth.
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What changes have you made to the portfolio?
As the financial crisis started to escalate, we reduced the fund's
exposure to companies that derive a significant portion of their revenue from
Asian demand. Instead, we shifted the portfolio towards companies that
manufacture in Asia and sell in Europe and the U.S. -- where demand remains
strong. This meant we:
o Decreased the fund's exposure to semiconductors
o Increased the fund's exposure to hardware, service, and software
companies However, we have recently started purchasing semiconductor
companies which
manufacture chips in Asia and sell them in the U.S., as demand for these chips
is starting to improve here.
What companies do you favor in these industries?
For the hardware industry, we continue to favor firms like IBM
(International Business Machines) and LexMark International Group -- a maker of
computer printers. In the service industry, our favorite company remains Paychex
Inc., a small, domestically focused firm which specializes in computer payroll
accounting services. Finally, for the software industry, we have focused the
fund on companies that address Year 2000 computer problems.
What area has been the greatest disappointment?
The greatest hindrance to fund performance during the last 12 months was
the fund's exposure to technology companies that utilize three-dimensional
seismic technology to locate oil and natural gas. These companies were decimated
when oil prices crashed this year. However, we are excited about their long-term
potential and may re-establish our positions when the fundamental backdrop for
these stocks improves.
Is Asia's demand for technology products starting to improve?
In isolated cases, yes. We are starting to see demand rise in South Korea,
for instance, but sales will likely increase only on a country-by-country basis
in the future.
What's your near-term strategy and outlook?
The technology sector has had a difficult time in the last 12 months. We
will remain somewhat cautious with our investment approach, but are becoming
more optimistic concerning the broad future of technology companies. These were
some of the first firms to feel the ill effects of the Asian financial crisis,
but it appears these stocks have bottomed out and may regain their leadership
role in the financial markets. Over the longer-term, the technology sector will
regain its role as a crucial engine for economic growth worldwide.
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Utilities Fund
Utilities Fund
Average Annualized Total Return
as of 10/31/98(2)
1 Year 23.44%
-----------------------------------
5 years 11.74%
-----------------------------------
10 years 13.49%
-----------------------------------
For the one-year period ended 10/31/98, the fund had a total return of
23.44%, compared to 21.96% for the S&P 500. (Of course, past performance is not
a guarantee of future results.)(1)(2)
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Utilities Fund to the value of a $10,000
investment in the S&P 500 Index, assuming in each case reinvestment of all
dividends and capital gain distributions, for the ten year period ended
10/31/98.
Review & Outlook
A Conversation with Vice President and Portfolio Manager Brian Hayward
What changes have you made to the portfolio in the last year?
I have made only minor changes to the portfolio, with most of the
adjustments resulting from investor cash flows due to the volatile equity
market. The fund remains focused on the best growth prospects in the electric
utilities, natural gas, and telecommunications industries.
How did utilities perform in the recent correction?
Utilities retained their defensive characteristics in the market
correction, experiencing strong relative performance. Their earnings are less
economically sensitive than other sectors of the market, and their high relative
dividend yields help support these stocks in times of volatility.
What area enhanced the fund's returns the most?
Probably the strongest returns in the last 12 months have been produced by
the fund's investments in telecommunications companies. This industry offers
superior growth opportunities with less regulatory risk than with other
utilities. Although we invest in local exchange providers and long distance
service companies, the regional bell operating companies (RBOCs) experienced
strong relative performance during the last year. Our favorite RBOCs remain SBC
Communications, Bell Atlantic, BellSouth Corp., and US WEST. Telecommunications
<PAGE>
service providers also enhanced fund returns, as the demand for Internet
services continued to experience exponential growth. In fact, traffic on the
Internet is doubling every 90 days. With the explosion of information and data
transmissions, the need for increased bandwidth from existing phone lines and
state-of-the-art telecommunications equipment has created enormous opportunities
for certain companies. One of my favorite service providers remains MCI
WorldCom.
What's your near-term outlook?
Deregulation has created more efficient and profitable utility companies.
We will continue to favor those areas which are the furthest along in the
deregulation process, as they have the best growth opportunities. These
securities should continue to offer defensive characteristics while experiencing
relatively good growth. Over the longer-term, structural changes in this sector
may create enormous investment potential for the patient investor.
The fund is managed by Brian B. Hayward. Previously, he was a senior equity
analyst for Mississippi Valley Advisors in St. Louis, Missouri and began his
investment career in 1985. Brian earned a BA in Mathematics and a MA in
Economics from the University of Missouri. He is a Chartered Financial Analyst.
(1) The S&P 500 is an unmanaged index considered representative of the
performance of the broad U.S. stock market.
(2) Total return assumes reinvestment of dividends and capital gain
distributions for the periods indicated. Past performance is not a guarantee of
future results. Investment return and principal value will fluctuate so that,
when redeemed, an investor's shares may be worth more or less than when
purchased.
(3) Morningstar's proprietary rankings reflect historical risk-adjusted
performance and are subject to change every month. Ratings are calculated for
the fund's three-, five-, and 10-year average annual returns (based on available
track records) in excess of 90-day Treasury bill returns. The top 10% of funds
in an investment category receive 5 stars; the next 22.5%, 4 stars; and the next
35%, 3 stars. As of 10/31/98, Financial Services Fund received 5 stars among
2,719 funds in the domestic equity fund category for the three-year period, 4
stars among 1,622 funds for the five-year period, and 5 stars among 728 funds
for the 10-year period. As of 10/31/98, Health Sciences Fund received 5 stars
among 728 funds in the domestic equity fund category for the 10-year period, 5
stars among 1,622 funds for the five-year period, and 4 stars among 2,719 funds
for the three-year period.
<PAGE>
Five Largest Common Stock Holdings
October 31, 1998
Description Value
- -------------------------------------------------------------------------------
Energy Fund
Veritas DGC $ 14,659,738
Kerr-McGee Corp 6,451,775
El Paso Energy 6,159,037
Burlington Resources 5,984,544
Halliburton Co 5,821,875
Environmental Services Fund
Waste Management $ 1,805,542
Allied Waste Industries 1,005,562
Browning-Ferris Industries 921,375
Waste Management International
PLC Sponsored ADR Representing
2 Ord Shrs 739,375
Casella Waste Systems Class A 737,500
Financial Services Fund
SunAmerica Inc $ 49,399,350
Washington Mutual 43,049,381
Fannie Mae 42,841,563
Providian Financial 41,679,813
Bank of New York 41,031,250
Gold Fund
Franco-Nevada Mining Ltd $ 11,538,462
Stillwater Mining 9,712,500
Euro-Nevada Mining 8,568,197
Lihir Gold Ltd Sponsored ADR
Representing 20 Ord Shrs 7,950,000
Getchell Gold 7,000,000
Health Sciences Fund
Merck & Co $ 88,588,750
Pfizer Inc 87,655,533
Lilly (Eli) & Co 78,260,492
Sofamor/Danek Group 68,795,044
Medtronic Inc 66,210,625
Leisure Fund
Tele-Communications Inc N
Liberty Media Class A $ 13,916,602
Heineken NV 13,185,335
Omnicom Group 10,381,875
Flextech PLC 8,346,705
MediaOne Group 8,098,612
Technology Fund
International Business Machines $ 63,457,031
Paychex Inc 37,312,500
Lexmark International Group Class A 34,968,750
International Game Technology 33,843,750
Cisco Systems 29,925,000
Utilities Fund
MCI WorldCom $ 9,088,073
Ameritech Corp 7,119,750
SBC Communications 6,715,313
BellSouth Corp 6,456,831
Sprint Corp 5,833,000
Composition of holdings is subject to change.
<PAGE>
Statement of Investment Securities
October 31, 1998
- -------------------------------------------------------------------------------
Shares,
Country Units or
Code if Principal
% Description Non US Amount Value
- -------------------------------------------------------------------------------
Energy Fund
93.99 COMMON STOCKS
1.57 ELECTRIC UTILITIES
Montana Power 50,000 $ 2,165,625
- -------------------------------------------------------------------------------
12.81 NATURAL GAS
El Paso Energy 173,800 6,159,037
Sempra Energy 221,000 5,746,000
Williams Cos 211,000 5,789,313
- -------------------------------------------------------------------------------
17,694,350
- -------------------------------------------------------------------------------
55.90 Oil & Gas
14.82 DOMESTIC INTEGRATED
Amoco Corp 58,000 3,255,250
Atlantic Richfield 57,600 3,967,200
Murphy Oil 107,500 4,441,094
USX-Marathon Group 115,400 3,772,137
Unocal Corp 148,000 5,022,750
- -------------------------------------------------------------------------------
20,458,431
- -------------------------------------------------------------------------------
23.59 EXPLORATION & PRODUCTION
Apache Corp 137,000 3,878,812
Basin Exploration(a) 206,000 3,296,000
Burlington Resources 145,300 5,984,544
Canadian Occidental Petroleum 197,900 2,980,869
Chieftain International(a) 77,500 1,520,938
Clayton Williams Energy(a) 60,000 525,000
EEX Corp(a) 753,400 2,919,425
Kerr-McGee Corp 161,800 6,451,775
Vastar Resources 105,000 5,020,313
- -------------------------------------------------------------------------------
32,577,676
- -------------------------------------------------------------------------------
16.16 INTERNATIONAL INTEGRATED
Chevron Corp 60,000 4,890,000
Elf Aquitaine SA Sponsored
ADR Representing 1/2 Ord Shr 32,000 1,856,000
Exxon Corp 63,100 4,495,875
Royal Dutch Petroleum New
York Registry 1.25 Gldr Shrs 27,000 1,329,750
Texaco Inc 86,300 5,118,669
TOTAL SA Sponsored ADR
Representing 1/2 Class B Shrs 79,000 4,621,500
- -------------------------------------------------------------------------------
22,311,794
1.33 REFINING & MARKETING
Ultramar Diamond Shamrock 68,000 1,831,750
- -------------------------------------------------------------------------------
TOTAL OIL & GAS 77,179,651
- -------------------------------------------------------------------------------
23.71 OIL WELL EQUIPMENT & SERVICE
BJ Services(a) 155,000 3,167,812
Baker Hughes 191,000 4,213,937
Global Industries Ltd(a) 505,700 4,867,362
Halliburton Co 162,000 5,821,875
Veritas DGC(a) 787,100 14,659,738
- -------------------------------------------------------------------------------
32,730,724
- -------------------------------------------------------------------------------
<PAGE>
TOTAL COMMON STOCKS
(Cost $128,973,128) 129,770,350
- -------------------------------------------------------------------------------
6.01 SHORT-TERM INVESTMENTS
REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 10/30/1998 due 11/2/1998 at
5.350%, repurchased at $8,294,696
(Collateralized by US Treasury Bonds
due 11/15/2015 at 9.875%, value
$8,437,427)(Cost $8,291,000) $ 8,291,000 8,291,000
- -------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $137,264,128)
(Cost for Income Tax Purposes
$140,706,142) $ 138,061,350
===============================================================================
Environmental Services Fund
94.64 COMMON STOCKS
3.22 AGRICULTURAL PRODUCTS
Cadiz Inc(a) 60,000 $ 487,500
- -------------------------------------------------------------------------------
1.08 CHEMICALS
OM Group 5,000 163,125
- -------------------------------------------------------------------------------
3.20 ELECTRIC UTILITIES
United Water Resources 25,000 484,375
- -------------------------------------------------------------------------------
5.10 MANUFACTURING
Donaldson Co 10,000 181,875
Pall Corp 23,400 590,850
- -------------------------------------------------------------------------------
772,725
- -------------------------------------------------------------------------------
4.73 NATURAL GAS
Columbia Energy Group 8,600 497,725
Williams Cos 8,000 219,500
- -------------------------------------------------------------------------------
717,225
