PROSPECTUS
March 1, ^ 1998
INVESCO STRATEGIC PORTFOLIOS
Energy
Environmental Services
Financial Services
Gold
Health Sciences
Leisure
Technology
Utilities
The eight INVESCO Strategic Portfolios (the "Portfolios") described in
this Prospectus are actively managed to seek capital appreciation and, with
respect to the Utilities Portfolio, income. Each Portfolio, which is a separate
series of INVESCO Strategic Portfolios, Inc., normally invests 80% or more of
its total assets in companies principally engaged in a specific business sector.
Most of their holdings are in common stocks, but the Portfolios have the
flexibility to invest in other types of securities.
This Prospectus provides you with the basic information you should know
before investing in any of the Portfolios. You should read it and keep it for
future reference. A Statement of Additional Information containing further
information about the Portfolios, dated March 1, 1998, has been filed with the
Securities and Exchange Commission, and is incorporated by reference into this
Prospectus. To obtain a free copy, write to INVESCO Distributors, Inc., P.O. Box
173706, Denver, Colorado 80217-3706; call 1-800-525-8085; or visit our web site
at: http://www.invesco.com.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE
SHARES OF THE PORTFOLIOS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
CONTENTS
ESSENTIAL INFORMATION..........................................................2
ANNUAL PORTFOLIO EXPENSES......................................................3
FINANCIAL HIGHLIGHTS...........................................................5
INVESTMENT OBJECTIVE AND STRATEGY.............................................13
INVESTMENT POLICIES AND RISKS.................................................13
THE FUND AND ITS MANAGEMENT...................................................17
FUND PRICE AND PERFORMANCE....................................................20
HOW TO BUY SHARES.............................................................21
FUND SERVICES.................................................................23
HOW TO SELL SHARES............................................................24
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS......................................25
ADDITIONAL INFORMATION........................................................26
<PAGE>
ESSENTIAL INFORMATION
Investment Goal And Strategy: INVESCO Strategic Portfolios, Inc. (the
"Fund") is a mutual fund made up of a series of individually managed Portfolios.
Each Portfolio described in this Prospectus is actively managed to seek capital
appreciation and with respect to the Utilities Portfolio, income. Employing an
aggressive investment philosophy, each Portfolio normally invests at least 80%
of its total assets in equity securities of companies principally engaged in a
specific business sector. There is no guarantee that a Portfolio will meet its
investment objective. See "Investment Objective And Strategy" and "Investment
Policies And Risks."
Designed For: Investors seeking capital appreciation. While not a
complete investment program, one or more of these Portfolios may be a valuable
element of your investment portfolio. You also may wish to consider one or more
of the Portfolios as part of a Uniform Gifts/Transfers To Minors Act Account or
systematic investing strategy. The Portfolios may be a suitable investment for
many types of retirement programs, including various Individual Retirement
Accounts ("IRAs"), 401(k), Profit Sharing, Money Purchase Pension, and 403(b)
plans.
Time Horizon: Stock prices fluctuate on a daily basis, and each
Portfolio's price per share therefore varies daily. Potential shareholders
should consider this a medium- to long-term investment.
Risks: The Portfolios generally use an aggressive investment strategy
and may experience relatively rapid portfolio turnover. Because the Portfolios
focus on narrow business segments, they may experience greater short-term
volatility than more diversified funds. Rapid portfolio turnover may result in
higher brokerage commissions and the acceleration of taxable capital gains. The
returns on foreign investments may be influenced by currency fluctuations and
other risks of investing overseas. These policies make the Portfolios unsuitable
for that portion of your savings dedicated to current income or to preservation
of capital over the short-term. See "Investment Objective And Strategy" and
"Investment Policies And Risks."
Organization and Management: The Portfolios are series of the
Fund, a diversified, managed, no-load mutual fund. Each Portfolio is owned by
its shareholders. The Fund employs INVESCO Funds Group, Inc. ("IFG"), founded in
1932, to serve as investment adviser, administrator and transfer agent. ^ IFG
constitutes "Fund Management." Prior to September 30, 1997, IFG served as the
Portfolios' distributor. Effective September 30, 1997, INVESCO Distributors,
Inc. ("IDI"), founded in 1997 as a wholly-owned subsidiary of IFG, became the
Portfolios' distributor.
Each Portfolio's investments are selected by its portfolio manager or
managers. See "The Fund And Its Management."
<PAGE>
IFG^ and IDI are subsidiaries of AMVESCAP PLC, an international
investment management company that manages approximately $177.5 billion in
assets. AMVESCAP PLC is based in London with money managers located in Europe,
North America and Asia.