- -------------------------------------------------------------------------------
3.39 OIL & GAS RELATED
Newpark Resources(a) 54,400 513,400
- -------------------------------------------------------------------------------
63.61 Pollution Control
4.54 EQUIPMENT/SYSTEMS
CUNO Inc(a) 20,000 305,000
US Filter(a) 18,100 383,494
- -------------------------------------------------------------------------------
688,494
- -------------------------------------------------------------------------------
13.74 RECYCLING
Browning-Ferris Industries 26,000 921,375
KTI Inc(a) 25,000 525,000
Tetra Technologies(a) 31,250 634,766
- -------------------------------------------------------------------------------
2,081,141
- -------------------------------------------------------------------------------
45.33 SERVICES
Allied Waste Industries(a) 46,500 1,005,562
Casella Waste Systems Class A(a) 25,000 737,500
Republic Industries(a) 36,500 586,281
Republic Services Class A(a) 23,100 505,313
Superior Services(a) 25,000 525,000
US Liquids(a) 25,000 378,125
Waste Industries(a) 25,000 584,375
Waste Management 40,012 1,805,542
<PAGE>
Waste Management
International PLC Sponsored
ADR Representing 2 Ord Shrs(a) 65,000 739,375
- -------------------------------------------------------------------------------
6,867,073
- -------------------------------------------------------------------------------
TOTAL POLLUTION CONTROL 9,636,708
- -------------------------------------------------------------------------------
10.31 UTILITIES WATER
American States Water 1,500 39,375
American Water Works 21,000 670,687
Aquarion Co 5,000 164,375
California Water Service Group 2,500 65,937
Consumers Water 15,800 475,975
EOTown Corp 2,000 87,625
Southwest Water 3,750 58,125
- -------------------------------------------------------------------------------
1,562,099
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $13,466,155) 14,337,157
- -------------------------------------------------------------------------------
0.00 PREFERRED STOCKS
0.00 POLLUTION CONTROL N RECYCLING
Cyclean Inc, Series D, Pfd(a)(e)
(Cost $499,998) 146,691 1
- -------------------------------------------------------------------------------
5.36 SHORT-TERM INVESTMENTS --
REPURCHASE AGREEMENTS
Repurchase Agreement with State
Street dated 10/30/1998 due
11/2/1998 at 5.350%, repurchased
at $812,362 (Collateralized by US
Treasury Bonds due 11/15/2015 at
9.875%, value $828,118)(Cost $812,000) 812,000 812,000
- -------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $14,778,153)
(Cost for Income Tax Purposes
$14,778,987) $ 15,149,158
===============================================================================
Financial Services Fund
89.30 COMMON STOCKS
29.44 BANKS
Bank of New York 1,300,000 $ 41,031,250
BankAmerica Corp 666,617 38,288,814
BankBoston Corp 280,000 10,307,500
City National 280,000 9,572,500
First Tennessee National 700,000 22,181,250
Firstar Corp 559,68 31,761,840
Fleet Financial Group 400,000 15,975,000
Mellon Bank 333,000 20,021,625
National Westminster
Bank PLC 800,000 13,518,178
Nordbanken Holding AB 2,754,000 16,487,854
North Fork Bancorp 965,000 19,179,375
Norwest Corp 327,500 12,178,906
SouthTrust Corp 787,500 28,743,750
Star Banc 91,000 6,881,875
State Street 515,000 32,123,125
US Bancorp 922,000 33,653,000
Wachovia Corp 401,000 36,440,875
Wells Fargo & Co 60,000 22,200,000
- -------------------------------------------------------------------------------
410,546,717
- -------------------------------------------------------------------------------
2.33 CONSUMER FINANCE
American Express 367,900 32,513,162
- -------------------------------------------------------------------------------
<PAGE>
21.27 FINANCIAL
Associates First Capital Class A 469,700 33,113,850
Capital One Financial 108,000 10,989,000
Citigroup Inc 774,100 36,431,081
Fannie Mae 605,000 42,841,563
Freddie Mac 620,000 35,650,000
Heller Financial 267,000 6,408,000
Newcourt Credit Group 640,000 21,040,000
Northern Trust 257,000 18,953,750
Providian Financial 525,100 41,679,813
SunAmerica Inc 700,700 49,399,350
- -------------------------------------------------------------------------------
296,506,407
- -------------------------------------------------------------------------------
25.83 INSURANCE
AXA 139,000 15,708,476
ACE Ltd 335,000 11,348,125
Allmerica Financial 164,400 8,220,000
Allstate Corp 660,000 28,421,250
American General 462,149 31,657,206
American International Group 443,250 37,787,063
Everest Reinsurance Holdings 607,700 20,927,669
Hartford Life Class A 305,700 14,138,625
ING Groep NV 541,400 26,204,722
ING Groep NV Sponsored
ADR Representing Ord Shrs 143,467 7,083,683
Lincoln National 356,300 27,034,263
Nationwide Financial Services
Class A 100,000 4,150,000
Progressive Corp 198,600 29,243,850
SCOR SA 32,400 1,857,592
Torchmark Corp 578,900 25,326,875
Transamerica Corp 165,000 17,160,000
Travelers Property Casualty
Class A 721,000 22,125,688
UNUM Corp 714,000 31,728,375
- -------------------------------------------------------------------------------
360,123,462
- -------------------------------------------------------------------------------
3.54 INVESTMENT BANK/BROKER FIRM
ARM Financial Group Class A 302,000 5,794,625
Merrill Lynch & Co 275,000 16,293,750
Morgan Stanley Dean
Witter & Co 300,600 19,463,850
Waddell & Reed Financial
Class A 370,100 7,748,969
- -------------------------------------------------------------------------------
49,301,194
- -------------------------------------------------------------------------------
1.25 RAILROADS
Kansas City Southern Industries 450,000 17,381,250
- -------------------------------------------------------------------------------
0.18 RETAIL
Cash America International 200,000 2,500,000
- -------------------------------------------------------------------------------
5.46 SAVINGS & LOAN
Charter One Financial 765,345 20,999,153
Golden West Financial 132,700 12,034,231
Washington Mutual 1,149,900 43,049,381
- -------------------------------------------------------------------------------
76,082,765
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $1,063,488,976) 1,244,954,957
- -------------------------------------------------------------------------------
10.70 SHORT-TERM INVESTMENTS --
COMMERCIAL PAPER
7.71 AUTOMOBILES
Ford Motor Credit
5.510%, 11/2/1998 $ 29,795,000 29,795,000
5.230%, 11/3/1998 $ 37,807,000 37,807,000
<PAGE>
General Motors Acceptance
5.430%, 11/5/1998 $ 39,795,000 39,795,000
- -------------------------------------------------------------------------------
107,397,000
- -------------------------------------------------------------------------------
2.99 RETAIL
Sears Roebuck Acceptance
5.185%, 11/4/1998 $ 41,701,000 41,701,000
- -------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $149,098,000) $ 149,098,000
- -------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $1,212,586,976)
(Cost for Income Tax Purposes
$1,213,285,549) $ 1,394,052,957
- -------------------------------------------------------------------------------
Gold Fund
93.99 COMMON STOCKS
93.99 GOLD & PRECIOUS METALS MINING
Aber Resources Ltd(a) CA 300,000 $ 1,743,750
Apex Silver Mines Ltd(a) CJ 400,000 3,650,000
Ashanti Goldfields Ltd
Sponsored GDR
Representing Ord Shrs GH 200,000 1,712,500
Claude Resources(a) CA 346,700 369,783
Crown Resources(a)(b) 1,110,000 2,775,000
Euro-Nevada Mining Ltd CA 550,000 8,568,197
Francisco Gold(a) CA 301,700 2,145,249
Franco-Nevada Mining Ltd CA 600,000 11,538,462
Freeport McMoRan
Copper & Gold
Class A 556,247 6,640,199
Geomaque Explorations
Ltd(a) CA 1,500,000 1,493,213
Getchell Gold(a) 400,000 7,000,000
Gitennes Exploration(a) CA 800,000 284,421
Glamis Gold Ltd(a) CA 200,000 512,500
Goldcorp Inc Class A(a) CA 300,000 1,462,500
Golden Star Resources
Ltd(a) 1,000,000 1,625,000
Great Basin Gold Ltd(a) CA 365,000 114,062
Guyanor Ressources SA
Class B(a)(b) FR 1,000,000 872,657
IAMGOLD(a) CA 1,521,300 4,277,734
Indochina Goldfields
Ltd(a) CA 400,000 193,924
Indochina Goldfields
Ltd(a)(c) CA 800,000 387,847
Lihir Gold Ltd Sponsored
ADR Representing 20
Ord Shrs(a) AS 300,000 7,950,000
Manhattan Minerals(a) CA 400,000 548,158
Meridian Gold(a) CA 1,200,000 6,225,000
Metallica Resources(a) CA 500,000 343,750
Nevsun Resources Ltd(a) CA 800,000 387,847
Orvana Minerals(a) CA 500,000 252,101
Pacific Rim Mining(a)(b) CA 924,900 550,037
Placer Dome CA 85,000 1,338,750
Repadre Capital(a) CA 500,000 808,016
Resolute Ltd AS 400,000 343,510
Rio Narcea Gold Mines
Ltd(a) CA 556,900 935,966
Solitario Resources(a) CA 204,000 158,242
SouthernEra Resources
Ltd(a) CA 500,000 2,763,413
Star Resources(a)(b) CA 3,370,000 315,869
Stillwater Mining(a) 300,000 9,712,500
<PAGE>
Sutton Resources
Ltd(a)(b) CA 1,200,000 4,200,000
Teck Corp Class B CA 400,000 3,270,847
Trillion Resources
Ltd(a) CA 400,000 95,669
Viceroy Resources(a) CA 2,300,000 4,757,595
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $159,303,352) 102,324,268
- -------------------------------------------------------------------------------
6.01 SHORT-TERM INVESTMENTS -
REPURCHASE AGREEMENTS
Repurchase Agreement with State
Street dated 10/30/1998 due
11/2/1998 at 5.350%, repurchased
at $6,548,918 (Collateralized by US
Treasury Bonds due 11/15/2015 at
9.875%, value $6,664,005)
(Cost $6,546,000) $ 6,546,000 6,546,000
- -------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $165,849,352)
(Cost for Income Tax Purposes
$171,817,434) $ 108,870,268
- -------------------------------------------------------------------------------
Health Sciences Fund
88.33 COMMON STOCKS & WARRANTS
4.27 BIOTECHNOLOGY
Centocor Inc(a) 298,025 $ 13,262,112
Ecogen Technologies I(a)(b)(e) 100 1
Emisphere Technologies(a)(b) 193,825 1,429,459
Genentech Inc(a) 449,950 32,227,668
MedClone Trust(a)(e) 144,405 1
MedImmune Inc(a) 151,400 10,181,650
Titan Pharmaceuticals(a) 488,215 1,342,591
Unisyn Technologies(a)(b)(e) 31,132 1
Xenometrix Inc(a)(e) 145,641 16,385
- -------------------------------------------------------------------------------
58,459,868
- -------------------------------------------------------------------------------
61.55 HEALTH CARE DRUGS - PHARMACEUTICALS
Abbott Laboratories 1,102,425 51,745,073
Allergan Inc 313,900 19,599,131
American Home Products 1,235,200 60,216,000
Bristol-Myers Squibb 585,975 64,786,861
Glaxo Wellcome PLC
Sponsored ADR
Representing 2 Ord Shrs 1,058,450 65,888,513
Johnson & Johnson 758,025 61,779,038
Lilly (Eli) & Co 966,925 78,260,492
Merck & Co 655,000 88,588,750
Novartis AG Registered Shrs 16,380 29,513,514
Pfizer Inc 816,825 87,655,533
Pharmacia & Upjohn 932,250 49,350,984
Roche Holdings AG
Non-Voting Shrs 2,225 25,959,976
Schering-Plough Corp 626,900 64,492,338
Shire Pharmaceuticals
Group PLC(a) 245,750 1,753,235
SmithKline Beecham PLC
Sponsored ADR
Representing 5 Ord Shrs 634,350 40,439,813
Warner-Lambert Co 676,375 53,010,891
- -------------------------------------------------------------------------------
843,040,142
- -------------------------------------------------------------------------------
1.77 HEALTHCARE - SERVICES
Bergen Brunswig Class A Shrs 495,700 24,196,356
- -------------------------------------------------------------------------------
<PAGE>
19.33 MEDICAL EQUIPMENT & DEVICES
Allegiance Corp 1,219,200 45,339,000
Baxter International 264,225 15,836,986
Becton Dickinson 512,600 21,593,275
Cambridge Heart(a) 293,712 1,909,128
Clarus Medical Systems
Warrants (Exp 2000)(a)(d)(e) 2,224 0
Guidant Corp 187,025 14,307,412
IDEXX Laboratories(a) 354,200 8,080,188
Medtronic Inc 1,018,625 66,210,625
ResMed Inc(a)(b) 445,000 22,695,000
Sofamor/Danek Group(a) 676,950 68,795,044
- -------------------------------------------------------------------------------
264,766,658
- -------------------------------------------------------------------------------
1.41 SERVICES
IMS Health 291,125 19,359,812
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS & WARRANTS
(Cost $912,827,175) $1,209,822,836
- -------------------------------------------------------------------------------
0.37 PREFERRED STOCKS
0.11 BIOTECHNOLOGY
Ingenex Inc, Series B, Pfd(a)(e) 103,055 62,862
MedClone Trust, Series G
Conv Pfd(a)(e) 581,396 75,581
Osiris Therapeutics, Series C
Conv Pfd(a)(e) 382,353 1,300,000
Unisyn Technologies
Series A, Conv Pfd(a)(c)(e) 359,501 1
Series B, Pfd(a)(b)(e) 250,500 1
Series C, Pfd(a)(b)(e) 349,376 1
- -------------------------------------------------------------------------------
1,438,446
- -------------------------------------------------------------------------------
0.14 HEALTHCARE -- SERVICES
Physicians Online, Series A
Pfd (a)(b)(e) 361,350 1,954,904
- -------------------------------------------------------------------------------
0.12 MEDICAL EQUIPMENT & DEVICES
Clarus Medical Systems
Series I, Pfd(a)(e) 106,664 533,320
Series II, Pfd(a)(e) 22,239 111,196
Janus Biomedical, Series A
Conv Pfd(a)(b)(e) 400,000 1,000,000
- -------------------------------------------------------------------------------
1,644,516
- -------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $8,021,518) 5,037,866
- -------------------------------------------------------------------------------
0.93 OTHER SECURITIES
0.93 BIOTECHNOLOGY
Axogen Ltd, Units(a)(Each unit
consists of one cmn shr of
Axogen and one wrnt to purchase
ELAN representing one ADR)
(Cost $3,555,000) 197,500 12,738,750
- -------------------------------------------------------------------------------
0.02 FIXED INCOME SECURITIES
0.02 HEALTHCARE - SERVICES
Physicians Online, Bridge Notes
11.000%, 10/31/2000(b)(e)
(Cost $292,070) $ 292,070 292,070
- -------------------------------------------------------------------------------
10.35 SHORT-TERM INVESTMENTS --
COMMERCIAL PAPER
1.95 CONSUMER FINANCE
American Express Credit
5.350%, 11/3/1998 $ 26,649,000 26,649,000
- -------------------------------------------------------------------------------
<PAGE>
2.09 FINANCIAL
Heller Financial
5.530%, 11/5/1998 $ 28,566,000 28,566,000
- -------------------------------------------------------------------------------
4.85 OIL & GAS RELATED
Chevron USA
5.100%, 11/2/1998 $ 26,503,000 $ 26,503,000
Texaco Inc
5.550%, 11/2/1998 $ 40,000,000 40,000,000
- -------------------------------------------------------------------------------
66,503,000
- -------------------------------------------------------------------------------
1.46 RETAIL
Sears Roebuck Acceptance
5.180%, 11/3/1998 $ 20,009,000 20,009,000
- -------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $141,727,000) 141,727,000
- -------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $1,066,422,763)
(Cost for Income Tax Purposes
$1,069,369,091) $ 1,369,618,522
- -------------------------------------------------------------------------------
Leisure Fund
84.24 COMMON STOCK & WARRANTS
5.78 BEVERAGES
Heineken NV NL 247,500 $ 13,185,335
- -------------------------------------------------------------------------------
4.52 BROADCASTING
CBS Corp 98,000 2,737,875
Central European Media
Enterprises Ltd
Class A(a) BD 82,800 527,850
Chancellor Media(a) 94,100 3,611,087
EchoStar Communications
Class A(a) 81,600 2,203,200
Sinclair Broadcast Group
Class A(a) 32,700 425,100
Television Broadcasts Ltd
Sponsored ADR
Representing 2
Ord Shrs HK 154,500 821,786
- -------------------------------------------------------------------------------
10,326,898
- -------------------------------------------------------------------------------
26.42 CABLE
Cablevision Systems
Class A(a) 20,000 965,000
Comcast Corp Special
Class A 161,578 7,977,914
Flextech PLC(a)UK 890,000 8,346,705
Jones Intercable Class A(a) 91,100 2,556,494
MediaOne Group(a) 191,400 8,098,612
NTL Inc(a) 41,195 1,974,785
- -------------------------------------------------------------------------------
Tele-Communications Inc --
International Series A(a) 240,200 $ 5,359,463
Liberty Media Series A(a) 365,625 13,916,602
TCI Group Series A(a) 154,086 6,490,873
United International
Holdings Warrants
(Exp 1999)(a) 3,225 9,675
United Video Satellite
Group Class A(a) 290,000 4,603,750
- -------------------------------------------------------------------------------
60,299,873
- -------------------------------------------------------------------------------
<PAGE>
1.02 COMMUNICATIONS NEQUIPMENT &
MANUFACTURING
Pittway Corp Class A 101,200 2,321,275
- -------------------------------------------------------------------------------
0.55 COMPUTER RELATED
Bell & Howell(a) 22,100 585,650
Powerhouse Technologies(a) 68,000 671,500
- -------------------------------------------------------------------------------
1,257,150
1.23 CONSUMER -- JEWELRY, NOVELTIES &
GIFTS
De Beers Consolidated
Mines Deferred ADR
Representing Ord Shrs SF 160,000 2,300,000
TAG Heuer International
SA Sponsored ADR
Representing 1/10th
Ord Shr SZ 75,000 496,875
- -------------------------------------------------------------------------------
2,796,875
- -------------------------------------------------------------------------------
0.06 CONTAINERS
EarthShell Corp(a) 15,000 137,812
- -------------------------------------------------------------------------------
8.59 ENTERTAINMENT
Disney (Walt) Co 84,399 2,273,498
Granada Group PLC UK 115,229 1,737,731
Loews Cineplex
Entertainment(a) CA 171,400 1,799,700
Metromedia
International Group(a) 100,000 612,500
SFX Entertainment
Class A(a) 41,400 1,309,275
Time Warner 83,200 7,722,000
Viacom Inc
Class A(a) 41,040 2,436,750
Class B(a) 28,802 1,724,520
- -------------------------------------------------------------------------------
19,615,974
- -------------------------------------------------------------------------------
0.53 GAMING
MGM Grand(a) 15,099 394,461
Mirage Resorts(a) 48,200 $ 816,387
- -------------------------------------------------------------------------------
1,210,848
- -------------------------------------------------------------------------------
0.40 HOUSEHOLD FURNITURE & APPLIANCES
Harman International Industries 22,770 920,762
- -------------------------------------------------------------------------------
7.50 LEISURE TIME
AMF Bowling(a) 46,200 199,237
Bally Total Fitness Holdings(a) 78,800 1,487,350
Carnival Corp Class A 162,200 5,251,225
Cedar Fair LP 102,800 2,550,725
Family Golf Centers(a) 124,300 2,618,069
K2 Inc 64,000 704,000
Premier Parks(a) 15,000 332,813
Royal Caribbean Cruises Ltd 88,000 2,453,000
Steiner Leisure Ltd(a) 35,200 858,000
Vail Resorts(a) 24,600 658,050
- -------------------------------------------------------------------------------
17,112,469
- -------------------------------------------------------------------------------
1.35 LODGING N HOTELS
Hilton Hotels 153,700 3,083,606
- -------------------------------------------------------------------------------
10.76 PUBLISHING
Belo (A H) Corp Class A 135,400 2,462,587
<PAGE>
Central Newspapers
Class A 10,000 658,125
Harcourt General 57,100 2,780,056
Houghton Mifflin 56,100 2,187,900
Information Holdings(a) 70,500 722,625
McClatchy Newspapers
Class A 122,500 4,157,344
McGraw-Hill Cos 39,600 3,561,525
Pearson PLC UK 50,000 872,519
Scripps (EW) Co Class A 70,000 3,097,500
Times Mirror Series A 23,400 1,297,238
Valassis Communications(a) 69,000 2,751,375
- -------------------------------------------------------------------------------
24,548,794
- -------------------------------------------------------------------------------
0.57 REAL ESTATE INVESTMENT TRUST
Golf Trust of America 20,000 535,000
Mills Corp 35,700 774,244
- -------------------------------------------------------------------------------
1,309,244
- -------------------------------------------------------------------------------
2.74 RETAIL
Hastings Entertainment(a) 101,100 1,011,000
Wal-Mart Stores 76,000 5,244,000
- -------------------------------------------------------------------------------
6,255,000
- -------------------------------------------------------------------------------
9.45 SERVICES
24/7 Media(a) 50,000 571,875
Cendant Corp(a) 82,867 947,791
Omnicom Group 210,000 10,381,875
Penton Media 50,600 759,000
WPP Group PLC(a) UK 1,425,000 7,087,749
Young & Rubicam(a) 69,400 1,813,075
- -------------------------------------------------------------------------------
21,561,365
- -------------------------------------------------------------------------------
0.21 TELECOMMUNICATIONS - CELLULAR &
WIRELESS
OmniAmerica Inc(a) 23,900 475,012
- -------------------------------------------------------------------------------
0.07 TELECOMMUNICATIONS - LONG DISTANCE
PT Pasifik Satelit
Nusantara Sponsored
ADR Representing 3
Ord Shrs(a) ID 40,000 152,500
- -------------------------------------------------------------------------------
1.37 TOBACCO
Philip Morris 61,200 3,128,850
- -------------------------------------------------------------------------------
1.12 TOYS
Galoob Toys(a) 91,700 1,100,400
Hasbro Inc 13,000 455,812
Nintendo Co Ltd JA 11,860 1,003,515
- -------------------------------------------------------------------------------
2,559,727
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS & WARRANTS
(Cost $129,755,035) 192,259,369
- -------------------------------------------------------------------------------
2.58 PREFERRED STOCKS
0.16 ENTERTAINMENT
Village Roadshow Ltd
Class A, Pfd AS 250,000 373,380
- -------------------------------------------------------------------------------
1.36 LEISURE TIME
Royal Caribbean
Cruises Ltd, Series A
7.250%, Conv Pfd 35,000 3,095,313
- -------------------------------------------------------------------------------
<PAGE>
1.06 PUBLISHING
News Corp Ltd
Sponsored ADR
Representing 4 Ltd
Voting Pfd AS 99,978 2,418,218
- -------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $3,385,594) 5,886,911
- -------------------------------------------------------------------------------
4.45 OTHER SECURITIES
4.45 TOBACCO
Cie Financiere Richemont
AG A, Units (Each unit
consists of one bearer shr
at 100 Swiss Francs par
in the Company and one
bearer participation
certificate at no par
issued by Richemont SA
Luxembourg)
(Cost $10,589,990) SZ 7,635 10,148,427
- -------------------------------------------------------------------------------
8.73 SHORT-TERM INVESTMENTS --
REPURCHASE AGREEMENTS
Repurchase Agreement with State
Street dated 10/30/1998 due
11/2/1998 at 5.350%, repurchased
at $19,925,880 (Collateralized by
US Treasury Bonds, due 5/15/2017
at 8.750%, value $20,265,413)
(Cost $19,917,000) $ 19,917,000 $ 19,917,000
- -------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $163,647,619)
(Cost for Income Tax Purposes
$164,594,803) $ 228,211,707
===============================================================================
Technology Fund
91.81 COMMON STOCKS
1.75 AEROSPACE & DEFENSE
Litton Industries(a) 285,900 $ 18,654,975
- -------------------------------------------------------------------------------
3.38 BIOTECHNOLOGY
Biogen Inc(a) 200,000 13,900,000
Genentech Inc(a) 300,000 21,487,500
Titan Pharmaceuticals(a) 244,108 671,297
- -------------------------------------------------------------------------------
36,058,797
5.41 COMMUNICATIONS - EQUIPMENT &
MANUFACTURING
Carrier Access(a) 96,400 1,855,700
GeoTel Communications(a) 450,000 11,700,000
Motorola Inc 35,000 1,820,000
Nokia Corp Sponsored ADR
Representing A Shrs 300,000 27,918,750
Pittway Corp Class A 593,400 13,611,113
Terayon Communication
Systems(a) 62,800 753,600
- -------------------------------------------------------------------------------
57,659,163
- -------------------------------------------------------------------------------
11.74 COMPUTER SOFTWARE & SERVICE
BEA Systems(a) 77,500 1,518,517
BMC Software(a) 200,000 9,612,500
Citrix Systems(a) 280,000 19,845,000
Compuware Corp(a) 400,000 21,675,000
Edwards (J D) & Co(a) 750,000 24,562,500
Electronic Arts(a) 250,000 10,281,250
<PAGE>
Learning Co(a) 352,300 9,093,744
Microsoft Corp(a) 150,000 15,881,250
Oracle Corp(a) 90,000 $ 2,660,625
Software AG Systems(a) 660,200 9,903,000
- -------------------------------------------------------------------------------
125,033,386
- -------------------------------------------------------------------------------
1.29 COMPUTER SYSTEMS
Apple Computer(a) 250,000 9,281,250
Geac Computer Ltd(a) 200,000 4,447,317
- -------------------------------------------------------------------------------
13,728,567
- -------------------------------------------------------------------------------
19.91 COMPUTERS -- HARDWARE
Compaq Computer 430,000 13,598,750
Dell Computer(a) 300,000 19,687,500
FORE Systems(a) 500,000 7,812,500
Hewlett-Packard Co 200,000 12,037,500
International Business Machines 427,500 63,457,031
Lexmark International Group
Class A(a) 500,000 34,968,750
Maxtor Corp(a) 300,000 3,187,500
Network Appliance(a) 300,000 16,425,000
Sun Microsystems(a) 200,000 11,650,000
Unisys Corp(a) 1,100,000 29,287,500
- -------------------------------------------------------------------------------
212,112,031
- -------------------------------------------------------------------------------
7.33 COMPUTERS -- NETWORKING
3Com Corp(a) 300,000 10,818,750
Ascend Communications(a) 450,000 21,712,500
Cisco Systems(a) 475,000 29,925,000
Novell Inc(a) 300,000 4,462,500
Whittman-Hart Inc(a) 500,000 9,937,500
Yahoo! Inc(a) 10,000 1,308,438
- -------------------------------------------------------------------------------
78,164,688
- -------------------------------------------------------------------------------
4.38 COMPUTERS -- PERIPHERALS
American Power Conversion(a) 200,000 8,487,500
EMC Corp(a) 450,000 28,968,750
Seagate Technology(a) 350,000 9,231,250
- -------------------------------------------------------------------------------
46,687,500
- -------------------------------------------------------------------------------
0.70 ELECTRICAL EQUIPMENT
Solectron Corp(a) 129,900 7,436,775
- -------------------------------------------------------------------------------
2.11 ELECTRONICS - INSTRUMENTS
SCI Systems(a) 112,800 4,455,600
Teradyne Inc(a) 250,000 8,125,000
Uniphase Corp(a) 200,000 9,900,000