The Fund offers all of the following services at no charge:
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
Regular investment plans, such as EasiVest (the Fund's automatic
monthly investment program), Direct Payroll Purchase and Automatic
Monthly Exchange
Periodic withdrawal plans
See "How To Buy Shares" and "How To Sell Shares."
Minimum Initial Investment: $1,000 per Portfolio, which is waived for regular
investment plans, including EasiVest and Direct Payroll Purchase, and certain
retirement plans.
Minimum Subsequent Investment: $50 per Portfolio (Minimums are lower for certain
retirement plans.)
ANNUAL PORTFOLIO EXPENSES
The Portfolios whose shares are offered through this Prospectus are the
Energy, Environmental Services, Financial Services, Gold, Health Sciences,
Leisure, Technology and Utilities Portfolios. These Portfolios are 100% no-load;
there are no fees to purchase, exchange or redeem shares. Each Portfolio is
authorized to pay a Rule 12b-1 distribution fee of up to one quarter of one
percent of each Portfolio's average net assets each year. (See "How To Buy
Shares -- Distribution Expenses.") Lower expenses benefit ^ Portfolio
shareholders by increasing the ^ Portfolio's total return.
Like any company, each Portfolio has operating expenses such as
portfolio management, accounting, shareholder servicing, maintenance of
shareholder accounts and other expenses. These expenses are paid from each
Portfolio's assets. Lower expenses therefore benefit investors by increasing a
Portfolio's total return.
We calculate annual operating expenses as a percentage of each
Portfolio's average annual net assets. To keep expenses competitive, the
Environmental Services and Utilities Portfolios' adviser voluntarily reimburses
the Environmental Services and Utilities Portfolios for certain expenses in
excess of 1.90% and 1.25%, respectively, of each Portfolio's average net assets.
<PAGE>
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Energy Portfolio
Management Fee 0.75%
12b-1 Fees(1) 0.25%
Other Expenses(2) 0.46%
Total Portfolio Operating
Expenses(1)(2) 1.46%
Environmental Services Portfolio
Management Fee 0.75%
12b-1 Fees(1) 0.25%
Other Expenses (after absorbed expenses)(2)(3) 0.72%
Total Portfolio Operating
Expenses (after absorbed expenses)(1)(2)(3) 1.72%
Financial Services Portfolio
Management Fee 0.73%
12b-1 Fees(1) 0.25%
Other Expenses(2) 0.32%
Total Portfolio Operating
Expenses(1)(2) 1.30%
Gold Portfolio
Management Fee 0.75%
12b-1 Fees(1) 0.25%
Other Expenses(2) 0.72%
Total Portfolio Operating
Expenses(1)(2) 1.72%
Health Sciences Portfolio
Management Fee 0.65%
12b-1 Fees(1) 0.25%
Other Expenses(2) 0.42%
Total Portfolio Operating
Expenses(1)(2) 1.32%
Leisure Portfolio
Management Fee 0.75%
12b-1 Fees(1) 0.25%
Other Expenses(2) 0.66%
Total Portfolio Operating
Expenses(1)(2) 1.70%
Technology Portfolio
Management Fee 0.70%
12b-1 Fees(1) 0.25%
Other Expenses(2) 0.39%
Total Portfolio Operating
Expenses(1)(2) 1.34%
<PAGE>
Utilities Portfolio
Management Fee 0.75%
12b-1 Fees(1) 0.25%
Other Expenses (after absorbed expenses)(2)(3) 0.22%
Total Portfolio Operating
Expenses (after absorbed expenses)(1)(2)(3) 1.22%
(1) The 12b-1 fees for the period ending October 31, 1998 may be less than 0.25%
of the average net New Assets.
(2) It should be noted that the Portfolio's actual total operating expenses were
lower than the figures shown because the Portfolio's custodian fees, transfer
agency fees and distribution fees were reduced under expense offset
arrangements. However, as a result of an SEC requirement for mutual funds to
state their total operating expenses without crediting any such expense offset
arrangement, the figures shown above do not reflect these reductions. In
comparing expenses for different years, please note that the Ratios of Expenses
to Average Net Assets shown under "Financial Highlights" do reflect any
reductions for periods prior to the fiscal year ended October 31, 1996. See "The
Fund And Its Management" and "How to Buy Shares -- Distribution Expenses."