- -------------------------------------------------------------------------------
22,480,600
- -------------------------------------------------------------------------------
9.67 ELECTRONICS - SEMICONDUCTOR
Applied Materials(a) 43,800 1,519,313
Applied Micro Circuits(a) 100,000 2,400,000
Cypress Semiconductor(a) 500,000 $ 5,562,500
Intel Corp 280,000 24,972,500
KLA-Tencor Corp(a) 200,000 7,375,000
Maxim Integrated Products(a) 40,000 1,427,500
Micron Technology(a) 450,000 17,100,000
PMC-Sierra Inc(a) 50,000 2,243,750
SIPEX Corp(a) 75,000 2,081,250
Taiwan Semiconductor
Manufacturing Sponsored
ADR Representing 5 Ord
Shrs(a) 250,000 3,734,375
Texas Instruments 390,000 24,935,625
Vitesse Semiconductor(a) 300,000 9,675,000
- -------------------------------------------------------------------------------
103,026,813
- -------------------------------------------------------------------------------
<PAGE>
1.41 ENTERTAINMENT
Viacom Inc Class B(a) 250,000 14,968,750
- -------------------------------------------------------------------------------
0.78 EQUIPMENT - SEMICONDUCTOR
Broadcom Corp Class A(a) 100,000 8,293,750
- -------------------------------------------------------------------------------
0.29 INVESTMENT BANK/BROKER FIRM
Knight/Trimark Group Class A(a) 375,000 3,046,875
- -------------------------------------------------------------------------------
3.18 LEISURE TIME
International Game
Technology 1,500,000 33,843,750
- -------------------------------------------------------------------------------
2.73 OFFICE EQUIPMENT & SUPPLIES
Xerox Corp 300,000 29,062,500
- -------------------------------------------------------------------------------
1.31 PHOTOGRAPHY & IMAGING
Gemstar International
Group Ltd(a) 255,000 13,929,375
- -------------------------------------------------------------------------------
12.40 SERVICES
BISYS Group(a) 275,000 12,031,250
Ceridian Corp(a) 300,000 17,212,500
Fiserv Inc(a) 600,000 27,900,000
National Computer Systems 300,000 8,400,000
Paychex Inc 750,000 37,312,500
Penton Media 296,700 4,450,500
Safeguard Scientifics(a) 300,000 8,043,750
Sapient Corp(a) 58,900 2,654,181
VERITAS Software(a) 280,000 14,035,000
- -------------------------------------------------------------------------------
132,039,681
- -------------------------------------------------------------------------------
1.46 TELECOMMUNICATIONS -- LONG DISTANCE
General Instrument(a) 300,000 7,706,250
Qwest Communications
International(a) 200,000 7,825,000
- -------------------------------------------------------------------------------
15,531,250
- -------------------------------------------------------------------------------
0.58 TELEPHONE
Newbridge Networks(a) 300,000 $ 6,150,000
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $807,710,802) 977,909,226
- -------------------------------------------------------------------------------
0.00 PREFERRED STOCKS
0.00 BIOTECHNOLOGY
Ingenex Inc, Series B, Pfd(a)(e)
(Cost $300,000) 51,527 31,431
- -------------------------------------------------------------------------------
8.19 SHORT-TERM INVESTMENTS
7.83 Commercial Paper
2.11 AUTOMOBILES
Ford Motor Credit
5.080%, 11/2/1998 $ 22,448,000 22,448,000
- -------------------------------------------------------------------------------
5.72 CONSUMER FINANCE
American Express Credit
5.250%, 11/4/1998 $ 35,943,000 35,943,000
Household Finance
5.600%, 11/2/1998 $ 25,000,000 25,000,000
- -------------------------------------------------------------------------------
60,943,000
- -------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost $83,391,000) 83,391,000
- -------------------------------------------------------------------------------
<PAGE>
0.36 Repurchase Agreements
Repurchase Agreement with State
Street dated 10/30/1998 due
11/2/1998 at 5.350%, repurchased
at $3,875,727 (Collateralized by
US Treasury Bonds due 11/15/2015
at 9.875%, value $3,945,279)
(Cost $3,874,000) $ 3,874,000 3,874,000
- -------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $87,265,000) 87,265,000
- -------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $895,275,802)
(Cost for Income Tax Purposes
$898,120,052) $ 1,065,205,657
- -------------------------------------------------------------------------------
Utilities Fund
90.68 COMMON STOCKS
1.70 MACHINERY
Mannesmann AG 30,000 $ 2,952,542
- -------------------------------------------------------------------------------
15.26 TELECOMMUNICATIONS
AirTouch Communications(a) 62,000 3,472,000
ICG Communications(a) 118,000 2,441,125
MCI WorldCom(a) 164,490 9,088,073
NEXTEL Communications
Class A(a) 100,000 $ 1,812,500
Qwest Communications
International(a) 99,001 3,873,414
Sprint Corp 76,000 5,833,000
- -------------------------------------------------------------------------------
26,520,112
- -------------------------------------------------------------------------------
73.72 Utilities
30.53 ELECTRIC
CMS Energy 55,700 2,454,281
Carolina Power & Light 65,300 2,995,637
Consolidated Edison 67,000 3,358,375
DTE Energy 66,200 2,821,775
Duke Energy 45,009 2,911,520
Edison International 92,600 2,442,325
FPL Group 43,300 2,708,956
GPU Inc 53,700 2,315,812
Houston Industries 96,600 3,000,637
Interstate Energy 89,946 2,782,704
New Century Energies 80,400 3,884,325
NIPSCO Industries 105,400 3,155,412
Northern States Power 78,600 2,122,200
PG&E Corp 76,000 2,313,250
PP&L Resources 53,241 1,444,162
PacifiCorp 89,600 1,708,000
Pinnacle West Capital 58,700 2,571,794
SCANA Corp 77,200 2,610,325
Texas Utilities 53,900 2,358,125
Unicom Corp 81,700 3,079,069
- -------------------------------------------------------------------------------
53,038,684
- -------------------------------------------------------------------------------
10.05 NATURAL GAS
Coastal Corp 94,000 3,313,500
Columbia Energy Group 39,000 2,257,125
Dynegy Inc 88,625 1,329,375
Enron Corp 42,000 2,215,500
New Jersey Resources 55,800 2,144,812
ONEOK Inc 51,000 1,746,750
TransCanada PipeLines Ltd 115,000 1,760,938
Williams Cos 98,000 2,688,875
- -------------------------------------------------------------------------------
17,456,875
- -------------------------------------------------------------------------------
<PAGE>
33.14 TELEPHONE
ALLTEL Corp 71,300 3,337,731
Ameritech Corp 132,000 7,119,750
Bell Atlantic 90,270 4,795,594
BellSouth Corp 80,900 6,456,831
Century Telephone Enterprises 92,550 5,257,997
Cincinnati Bell 123,300 3,198,094
COLT Telecom Group PLC
Sponsored ADR Representing
4 Ord Shrs(a) 18,100 929,888
GTE Corp 81,800 $ 4,800,637
MetroNet Communications
Class B Non-Voting Shrs(a) 197,000 4,531,000
SBC Communications 145,000 6,715,313
Telefonica de Espana SA
Sponsored ADR Representing
3 Ord Shrs 39,272 5,377,810
US WEST 88,300 5,066,213
- -------------------------------------------------------------------------------
57,586,858
- -------------------------------------------------------------------------------
TOTAL UTILITIES 128,082,417
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $109,902,861) 157,555,071
- -------------------------------------------------------------------------------
9.32 SHORT-TERM INVESTMENTS --
REPURCHASE AGREEMENTS
Repurchase Agreement with State
Street dated 10/30/1998 due
11/2/1998 at 5.350%, repurchased
at $16,196,218 (Collateralized by
US Treasury Bonds due 11/15/2015 at
9.875%, value $16,476,421)
(Cost $16,189,000) $ 16,189,000 16,189,000
- -------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $126,091,861)
(Cost for Income Tax Purposes
$126,430,057) $ 173,744,071
- -------------------------------------------------------------------------------
(a) Security is non-income producing.
(b) Security is an affiliated company (See Notes).
(c) Securities acquired pursuant to Rule 144A. The Fund deems such
securities to be "liquid" because an institutional market exsists.
(d) Security has no market value at October 31, 1998.
<PAGE>
(e) The following are restricted securities at October 31, 1998:
Value as
Acqusition Acquisition % of
Date(s) Cost Net Assets
- -------------------------------------------------------------------------------
Environmental Services Fund
Cyclean Inc
Series D, Pfd 2/23/94 $ 499,998 0.00%
===============================================================================
Health Sciences Fund
Clarus Medical
Systems
Series I, Pfd 12/23/92 $ 2,000,000 0.04%
Series II, Pfd 5/3/95 111,196 0.01
Warrants 5/3/95 0 0.00
Ecogen
Technologies I 11/18/92-
1/28/94 1,140,000 0.00
Ingenex Inc
Series B, Pfd 9/27/94 600,000 0.00
Janus Biomedical
Series A, Conv
Pfd 3/2/94 1,000,000 0.08
MedClone Trust 9/30/97 101,310 0.00
MedClone Trust
Series G, Conv
Pfd 10/21/93 1,000,001 0.01
Osiris Therapeutics
Series C, Conv
Pfd 5/26/94 1,300,000 0.10
Physicians Online
Bridge Notes,
11.000%
10/31/2000 6/10/98 292,070 0.02
Series A, Conv
Pfd 8/31/93 963,600 0.15
Unisyn
Technologies 2/28/94 1,500,000 0.00
Unisyn
Technologies
Series A, Conv
Pfd 12/27/94 359,501 0.00
Series B, Pfd 2/5/96 250,500 0.00
Series C, Pfd 4/25/97 436,720 0.00
Xenometrix Inc 1/7/94 1,400,000 0.00
- -------------------------------------------------------------------------------
0.41%
- -------------------------------------------------------------------------------
Technology Fund
Ingenex Inc
Series B, Pfd 9/27/94 $ 300,000 0.00%
- -------------------------------------------------------------------------------
<PAGE>
Summary of Investments by Country
% of
Country Investment
Country Code Securities Value
- -------------------------------------------------------------------------------
Gold Fund
Australia AS 7.62% $ 8,293,510
Canada CA 55.15 60,042,902
Cayman Islands CJ 3.35 3,650,000
France FR 0.80 872,657
Ghana GH 1.57 1,712,500
United States US 31.51 34,298,699
- -------------------------------------------------------------------------------
100.00% $ 108,870,268
- -------------------------------------------------------------------------------
Leisure Fund
Australia AS 1.22% $ 2,791,598
Bermuda BD 0.23 527,850
Canada CA 0.79 1,799,700
Hong Kong HK 0.36 821,786
Indonesia ID 0.07 152,500
Japan JA 0.44 1,003,515
Netherlands NL 5.78 13,185,335
South Africa SF 1.01 2,300,000
Switzerland SZ 4.66 10,645,302
United Kingdom UK 7.91 18,044,704
United States US 77.53 176,939,417
- -------------------------------------------------------------------------------
100.00% $ 228,211,707
- -------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
October 31, 1998
Environmental Financial
Energy Services Services Gold
Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment Securities:
At Cost(a) $137,264,128 $ 14,778,153 $1,212,586,976 $165,849,352
- ---------------------------------------------------------------------------------------------------------
At Value(a) $138,061,350 $ 15,149,158 $1,394,052,957 $108,870,268
Cash 369 7 18,542 493,153
Receivables:
Investment Securities Sold 0 46,873 10,301,536 556,799
Fund Shares Sold 1,184,048 56,208 13,371,219 824,187
Dividends and Interest 50,464 6,765 2,271,628 34,703
Appreciation on Forward
Foreign Currency Contracts 0 0 14,345 0
Prepaid Expenses and Other Assets 24,603 11,336 111,640 33,585
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS 139,320,834 15,270,347 1,420,141,867 110,812,695
LIABILITIES
Payables:
Distributions to Shareholders 0 0 398,075 0
Investment Securities Purchased 261,480 387,022 0 1,253,537
Fund Shares Repurchased 1,566,575 1,338 1,779,900 2,237,471
Accrued Distribution Expenses 28,765 3,228 273,222 26,517
Accrued Expenses and Other Payables 8,619 3,813 36,111 45,784
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,865,439 395,401 2,487,308 3,563,309
Net Assets at Value $137,455,395 $14,874,946 $1,417,654,559 $107,249,386
=========================================================================================================
NET ASSETS
Paid-in Capital(b) $172,255,628 $15,015,711 $1,127,884,436 $301,414,808
Accumulated Undistributed
(Distributions in Excess of)
Net Investment Income (Loss) (10,238) (2,257) (21,917) (3,948,406)
Accumulated Undistributed Net
Realized Gain (Loss) on Invest-
ment Securities and Foreign
Currency Transactions (35,587,217) (509,513) 108,311,903 (133,237,010)
Net Appreciation (Depreciation)
of Investment Securities and
Foreign Currency Transactions 797,222 371,005 181,480,137 (56,980,006)
- ----------------------------------------------------------------------------------------------------------
Net Assets at Value $137,455,395 $14,874,946 $1,417,654,559 $107,249,386
==========================================================================================================
Shares Outstanding 12,160,548 2,042,953 49,834,343 56,446,589
Net Asset Value, Offering and
Redemption Price per Share $ 11.30 $ 7.28 $ 28.45 $ 1.90
=========================================================================================================
(a) Investment securities at cost and value at October 31, 1998 include
repurchase agreements of $8,291,000, $812,000 and $6,546,000 for Energy,
Environmental Services and Gold Funds, respectively.
(b) The Fund has one billion authorized shares of common stock, par value of
$0.01 per share. Of such shares, 100 million have been allocated to each
individual Fund.
</TABLE>
See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities (Continued)
<TABLE>
<CAPTION>
October 31, 1998
Health
Sciences Leisure Technology Utilities
Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment Securities:
At Cost(a) $1,066,422,763 $163,647,619 $ 895,275,802 $126,091,861
- -----------------------------------------------------------------------------------------------------------
At Value(a) $1,369,618,522 $228,211,707 $1,065,205,657 $173,744,071
Cash 12 0 0 0
Receivables:
Investment Securities Sold 0 0 2,650,728 1,525,280
Fund Shares Sold 8,092,458 575,477 4,045,581 2,402,138
Dividends and Interest 700,205 209,164 186,174 637,979
Prepaid Expenses and Other Assets 57,680 27,634 51,736 35,311
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS 1,378,468,877 229,023,982 1,072,139,876 178,344,779
- -----------------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Custodian 0 7,917 17,189 16,458
Distributions to Shareholders 107,577 0 0 25,785
Investment Securities Purchased 38,388,003 0 60,519,604 712,500
Fund Shares Repurchased 11,169,194 255,244 2,603,837 234,036
Depreciation on Forward Foreign
Currency Contracts 291,203 0 0 0
Accrued Distribution Expenses 262,470 42,891 192,386 35,863
Accrued Expenses and Other Payables 54,675 36,863 36,065 10,802
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 50,273,122 342,915 63,369,081 1,035,444
Net Assets at Value $1,328,195,755 $228,681,067 $1,008,770,795 $177,309,335
- -----------------------------------------------------------------------------------------------------------
NET ASSETS
Paid-in Capital(b) $ 828,827,978 $149,568,452 $ 936,948,417 $127,008,706
Accumulated Undistributed (Distri-
butions in Excess of) Net Invest-
ment Income (Loss) (53,538) (18,027) (43,470) 482,480
Accumulated Undistributed Net
Realized Gain (Loss) on Investment
Securities, Foreign Currency Trans-
actions, Futures Contracts and Written
Options 196,222,421 14,565,422 (98,064,007) 2,158,065
Net Appreciation of Investment
Securities and Foreign Currency
Transactions 303,198,894 64,565,220 169,929,855 47,660,084
- -----------------------------------------------------------------------------------------------------------
Net Assets at Value $1,328,195,755 $228,681,067 $1,008,770,795 $177,309,335
===========================================================================================================
Shares Outstanding 21,380,794 8,189,908 35,938,214 12,034,040
Net Asset Value, Offering and
Redemption Price per Share $ 62.12 $ 27.92 $ 28.07 $ 14.73
===========================================================================================================
(a) Investment securities at cost and value at October 31, 1998 include
repurchase agreements of $19,917,000, $3,874,000 and $16,189,000 for Leisure,
Technology and Utilities Funds, respectively.
(b) The Fund has one billion authorized shares of common stock, par value of
$0.01 per share. Of such shares, 100 million have been allocated to each
individual Fund.
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1998
Environmental Financial
Energy Services Services Gold
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends $2,467,077 $ 101,437 $20,587,652 $ 624,410
Interest 324,058 73,716 6,670,666 504,909
Foreign Taxes Withheld (35,043) (1,105) (477,849) (28,129)
- -----------------------------------------------------------------------------------------------------------
TOTAL INCOME 2,756,092 174,048 26,780,469 1,101,190
EXPENSES
Investment Advisory Fees 1,366,009 146,230 8,971,562 902,210
Distribution Expenses 396,446 35,187 2,368,775 275,554
Transfer Agent Fees 778,806 156,042 2,663,985 789,720
Administrative Fees 37,320 12,925 226,043 28,044
Custodian Fees and Expenses 47,531 9,806 263,631 69,275
Directors' Fees and Expenses 20,612 10,215 63,992 17,218
Professional Fees and Expenses 17,578 12,922 47,612 18,118
Registration Fees and Expenses 110,819 25,411 185,107 86,076
Reports to Shareholders 60,368 18,668 259,605 74,796
Other Expenses 28,655 1,672 45,139 21,573
- -----------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 2,864,144 429,078 15,095,451 2,282,584
Fees and Expenses Absorbed by
Investment Adviser 0 (54,154) 0 0
Fees and Expenses Paid Indirectly (124,285) (4,191) (600,891) (64,734)
- -----------------------------------------------------------------------------------------------------------
NET EXPENSES 2,739,859 370,733 14,494,560 2,217,850
NET INVESTMENT INCOME (LOSS) 16,233 (196,685) 12,285,909 (1,116,660)
- -----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on:
Investment Securities (34,777,929) (487,140) 107,435,688 (61,280,592)
Foreign Currency Transactions (351,966) 285 1,126,848 (4,017,214)
- -----------------------------------------------------------------------------------------------------------
Total Net Realized Gain (Loss) (35,129,895) (486,855) 108,562,536 (65,297,806)
Change in Net Appreciation
(Depreciation) of:
Investment Securities (40,132,785) (1,405,412) (8,613,246) 9,132,700
Foreign Currency Transactions 0 0 3,345,483 (3,073,866)
- -----------------------------------------------------------------------------------------------------------
Total Net Appreciation
(Depreciation) (40,132,785) (1,405,412) (5,267,763) 6,058,834
NET GAIN (LOSS) ON INVESTMENT
SECURITIES AND FOREIGN
CURRENCY TRANSACTIONS (75,262,680) (1,892,267) 103,294,773 (59,238,972)
- -----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Net Assets from Operations $(75,246,447) $(2,088,952) $ 115,580,682 $(60,355,632)
===========================================================================================================
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations (Continued)
Year Ended October 31, 1998
Health
Sciences Leisure Technology Utilities
Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends $ 8,967,504 $ 1,957,811 $ 2,446,801 $ 4,947,268
Interest 5,929,760 920,099 4,348,302 612,220
Other Income 0 155,625 0 0
Foreign Taxes Withheld (143,219) (31,575) (19,838) (119,396)
- ---------------------------------------------------------------------------------------------------------------
TOTAL INCOME 14,754,045 3,001,960 6,775,265 5,440,092
EXPENSES
Investment Advisory Fees 7,138,414 1,743,033 6,846,934 1,327,773
Distribution Expenses 1,656,720 337,897 1,929,615 410,160
Transfer Agent Fees 2,690,463 881,727 2,681,507 494,273
Administrative Fees 176,048 44,861 168,098 36,556
Custodian Fees and Expenses 156,579 75,564 158,369 26,355
Directors' Fees and Expenses 55,849 19,369 56,677 15,976
Professional Fees and Expenses 47,891 21,533 41,423 18,112
Registration Fees and Expenses 103,463 54,887 148,825 36,959
Reports to Shareholders 323,203 99,904 295,744 45,486
Other Expenses 37,252 8,407 40,199 6,457
- --------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 12,385,882 3,287,182 12,367,391 2,418,107
Fees and Expenses Absorbed by
Investment Adviser 0 0 0 (135,673)
Fees and Expenses Paid Indirectly (378,681) (93,796) (421,165) (68,161)
- --------------------------------------------------------------------------------------------------------------
NET EXPENSES 12,007,201 3,193,386 11,946,226 2,214,273
- --------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 2,746,844 (191,426) (5,170,961) 3,225,819
- --------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on:
Investment Securities and
Written Options 200,337,560 16,698,439 (93,929,080) 2,567,139
Foreign Currency Transactions (3,511,674) (225,575) (2,401,063) 70,490
Futures Contracts 0 (877,475) 0 0
- --------------------------------------------------------------------------------------------------------------
Total Net Realized Gain (Loss) 196,825,886 15,595,389 (96,330,143) 2,637,629
Change in Net Appreciation of:
Investment Securities 64,390,447 14,244,512 75,063,615 29,877,601
Foreign Currency Transactions 3,951,120 1,476,048 675,126 265,937
- --------------------------------------------------------------------------------------------------------------
Total Net Appreciation 68,341,567 15,720,560 75,738,741 30,143,538
- --------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENT
SECURITIES, FOREIGN CURRENCY
TRANSACTIONS AND FUTURES
CONTRACTS 265,167,453 31,315,949 (20,591,402) 32,781,167
- --------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Net Assets from Operations $ 267,914,297 $ 31,124,523 $ (25,762,363) $ 36,006,986
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Year Ended October 31
Environmental
Energy Services
Fund Fund
- ------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
OPERATIONS
<S> <C> <C> <C> <C>
Net Investment Income (Loss) $ 16,233 $ 934,679 $ (196,685) $ (99,589)
Net Realized Gain (Loss) on Investment
Securities and Foreign Currency Transactions (35,129,895) 40,217,487 (486,855) 5,641,836
Change in Net Appreciation (Depreciation) of
Investment Securities and Foreign
Currency Transactions (40,132,785) 23,498,589 (1,405,412) (1,079,626)
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS (75,246,447) 64,650,755 (2,088,952) 4,462,621
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (167,166) (766,993) 0 0
In Excess of Net Investment Income (2,454) 0 0 (12,314)
Net Realized Gain on Investment Securities
and Foreign Currency Transactions (4,468,073) (16,796,928) (5,024,902) (1,266,766)
In Excess of Net Realized Gain on
Investment Securities and Foreign
Currency Transactions (35,552,458) 0 (508,120) 0
- ------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (40,190,151) (17,563,921) (5,533,022) (1,279,080)
- ------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 591,680,044 1,133,329,398 33,358,057 80,565,921
Reinvestment of Distributions 37,731,064 16,740,539 5,273,715 1,239,463
- ------------------------------------------------------------------------------------------------------------------
629,411,108 1,150,069,937 38,631,772 1,805,384
Amounts Paid for Repurchases of Shares (696,170,359) (1,113,674,939) (39,285,847) (88,631,624)
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM FUND
SHARE TRANSACTIONS (66,759,251) 36,394,998 (654,075) (6,826,240)
- ------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (182,195,849) 83,481,832 (8,276,049) (3,642,699)
NET ASSETS
Beginning of Period 319,651,244 236,169,412 23,150,995 26,793,694
- ------------------------------------------------------------------------------------------------------------------
End of Period $137,455,395 $ 319,651,244 $ 14,874,946 $23,150,995
- ------------------------------------------------------------------------------------------------------------------
Accumulated Undistributed (Distributions
in Excess of) Net Investment Income
(Loss) Included in Net Assets at End
of Period $ (10,238) $ 150,934 $ (2,257) $ (1,567)
- ------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 44,134,902 69,488,349 3,807,403 7,527,335
Shares Issued from Reinvestment of Distributions 2,803,292 1,194,637 655,934 127,595
- ------------------------------------------------------------------------------------------------------------------
46,938,194 70,682,986 4,463,337 7,654,930
Shares Repurchased (51,273,648) (69,903,722) (4,443,404) (8,275,001)
- ------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Fund Shares (4,335,454) 779,264 19,933 (620,071)
==================================================================================================================
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets(Continued)
Year Ended October 31
Financial
Services Gold
Fund Fund
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
OPERATIONS
<S> <C> <C> <C> <C>
Net Investment Income (Loss) $ 12,285,909 $ 10,182,137 $ (1,116,660) $ (924,221)
Net Realized Gain (Loss) on Investment
Securities and Foreign Currency Transactions 108,562,536 147,813,499 (65,297,806) (30,717,664)
Change in Net Appreciation (Depreciation) of
Investment Securities and Foreign
Currency Transactions (5,267,763) 97,578,701 6,058,834 (94,168,901)
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS 115,580,682 255,574,337 (60,355,632) (125,810,786)
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (12,269,881) (10,174,253) 0 0
In Excess of Net Investment Income 0 0 (1,637,391) (64,909,867)
Net Realized Gain on Investment Securities
and Foreign Currency Transactions (148,103,393) (48,464,760) 0 0
- --------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (160,373,274) (58,639,013) (1,637,391) (64,909,867)
- --------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 1,718,344,847 1,852,179,285 703,190,475 1,024,175,443
Reinvestment of Distributions 150,190,546 54,645,985 1,520,914 61,300,192
- --------------------------------------------------------------------------------------------------------------------
1,868,535,393 1,906,825,270 704,711,389 1,085,475,635
Amounts Paid for Repurchases of Shares (1,519,342,944) (1,533,193,829) (686,554,223) (1,021,562,103)
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 349,192,449 373,631,441 18,157,166 63,913,532
Total Increase (Decrease) in Net Assets 304,399,857 570,566,765 (43,835,857) (126,807,121)
NET ASSETS
Beginning of Period 1,113,254,702 542,687,937 151,085,243 277,892,364
- --------------------------------------------------------------------------------------------------------------------
End of Period $1,417,654,559 $1,113,254,702 $107,249,386 $ 151,085,243
- --------------------------------------------------------------------------------------------------------------------
Accumulated Undistributed (Distributions
in Excess of) Net Investment Income
Included in Net Assets at End
of Period $ (21,917) $ (3,840) $ (3,948,406) $ (2,122,169)
- --------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 57,179,200 72,520,136 319,522,708 210,893,300
Shares Issued from Reinvestment of Distributions 5,459,331 2,428,228 652,176 11,026,021
- --------------------------------------------------------------------------------------------------------------------