(3) Certain expenses of the Environmental Services and Utilities Portfolios are
being absorbed voluntarily by IFG. In the absence of such absorbed expenses, the
Environmental Services Portfolio's "Other Expenses" and "Total Portfolio
Operating Expenses" would have been 1.41% and 2.16%, respectively; and the
Utilities Portfolio's "Other Expenses" and "Total Portfolio Operating Expenses"
would have been 0.52% and 1.27%, respectively, based on each Portfolio's actual
expenses for the fiscal year ended October 31, 1997.
Example
A shareholder would pay the following expenses on a $1,000 investment
for the periods shown, assuming a hypothetical 5% annual return and redemption
at the end of each time period. (Of course, actual operating expenses are paid
from each Portfolio's assets and are deducted from the amount of income
available for distribution to shareholders; they are not charged directly to
shareholder accounts.)
<PAGE>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Energy Portfolio $ 12 $ 38 $ 66 $ 147
Environmental Services
Portfolio 17 54 93 203
Financial Services
Portfolio 11 33 58 128
Gold Portfolio 15 46 80 176
Health Sciences 11 34 59 131
Portfolio
Leisure Portfolio 14 45 77 169
Technology Portfolio 11 35 60 133
Utilities Portfolio 12 39 67 148
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE OR EXPENSES,
AND ACTUAL ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
For more information on each Portfolio's expenses, see "The Fund And Its
Management" and "How To Buy Shares -- Distribution Expenses."
Because each Portfolio pays a distribution fee, investors who own
shares of the Portfolios for a long period of time may pay more than the
economic equivalent of the maximum front-end sales charge permitted for mutual
funds by the National Association of Securities Dealers, Inc.
<PAGE>
INVESCO Strategic Portfolios, Inc.
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
Year Ended October 31, 1997
The following information has been audited by Price Waterhouse LLP, independent
accountants. This information should be read in conjunction with the audited
financial statements and the independent accountant's report thereon appearing
in the Fund's 1997 Annual Report to Shareholders, which is incorporated by
reference into the Statement of Additional Information. Both are available
without charge by contacting IDI at the address or telephone number on the cover
of this prospectus.
<TABLE>
<CAPTION>
Year Ended October 31
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Energy Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $15.03 $10.09 $10.77 $11.53 $9.14 $11.28 $12.06 $11.68 $9.29 $8.22
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.06 0.04 0.09 0.06 0.13 0.05 0.09 0.16 0.20 0.11
(Both Realized and Unrealized) 5.56 4.94 (0.68) (0.76) 2.36 (2.17) (0.76) 0.33 2.43 1.24
------------------------------------------------------------------------------------------------
Total from Investment
Operations 5.62 4.98 (0.59) (0.70) 2.49 (2.12) (0.67) 0.49 2.63 1.35
------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.05 0.04 0.09 0.06 0.10 0.02 0.11 0.11 0.24 0.17
Distributions from
Capital Gains 1.22 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.11
------------------------------------------------------------------------------------------------
Total Distributions 1.27 0.04 0.09 0.06 0.10 0.02 0.11 0.11 0.24 0.28
------------------------------------------------------------------------------------------------
Net Asset Value -
End of Period $19.38 $15.03 $10.09 $10.77 $11.53 $9.14 $11.28 $12.06 $11.68 $9.29
================================================================================================
TOTAL RETURN 40.65% 49.33% (5.45%) (6.04%) 27.18% (18.74%) (5.55%) 4.18% 28.32% 16.77%
RATIOS
<PAGE>
Net Assets - End of Period
($000 Omitted) $319,651 $236,169 $48,284 $73,767 $50,272 $17,048 $12,130 $19,476 $8,617 $5,831
Ratio of Expenses to
Average Net Assets 1.21%@ 1.30%@ 1.53%@ 1.35% 1.18% 1.73% 1.69% 1.42% 1.75% 1.90%
Ratio of Net Investment
Income to Average Net
Assets 0.39% 0.54% 0.72% 0.65% 0.86% 0.32% 0.83% 1.04% 1.73% 0.99%
Portfolio Turnover Rate 249% 392% 300% 123% 190% 370% 337% 321% 109% 177%
Average Commission Rate
Paid^^ $0.0796 $0.0794 - - - - - - - -
</TABLE>
+ Distributions in excess of net investment income for the year ended October
31, 1996, aggregated less than $0.01 on a per share basis.
< Ratio is based on Total Expenses of the Portfolio, which is before any expense
offset arrangements.