62,638,531 74,948,364 320,174,884 221,919,321
Shares Repurchased (51,007,064) (60,404,260) (310,832,754) (209,545,027)
- --------------------------------------------------------------------------------------------------------------------
Net Increase in Fund Shares 11,631,467 14,544,104 9,342,130 12,374,294
====================================================================================================================
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets (Continued)
Year Ended October 31
Health Sciences Leisure
Fund Fund
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
OPERATIONS
<S> <C> <C> <C> <C>
Net Investment Income (Loss) $ 2,746,844 $ 1,048,707 $ (191,426) $ 107,837
Net Realized Gain on Investment
Securities, Foreign Currency Transactions
and Futures Contracts 196,825,886 150,514,154 15,595,389 21,991,252
Change in Net Appreciation of Investment
Securities and Foreign Currency Transactions 68,341,567 41,293,920 15,720,560 18,919,855
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS 267,914,297 192,856,781 31,124,523 41,018,944
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (4,765,887) (982,628) 0 (106,433)
In Excess of Net Investment Income (53,859) 0 (8,831) (8,905)
Net Realized Gain on Investment Securities,
Foreign Currency Transactions and
Futures Contracts (147,796,033) (138,286,646) (22,821,029) (6,650,312)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (152,615,779) (139,269,274) (22,829,860) (6,765,650)
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 1,309,995,468 846,691,468 217,846,689 188,164,769
Reinvestment of Distributions 142,313,946 134,000,802 21,894,580 6,513,122
- ------------------------------------------------------------------------------------------------------------------------
1,452,309,414 980,692,270 239,741,269 194,677,891
Amounts Paid for Repurchases of Shares (1,183,910,039) (1,023,610,028) (235,970,629) (264,612,549)
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM FUND
SHARE TRANSACTIONS 268,399,375 (42,917,758) 3,770,640 (69,934,658)
Total Increase (Decrease) in Net Assets 383,697,893 10,669,749 12,065,303 (35,681,364)
NET ASSETS
Beginning of Period 944,497,862 933,828,113 216,615,764 252,297,128
- ------------------------------------------------------------------------------------------------------------------------
End of Period $1,328,195,755 $ 944,497,862 $ 228,681,067 $216,615,764
- ------------------------------------------------------------------------------------------------------------------------
Accumulated Undistributed (Distributions
in Excess of) Net Investment Income
Included in Net Assets at End
of Period $ (53,538) $ 2,019,043 $ (18,027) $ (12,651)
- ------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 22,644,603 15,734,775 7,793,967 7,514,363
Shares Issued from Reinvestment of
Distributions 2,979,770 2,804,756 899,529 290,394
- ------------------------------------------------------------------------------------------------------------------------
25,624,373 18,539,531 8,693,496 7,804,757
Shares Repurchased (20,669,473) (19,017,914) (8,465,353) (10,864,156)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Fund Shares 4,954,900 (478,383) 228,143 (3,059,399)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets (Continued)
Year Ended October 31
<TABLE>
<CAPTION>
Technology Utilities
Fund Fund
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
OPERATIONS
<S> <C> <C> <C> <C>
Net Investment Income (Loss) $ (5,170,961) $ 3,859,471 $ 3,225,819 $ 3,885,836
Net Realized Gain (Loss) on Investment
Securities, Foreign Currency Transactions
and Written Options (96,330,143) 191,768,642 2,637,629 3,976,158
Change in Net Appreciation (Depreciation) of
Investment Securities and Foreign
Currency Transactions 75,738,741 (21,199,698) 30,143,538 10,184,614
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS (25,762,363) 174,428,415 36,006,986 18,046,608
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income 0 (3,844,605) (3,220,692) (3,883,534)
In Excess of Investment Income (32,284) 0 0 0
Net Realized Gain on Investment Securities
and Foreign Currency Transactions (94,248,558) (105,677,534) (3,970,217) (10,429,174)
In Excess of Net Realized Gain on
Investment Securities and Foreign
Currency Transactions (98,305,920) 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (192,586,762) (109,522,139) (7,190,909) (14,312,708)
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 1,501,056,910 1,630,735,648 446,364,689 213,563,256
Reinvestment of Distributions 181,493,943 104,735,865 6,686,820 13,624,733
- -----------------------------------------------------------------------------------------------------------------------
1,682,550,853 1,735,471,513 453,051,509 227,187,989
Amounts Paid for Repurchases of Shares (1,495,399,337) (1,550,020,036) (436,981,400) (251,580,295)
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM FUND
SHARE TRANSACTIONS 187,151,516 185,451,477 16,070,109 (24,392,306)
- -----------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (31,197,609) 250,357,753 44,886,186 (20,658,406)
NET ASSETS
Beginning of Period 1,039,968,404 789,610,651 132,423,149 153,081,555
- -----------------------------------------------------------------------------------------------------------------------
End of Period $1,008,770,795 $ 1,039,968,404 $ 177,309,335 $132,423,149
- -----------------------------------------------------------------------------------------------------------------------
Accumulated Undistributed (Distributions
in Excess of) Net Investment Income
(Loss) Included in Net Assets at End
of Period $ (43,470) $ 2,000 $ 482,480 $ (1,533)
- -----------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 51,002,134 48,520,411 32,309,451 18,030,968
Shares Issued from Reinvestment of Distributions 7,022,355 3,352,065 489,728 1,209,641
- ------------------------------------------------------------------------------------------------------------------------
58,024,489 51,872,476 32,799,179 19,240,609
Shares Repurchased (50,998,957) (46,024,492) (31,429,955) (21,291,670)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Fund Shares 7,025,532 5,847,984 1,369,224 (2,051,061)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Strategic
Funds, Inc. (formerly known as INVESCO Strategic Portfolios, Inc.)(the "Fund")
is incorporated in Maryland and presently consists of eight separate Funds:
Energy Fund, Environmental Services Fund, Financial Services Fund, Gold Fund,
Health Sciences Fund, Leisure Fund, Technology Fund and Utilities Fund. On
August 4, 1998, the board of directors of the Fund approved a name change to
INVESCO Strategic Funds, Inc. and a name change for each separate Fund to Fund
from Portfolio. The investment objectives are to seek capital appreciation
through investments in specific business sectors. Additionally, Utilities Fund
seeks capital appreciation and income through investments in public utilities.
The Fund is registered under the Investment Company Act of 1940 (the "Act") as a
diversified, open-end management investment company.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
A. SECURITY VALUATION - Equity securities traded on national securities
exchanges or in the over-the-counter market are valued at the last sales
price in the market where such securities are primarily traded. If last sales
prices are not available, securities are valued at the highest closing bid
price obtained from one or more dealers making a market for such securities
or by a pricing service approved by the FundOs board of directors.
Debt securities are valued at evaluated bid prices as determined by a
pricing service approved by the Fund's board of directors. If evaluated bid
prices are not available, debt securities are valued by averaging the bid
prices obtained from one or more dealers making a market for such securities.
Foreign securities are valued at the closing price on the principal stock
exchange on which they are traded. In the event that closing prices are not
available for foreign securities, prices will be obtained from the principal
stock exchange at or prior to the close of the New York Stock Exchange.
Foreign currency exchange rates are determined daily prior to the close of
the New York Stock Exchange.
If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good faith
under procedures established by the Fund's board of directors. Restricted
securities are valued in accordance with procedures established by the FundOs
board of directors.
Short-term securities are stated at amortized cost (which approximates
market value) if maturity is 60 days or less at the time of purchase, or
market value if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign cur-
riences are translated into U.S. dollars at the prevailing market rates as
quoted by one or more banks or dealers on the date of valuation.
B. FUTURES CONTRACTS - Leisure Fund may enter into futures contracts for
non-speculative purposes. Upon entering into a contract, Leisure Fund
deposits and maintains as collateral such initial margin as may be required
by the exchanges on which the transaction is affected. Pursuant to the
contracts, Leisure Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in the value of the contract. Such
receipts or payments are known as "variation margin" and are recorded by
Leisure Fund as variation margin receivable or payable on futures contracts.
During the period the futures contracts are open, changes in the value of the
contracts are recognized on a daily basis to reflect the market value of the
contracts at the end of each day's trading and are recorded as unrealized
gain or loss. When the contract is closed, Leisure Fund records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed. Leisure Fund's
use of futures contracts may subject it to certain risks as a result of
unanticipated movements in the market. In addition, there can be no
assurance that a liquid secondary market will exist for any contract
purchased or sold.
<PAGE>
C. REPURCHASE AGREEMENTS - Repurchase agreements held by the Fund are fully
collateralized by U.S. Government securities and such collateral is in the
possession of the Fund's custodian. The collateral is evaluated daily to
ensure its market value exceeds the current market value of the repurchase
agreements including accrued interest. In the event of default on the
obligation to repurchase, the Fund has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. In the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal proceedings.
D. OPTIONS - The Fund may hold options for investment purposes with the intent
to hedge the portfolio against ongoing exposure to market value and interest
rate fluctuations.
The use of such instruments may involve certain risks as a result of
unanticipated movements in the market. A lack of correlation between the
value of an instrument underlying an option and the asset being hedged, or
unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased or sold. Realized gains or losses
on purchased option transactions are included in Net Realized Gain (Loss) on
Investment Securitites and Foreign Currency Transactions in the Statement of
Operations.
E. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the trade date and dividend income is recorded on the ex
dividend date. Certain dividends from foreign securities will be recorded as
soon as the Fund is informed of the dividend if such information is obtained
subsequent to the ex dividend date. Interest income, which may be comprised
of stated coupon rate, market discount, original issue discount and
amortized premium, is recorded on the accrual basis. Income and expenses on
foreign securities are translated into U.S dollars at rates of exchange
prevailing when accrued. Discounts and premiums on debt securities purchased
are amortized over the life of the respective security as adjustments to
interest income. Cost is determined on the specific identification basis.
The cost of foreign securities is translated into U.S. dollars at the rates
of exchange prevailing when such securities are acquired.
The Fund may have elements of risk due to concentrated investments in
specific industries or foreign issuers located in a specific country. Such
concentrations may subject the Fund to additional risks resulting from future
political or economic conditions and/or possible impositions of adverse
foreign governmental laws or currency exchange restrictions. Net realized and
unrealized gain or loss from investment securities includes fluctuations from
currency exchange rates and fluctuations in market value.
The Fund's use of short-term forward foreign currency contracts may
subject it to certain risks as a result of unanticipated movements in foreign
exchange rates. The Fund does not hold short-term forward foreign currency
contracts for trading purposes. The Fund may hold foreign currency in
anticipation of settling foreign security transactions and not for
investment purposes.
The Environmental Services Fund may have elements of risk due to
concentrated investments in the environmental services industry. Investments
in environmental services companies may be affected by regulations imposed by
various federal and state authorities, including the Environmental Protection
Agency and its affiliates. In addition, some of these companies may have
certain liability risks as a result of the products or services they provide.
Restricted securities held by the Fund may not be sold except in exempt
transactions or in a public offering registered under the Securities Act of
1933. The risk of investing in such securities is generally greater than the
risk of investing in the securities of widely held, publicly traded
companies. Lack of a secondary market and resale restrictions may result in
the inability of each Fund to sell a security at a fair price and may
substantially delay the sale of the security which each Fund seeks to sell.
In addition, these securities may exhibit greater price volatility than
securities for which secondary markets exist.
F. FEDERAL AND STATE TAXES - The Fund has complied, and continues to comply,
with the provisions of the Internal Revenue Code applicable to regulated
investment companies and, accordingly, has made or intends to make sufficient
<PAGE>
distributions of net investment income and net realized capital gains, if
any, to relieve it from all federal and state income taxes and federal excise
taxes. At October 31, 1998, Energy had $32,145,203 in net capital loss
carryovers which expire in the year 2006, Environmental Services had $508,679
in net capital loss carryovers which expire in the year 2006, Gold Fund had
$1,051,643, $65,174,126 and $64,972,554 in net capital loss carryovers which
expire in the years 2003, 2005 and 2006, respectively and Technology had
$95,219,757 in net capital loss carryovers which expire in the year 2006.
To the extent future capital gains are offset by capital loss carryovers,
such gains will not be distributed to shareholders.
Dividends paid by the Fund from net investment income and distributions of
net realized short-term capital gains are, for federal income tax purposes,
taxable as ordinary income to shareholders. Of the ordinary income
distributions declared for the year ended October 31, 1998, amounts
qualifying for the dividends received deduction available to the FundOs
corporate shareholders were as follows:
Qualifying
Fund Percentage
- -------------------------------------------------------------------------------
Energy Fund 0.46%
Environmental Services Fund 0.00%
Financial Services Fund 13.88%
Gold Fund 39.24%
Health Sciences Fund 100.00%
Leisure Fund 0.34%
Technology Fund 0.01%
Utilities Fund 100.00%
Investment income received from foreign sources may be subject to foreign
withholding taxes. Dividend and interest income is shown gross of foreign
withholding taxes in the accompanying financial statements.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions to
shareholders are recorded by the Fund on the ex dividend/distribution date.
The Fund distributes net realized capital gains, if any, to its shareholders
at least annually, if not offset by capital loss carryovers. Income
distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for amortized premiums, foreign currency transactions, nontaxable
dividends, net operating losses and expired capital loss carryforwards.
For the year ended October 31, 1998, the effects of such differences were
as follows:
Accumulated
Accumulated Undistributed
Undistributed Net Realized
Net Gain on
Investment Investment Paid-in
Fund Income Securities Capital
- --------------------------------------------------------------------------------
Energy Fund $ (7,785) $ (34,759) $ 42,544
Environmental Services Fund 195,995 (1,393) (194,602)
Financial Services Fund (34,105) 34,106 (1)
Gold Fund 927,814 160,620 (1,088,434)
Health Sciences Fund 321 (208,704) 208,383
Leisure Fund 194,881 (187,160) (7,721)
Technology Fund 5,157,775 241,913 (5,399,688)
Utilities Fund 478,886 (442,759) (36,127)
Net investment income, net realized gains and net assets were not
affected.
H. FORWARD FOREIGN CURRENCY CONTRACTS - The Fund enters into short-term forward
foreign currency contracts in connection with planned purchases or sales of
securities as a hedge against fluctuations in foreign exchange rates pending
<PAGE>
the settlement of transactions in foreign securities. A forward foreign
currency contract is an agreement between contracting parties to exchange an
amount of currency at some future time at an agreed upon rate. These
contracts are marked-to-market daily and the related appreciation or
depreciation of the contracts is presented in the Statement of Assets and
Liabilities.
I. EXPENSES - Each of the Funds bears expenses incurred specifically on its
behalf and, in addition, each Fund bears a portion of general expenses, based
on the relative net assets of each Fund.
Under an agreement between each Fund and the Fund's Custodian, agreed upon
Custodian Fees and Expenses are reduced by credits granted by the Custodian
from any temporarily uninvested cash. Similarly, Custodian Fees and Expenses
for Health Sciences and Financial Services Funds and Distribution Expenses
and Transfer Agent Fees for all Funds are reduced by credits earned by each
Fund from security brokerage transactions under certain broker/service
arrangements with third parties. Such credits are included in Fees and
Expenses Paid Indirectly in the Statement of Operations.
For the year ended October 31, 1998, Fees and Expenses Paid Indirectly
consisted of the following:
Custodian Fees Distribution Transfer
Fund and Expenses Expenses Agent Fees
- --------------------------------------------------------------------------------
Energy Fund $ 9,111 $27,655 $ 87,519
Environmental Services Fund 2,735 1,456 0
Financial Services Fund 204,533 12,528 383,830
Gold Fund 24,853 15,450 24,431
Health Sciences Fund 161,368 15,421 201,892
Leisure Fund 30,889 9,942 52,965
Technology Fund 76,427 39,535 305,203
Utilities Fund 13,022 0 55,139
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group, Inc.
("IFG") serves as the FundOs investment adviser. As compensation for its
services to the Fund, IFG receives an investment advisory fee which is accrued
daily at the applicable rate and paid monthly. The fee for each Fund is based on
the annual rate of 0.75% on the first $350 million of average net assets;
reduced to 0.65% on the next $350 million of average net assets; and 0.55% on
average net assets in excess of $700 million. IFG voluntarily agreed to waive a
portion of its fee to 0.45% on average net assets in excess of $2 billion, 0.40%
on average net assets in excess of $4 billion, 0.375% on average net assets in
excess of $5 billion and 0.35% on average net assets in excess of $6 billion.
In accordance with a Sub-Advisory Agreement between IFG and INVESCO Trust
Company ("ITC"), a wholly owned subsidiary of IFG, investment decisions of each
Fund were made by ITC. Fees for such sub-advisory services were paid by IFG.
Effective February 4, 1998, such responsibilities were transferred to IFG.
A plan of distribution pursuant to Rule 12b-1 of the Act (the "Plan") became
effective November 1, 1997 for Energy, Financial Services, Gold, Health
Sciences, Leisure, Technology and Utilities Funds, and December 1, 1997 for
Environmental Services Fund. The Plan provides for compensation of marketing and
advertising expenditures to INVESCO Distributors, Inc. ("IDI" or the
"Distributor"), a wholly owned subsidiary of IFG, to a maximum of 0.25% of
annual average net assets. For the year ended October 31, 1998, Energy,
Environmental Services, Financial Services, Gold, Health Sciences, Leisure,
Technology and Utilities Funds paid the Distributor $340,026, $30,504,
$2,083,025, $233,587, $1,378,830, $285,064, $1,697,694, and $374,297,
respectively, under the plan of distribution.
IFG receives a transfer agent fee at an annual rate of $20.00 per shareholder
account, or, where applicable, per participant in an omnibus account, per year.
IFG may pay such fee for participants in omnibus accounts to affiliates or third
parties. The fee is paid monthly at one-twelfth of the annual fee and is based
upon the actual number of accounts in existence during each month.
In accordance with an Administrative Agreement, each Fund pays IFG an annual
fee of $10,000, plus an additional amount computed at an annual rate of 0.015%
of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by Environmental Services and Utilities Funds.
<PAGE>
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended
October 31, 1998, the aggregate cost of purchases and proceeds from sales of
investment securities (excluding all U.S. Government securities and short-term
securities) were as follows:
Fund Purchases Sales
- --------------------------------------------------------------------------------
Energy Fund $341,338,749 $436,412,134
Environmental Services Fund 26,166,827 31,361,540
Financial Services Fund 819,884,962 672,408,845
Gold Fund 170,466,261 156,081,593
Health Sciences Fund 1,024,924,939 929,465,819
Leisure Fund 67,524,458 89,842,730
Technology Fund 1,773,728,202 1,732,688,461
Utilities Fund 77,037,962 77,024,273
There were no purchases or sales of U.S. Government securities.
NOTE 4 -- APPRECIATION AND DEPRECIATION. At October 31, 1998, the gross
appreciation of securities in which there was an excess of value over tax cost,
the gross depreciation of securities in which there was an excess of tax cost
over value and the resulting net appreciation (depreciation) by Fund were as
follows:
Net
Gross Gross Appreciation
Fund Appreciation Depreciation
(Depreciation)
- --------------------------------------------------------------------------------
Energy Fund $ 9,386,327 $ 12,031,119 $ (2,644,792)
Environmental Services Fund 1,633,326 1,263,155 370,171
Financial Services Fund 215,625,503 34,858,095 180,767,408
Gold Fund 9,639,906 72,587,072 (62,947,166)
Health Sciences Fund 314,614,498 14,425,064 300,249,434
Leisure Fund 75,307,767 11,690,863 63,616,904
Technology Fund 188,390,038 21,304,433 167,085,605
Utilities Fund 48,537,141 1,223,127 47,314,014
NOTE 5 -- TRANSACTIONS WITH AFFILIATES AND AFFILIATED COMPANIES. Certain of
the Fund's officers and directors are also officers and directors of IFG or IDI.
The Fund has adopted an unfunded defined benefit deferred compensation plan
covering all independent directors of the Fund who will have served as an
independent director for at least five years at the time of retirement. Benefits
under this plan were based on an annual rate equal to 40% of the retainer fee at
the time of retirement. As of July 1, 1998, benefits are based on an annual rate
of 50% of the sum of the retainer fee at the time of retirement plus the annual
meeting fee.
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of selected INVESCO
Funds. The deferred amounts are being invested in the shares of all of the
INVESCO and Treasurer's Series Trust Funds.
Pension expenses for the year ended October 31, 1998, included in Directors'
Fees and Expenses in the Statement of Operations, and unfunded accrued pension
costs and pension liability included in Prepaid Expenses and Accrued Expenses,
respectively, in the Statement of Assets and Liabilities were as follows:
Unfunded
Pension Accrued Pension
Fund Expenses Pension Costs Liability
- --------------------------------------------------------------------------------
Energy Fund $ 5,893 $ 1,275 $ 11,524
Environmental Services Fund 690 1,123 3,385
Financial Services Fund 17,926 3,779 39,069
Gold Fund 4,567 13,011 32,071
Health Sciences Fund 18,565 17,913 71,513
Leisure Fund 4,227 9,858 27,928
Technology Fund 19,422 7,692 51,235
Utilities Fund 2,436 4,666 13,856
<PAGE>
An affiliated company represents ownership by the Fund of at least 5% of the
voting securities of the issuer during the period, as defined in the Act. A
summary of the transactions during the year ended October 31, 1998, in which the
issuer was an affiliate of the Fund, is as follows:
<TABLE>
<CAPTION>
Purchases Sales Realized
- --------------------------------------------------------------------------------------- Gain (Loss)
on Investment Value at
Affiliate Shares Cost Shares Cost Securities 10/31/98
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gold Fund
Crown Resources 150,000 $ 447,751 -- -- -- $ 2,775,000
Guyanor Ressources
SA Class B -- -- -- -- -- 872,657
Pacific Rim Mining -- -- -- -- -- 550,037
Star Resources 3,370,000 603,921 -- -- -- 315,869
Sutton Resources Ltd 720,000 3,891,816 27,900 $ 263,619 $ (72,523) 4,200,000
Health Sciences Fund
Ecogen Technologies I -- -- -- -- -- 1
Electroscope Inc -- -- 399,000 1,039,500 (640,500) 0
Emisphere Technologies -- -- 399,775 5,298,657 291,786 1,429,459
Janus Biomedical
Series A, Conv Pfd -- -- -- -- -- 1,000,000
Multum Information
Services
Series C, Pfd -- -- 571,429 1,000,001 (1,000,001) 0
Series E, Pfd -- -- 142,941 486,000 (408,670) 0
Orbtek Inc
Series A, Conv Pfd -- -- 476,190 999,999 (874,904) 0
Physicians Online
Bridge Notes, 11.000%
10/31/2000 292,070 292,070 -- -- -- 292,070
Series A, Pfd -- -- -- -- -- 1,954,904
ResMed Inc -- -- -- -- -- 22,695,000
Unisyn Technologies -- -- -- -- -- 1
Unisyn Technologies
Series A, Conv Pfd -- -- -- -- -- 0
Series B, Pfd -- -- -- -- -- 1
Series C, Pfd -- -- -- -- -- 0
Technology Fund
Future Communications -- -- 160,000 3,084,375 (3,084,375) 0
</TABLE>
Interest income in the amount of $13,399 was received from Physicians Online,
Bridge Notes during the fiscal year ended October 31, 1998. No dividend was
received from any other affiliated companies.
NOTE 6 - LINE OF CREDIT. The Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the Net Assets at Value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. At October
31, 1998, there were no such borrowings.
<PAGE>
Other Information
Unaudited
Year 2000 Computer Issue. Many computer systems in use today may not be able to
recognize any date after December 31, 1999. If these systems are not fixed by
that date, it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own major computer systems will continue to function on and after
January 1, 2000. Of course, INVESCO cannot fix systems that are beyond its
control. If INVESCO's own systems, or the systems of third parties upon which
it relies, do not perform properly after December 31, 1999, the Funds could be
adversely affected.
In addition, the markets for, or values of, securities in wihch the Funds invest
may possibly be hurt by computer failures affecting portfolio investments or
tradin of securities beginning January 1, 2000. For example, improperly
functioning computer systems could result in securities trade settlement pro-
blems and liquidity issues, production issues for individual companies and
overall economic uncertainties. Individual issuers may incur increased costs
in making their own systems Year 2000 compliant. The combination of market
uncertainty and increased costs means that there is a possibility that Year
2000 computer issues may adversely affect the Funds' investments.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of INVESCO Strategic Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Energy Fund, Environmental Services
Fund, Financial Services Fund, Gold Fund, Health Sciences Fund, Leisure Fund,
Technology Fund and Utilities Fund (constituting INVESCO Strategic Funds, Inc.,
formally known as INVESCO Strategic Portfolios, Inc., hereafter referred to as
the "Fund") at October 31, 1998, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- -------------------------------
PricewaterhouseCoopers LLP
Denver, Colorado
December 8, 1998
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights -- Energy Fund
(For a Fund Share Outstanding Throughout Each Period)
Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $ 19.38 $ 15.03 $ 10.09 $ 10.77 $ 11.53
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (a) 0.00 0.06 0.04 0.09 0.06
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (5.04) 5.56 4.94 (0.68) (0.76)
- ---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (5.04) 5.62 4.98 (0.59) (0.70)
LESS DISTRIBUTIONS
Dividends from Net Investment Income(b) 0.01 0.05 0.04 0.09 0.06
Distributions from Capital Gains 0.34 1.22 0.00 0.00 0.00
In Excess of Capital Gains 2.69 0.00 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions 3.04 1.27 0.04 0.09 0.06
Net Asset Value -- End of Period $11.30 $19.38 $15.03 $10.09 $ 10.77
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (28.51%) 40.65% 49.33% (5.45%) (6.04%)
RATIOS
Net Assets - End of Period ($000 Omitted) $137,455 $319,651 $236,169 $48,284 $ 73,767
Ratio of Expenses to Average
Net Assets 1.58%(c) 1.21%(c) 1.30%(c) 1.53%(c) 1.35%
Ratio of Net Investment Income to
Average Net Assets 0.01% 0.39% 0.54% 0.72% 0.65%
Portfolio Turnover Rate 192% 249% 392% 300% 123%
</TABLE>
(a) Net Investment Income aggregated less than $0.01 on a per share basis for
the year ended October 31, 1998.
(b) Distributions in excess of net investment income for the years ended October
31, 1998 and 1996, aggregated less than $0.01 on a per share basis.
(c) Ratio is based on Total Expenses of the Fund, which is before any expense
offset arrangements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights -- Environmental Fund
(For a Fund Share Outstanding Throughout Each Period)
Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value N Beginning of Period $ 11.44 $ 10.14 $ 8.12 $ 6.50 $ 6.80
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)(b) 0.00 (0.04) 0.06 0.08 0.06
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (1.09) 1.89 2.02 1.62 (0.30)
- ---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (1.09) 1.85 2.08 1.70 (0.24)
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.00 0.00 0.06 0.08 0.06
In Excess of Net Investment Income 0.00 0.01 0.00 0.00 0.00
Distributions from Capital Gains 2.79 0.54 0.00 0.00 0.00
In Excess of Capital Gains 0.28 0.00 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions 3.07 0.55 0.06 0.08 0.06
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 7.28 $ 11.44 $ 10.14 $ 8.12 $ 6.50
=====================================================================================================================
TOTAL RETURN (12.09%) 19.13% 25.58% 26.09% (3.51%)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 14,875 $ 23,151 $ 26,794 $ 22,756 $ 29,276
Ratio of Expenses to Average
Net Assets(c) 1.92%(d) 1.72%(d) 1.61%(d) 1.57%(d) 1.29%
Ratio of Net Investment Income
(Loss) to Average Net Assets(c) (1.01%) (0.40%) 0.47% 0.65% 0.61%
Portfolio Turnover Rate 146% 187% 142% 195% 211%
(a) The per share information was computed based on weighted average shares.
(b) Net Investment Income aggregated less than $0.01 on a per share basis for
the year ended October 31, 1998.
(c) Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would have
been 2.20%, 2.16%, 1.85%, 1.93% and 1.43%, respectively, and ratio of net
investment income to average net assets would have been (1.29%), (0.84%),
0.23%, 0.29% and 0.47%, respectively.
(d) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (Continued) -- Financial Services Fund
(For a Fund Share Outstanding Throughout Each Period)
Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value N Beginning of Period $ 29.14 $ 22.94 $ 18.95 $ 15.31 $ 20.28
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.25 0.28 0.50 0.29 0.29
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 3.01 8.14 5.18 3.64 (0.66)
- ----------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 3.26 8.42 5.68 3.93 (0.37)
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.25 0.28 0.50 0.29 0.29
In Excess of Net Investment Income 0.00 0.00 0.05 0.00 0.00
Distributions from Capital Gains 3.70 1.94 1.14 0.00 4.31
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions 3.95 2.22 1.69 0.29 4.60
Net Asset Value - End of Period $ 28.45 $ 29.14 $ 22.94 $ 18.95 $ 15.31
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 11.76% 39.80% 31.48% 25.80% (2.24%)
RATIOS
Net Assets-End of Period ($000 Omitted) $1,417,655 $1,113,255 $ 542,688 $ 410,048 $ 266,170
Ratio of Expenses to Average
Net Assets 1.05%(a) 0.99%(a) 1.11%(a) 1.26%(a) 1.18%
Ratio of Net Investment Income
to Average Net Assets 0.85% 1.19% 2.48% 2.10% 1.66%
Portfolio Turnover Rate 52% 96% 141% 171% 88%
(a) Ratio is based on Total Expenses of the Fund, which is before any offset
arrangements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (Continued) -- Gold Fund
(For a Fund Share Outstanding Throughout Each Period)
Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value N Beginning of Period $ 3.21 $ 8.00 $ 5.21 $ 5.68 $ 6.23
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.01 (0.02) (0.01) 0.01 (0.02)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (1.29) (2.62) 2.80 (0.47) (0.53)
- ---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (1.28) (2.64) 2.79 (0.46) (0.55)
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.00 0.00 0.00 0.01 0.00
In Excess of Net Investment Income 0.03 2.15 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions 0.03 2.15 0.00 0.01 0.00
Net Asset Value - End of Period $ 1.90 $ 3.21 $ 8.00 $ 5.21 $ 5.68
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (39.98%) (44.38%) 53.55% (8.12%) (8.83%)
RATIOS
Net Assets - End of Period ($000 Omitted) $107,249 $ 151,085 $ 277,892 $ 151,779 $ 271,163
Ratio of Expenses to Average
Net Assets 1.90%(b) 1.47%(b) 1.22%(b) 1.32%(b) 1.07%
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.93%) (0.41%) (0.08%) 0.13% (0.32%)
Portfolio Turnover Rate 133% 148% 155% 72% 97%
(a) The per share information was computed based on average shares.
(b) Ratio is based on Total Expenses of the Fund, which is before any offset
arrangements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (Continued) -- Health Sciences Fund
(For a Fund Share Outstanding Throughout Each Period)
Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value N Beginning of Period $ 57.50 $ 55.24 $ 50.47 $ 35.09 $ 33.49
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.13 0.06 0.07 (0.03) (0.24)
Net Gains on Securities
(Both Realized and Unrealized) 13.55 10.85 8.78 15.41 1.84
- ---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 13.68 10.91 8.85 15.38 1.60
LESS DISTRIBUTIONS
Dividends from Net Investment Income(a) 0.25 0.06 0.07 0.00 0.00
Distributions from Capital Gains 8.81 8.59 4.01 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions 9.06 8.65 4.08 0.00 0.00
Net Asset Value - End of Period $ 62.12 $ 57.50 $ 55.24 $ 50.47 $ 35.09
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 28.58% 22.96% 17.99% 43.83% 4.78%
RATIOS
Net Assets - End of Period ($000 Omitted) $1,328,196 $ 944,498 $ 933,828 $ 860,926 $ 473,926
Ratio of Expenses to Average Net Assets 1.12.%(b) 1.08%(b) 0.98%(b) 1.15%(b) 1.19%
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.25% 0.11% 0.11% (0.08%) (0.57%)
Portfolio Turnover Rate 92% 143% 90% 107% 80%
(a) Distributions in excess of net investment income for the year ended October
31, 1998, aggregated less than $0.01 on a per share basis.
(b) Ratio is based on Total Expenses of the Fund, which is before any offset
arrangements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (Continued) -- Leisure Fund
(For a Fund Share Outstanding Throughout Each Period)
Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $ 27.21 $ 22.89 $ 23.78 $ 22.63 $ 25.47
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)(a) 0.00 0.02 0.04 0.08 (0.01)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 3.69 4.96 2.25 2.06 (0.94)
- ---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 3.69 4.98 2.29 2.14 (0.95)
LESS DISTRIBUTIONS
Dividends from Net Investment Income(b) 0.00 0.02 0.04 0.08 0.00
Distributions from Capital Gains 2.98 0.64 2.25 0.91 1.89
In Excess of Capital Gains 0.00 0.00 0.89 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions 2.98 0.66 3.18 0.99 1.89
Net Asset Value - End of Period $ 27.92 $ 27.21 $ 22.89 $ 23.78 $ 22.63
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 15.16% 22.32% 10.66% 9.98% (3.92%)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 228,681 $ 216,616 $ 252,297 $ 265,181 $ 282,649
Ratio of Expenses to Average Net Assets 1.41%(c) 1.41%(c) 1.30%(c) 1.29%(c) 1.17%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.09%) 0.05% 0.18% 0.31% 0.00%
Portfolio Turnover Rate 31% 25% 56% 119% 116%
(a) Net Investment Income aggregated less than $0.01 on a per share basis for
the year ended October 31, 1998.
(b) Distributions in excess of net investment income for the years ended October
31, 1998, 1997, 1996 and 1995 aggregated less than $0.01 on a per share basis.
(c) Ratio is based on Total Expenses of the Fund, which is before any expense
offset arrangements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (Continued) -- Technology Fund
(For a Fund Share Outstanding Throughout Each Period)
Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value N Beginning of Period $ 35.97 $ 34.23 $ 34.33 $ 24.94 $ 26.99
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)(a) 0.00 0.13 0.07 (0.02) (0.02)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (1.45) 6.23 5.76 10.20 1.19
- ---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (1.45) 6.36 5.83 10.18 1.17
LESS DISTRIBUTIONS
Dividends from Net Investment Income(b) 0.00 0.13 0.07 0.00 0.00
Distributions from Capital Gains 3.16 4.49 5.86 0.79 3.22
In Excess of Capital Gains 3.29 0.00 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions 6.45 4.62 5.93 0.79 3.22
Net Asset Value - End of Period $ 28.07 $ 35.97 $ 34.23 $ 34.33 $ 24.94
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (2.47%) 20.71% 19.98% 42.19% 5.04%
RATIOS
Net Assets - End of Period ($000 Omitted) $1,008,771 $1,039,968 $ 789,611 $ 563,109 $ 327,260
Ratio of Expenses to Average Net Assets 1.17%(c) 1.05%(c) 1.08%(c) 1.12%(c) 1.17%
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.49%) 0.41% 0.24% (0.06%) (0.55%)
Portfolio Turnover Rate 178% 237% 168% 191% 145%
(a) Net Investment Income aggregated less than $0.01 on a per share basis for
the year ended October 31, 1998.
(b) Distributions in excess of net investment income for the years ended October
31, 1998 and 1996, aggregated less than $0.01 on a per share basis.
(c) Ratio is based on Total Expenses of the Fund, which is before any offset
arrangements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (Continued) -- Utilities Fund
(For a Fund Share Outstanding Throughout Each Period)
Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value N Beginning of Period $ 12.42 $ 12.04 $ 10.61 $ 9.76 $ 12.80
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.30 0.32 0.37 0.44 0.33
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 2.56 1.25 1.43 0.84 (1.12)
- ---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.86 1.57 1.80 1.28 (0.79)
LESS DISTRIBUTIONS
Dividends from Net Investment Income(a) 0.26 0.32 0.37 0.43 0.25
Distributions from Capital Gains 0.29 0.87 0.00 0.00 2.00
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions 0.55 1.19 0.37 0.43 2.25
Net Asset Value - End of Period $ 14.73 $ 12.42 $ 12.04 $ 10.61 $ 9.76
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 23.44% 14.37% 17.18% 13.48% (7.22%)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 177,309 $ 132,423 $ 153,082 $ 134,468 $ 139,579
Ratio of Expenses to Average Net Assets(b) 1.29%(c) 1.22%(c) 1.17%(c) 1.18%(c) 1.13%
Ratio of Net Investment Income to
Average Net Assets(b) 1.82% 2.74% 3.28% 4.47% 3.33%
Portfolio Turnover Rate 47% 55% 141% 185% 180%
(a) Distributions in excess of net investment income for the year ended October
31, 1996, aggregated less than $0.01 on a per share basis.
(b) Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would have
been 1.36%, 1.27%, 1.25%, 1.30% and 1.14%, respectively, and ratio of net
investment income to average net assets would have been 1.75%, 2.69%, 3.20%,
4.34% and 3.32%, respectively.
(c) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
</TABLE>
<PAGE>
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
This information must be
preceded or accompanied
by a current prospectus.