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold, which is required to be disclosed
for fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
<TABLE>
<CAPTION>
Period
Ended
October
Year Ended October 31 31
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 ^ 1992 1991^
Environmental Services Portfolio
PER SHARE DATA
Net Asset Value - Beginning of Period $10.14 $8.12 $6.50 $6.80 $7.54 $8.97 $8.00
-------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.04) 0.06 0.08 0.06 (0.02) (0.04) (0.07)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 1.89 2.02 1.62 (0.30) (0.72) (1.39) 1.04
-------------------------------------------------------------------------------------
Total from Investment Operations 1.85 2.08 1.70 (0.24) (0.74) (1.43) 0.97
-------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.00 0.06 0.08 0.06 0.00 0.00 0.00
In Excess of Net Investment Income 0.01 0.00 0.00 0.00 0.00 0.00 0.00
Distributions from Capital Gains 0.54 0.00 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------------------------------
Total Distributions 0.55 0.06 0.08 0.06 0.00 0.00 0.00
-------------------------------------------------------------------------------------
Net Asset Value - End of Period $11.44 $10.14 $8.12 $6.50 $6.80 $7.54 $8.97
=====================================================================================
TOTAL RETURN 19.13% 25.58% 26.09% (3.51%) (9.85%) (15.90%) 12.11%*
RATIOS
Net Assets - End of Period ($000 Omitted) $23,151 $26,794 $22,756 $29,276 $40,589 $17,685 $8,001
Ratio of Expenses to Average Net Assets# 1.72%@ 1.61%@ 1.57%@ 1.29% 1.62% 1.85% 2.50%~
Ratio of Net Investment Income (Loss) to
Average Net Assets# (0.40%) 0.47% 0.65% 0.61% (0.40%) (1.23%) (1.81%)~
Portfolio Turnover Rate 187% 142% 195% 211% 155% 113% 69%*
Average Commission Rate Paid^^ $0.0996 $0.1639 - - - - -
</TABLE>
<PAGE>
The per share information was computed based on weighted average shares.
^ From January 2, 1991, commencement of operations, to October 31, 1991.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended October 31, 1997, 1996, 1995 and 1994. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have been
2.16%, 1.85%, 1.93% and 1.43%, respectively, and ratio of net investment income
to average net assets would have been (0.84%), 0.23%, 0.29% and 0.47%,
respectively.
@ Ratio is based on Total Expenses of the Portfolio, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold, which is required to be disclosed
for fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31
-------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Services Portfolio
PER SHARE DATA
Net Asset Value -
Beginning of Period $22.94 $18.95 $15.31 $20.28 $15.28 $14.67 $7.19 $9.05 $7.55 $6.37
-------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) 0.28 0.50 0.29 0.29 0.24 0.20 0.10 (0.01) 0.10 0.12
Net Gains or (Losses) on
Securities (Both Realized
and Unrealized) 8.14 5.18 3.64 (0.66) 5.00 1.52 7.56 (1.82) 2.30 1.19
-------------------------------------------------------------------------------------------------------
Total from Investment
Operations 8.42 5.68 3.93 (0.37) 5.24 1.72 7.66 (1.83) 2.40 1.31
-------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.28 0.50 0.29 0.29 0.24 0.20 0.08 0.01 0.09 0.13
In Excess of Net Investment
Income 0.00 0.05 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions from
Capital Gains 1.94 1.14 0.00 4.31 0.00 0.91 0.10 0.02 0.81 0.00
-------------------------------------------------------------------------------------------------------
Total Distributions 2.22 1.69 0.29 4.60 0.24 1.11 0.18 0.03 0.90 0.13
-------------------------------------------------------------------------------------------------------
Net Asset Value -
End of Period $29.14 $22.94 $18.95 $15.31 $20.28 $15.28 $14.67 $7.19 $9.05 $7.55
=======================================================================================================
TOTAL RETURN 39.80 31.48 25.80 (2.24%) 34.33 11.74 106.63 (20.25%) 31.66 20.69%
<PAGE>
RATIOS
Net Assets - End of Period
($000 Omitted) $1,113,242 $542,688 $410,048 $266,170 $384,131 $189,708 $95,144 $1,315 $2,208$2,322
Ratio of Expenses to
Average Net Assets 0.99%@ 1.11%@ 1.26%@ 1.18% 1.03% 1.07% 1.13% 2.50% 2.50% 1.95%
Ratio of Net Investment
Income (Loss) to Average
Net Assets 1.19% 2.48% 2.10% 1.66% 1.16% 1.28% 1.76% (0.16%) 1.05% 1.71%
Portfolio Turnover Rate 96% 141% 171% 88% 236% 208% 249% 528% 217% 175%
Average Commission Rate
Paid^^ $0.0887 $0.0835 - - - - - - - -
</TABLE>
@ Ratio is based on Total Expenses of the Portfolio, which is before any expense
offset arrangements.
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold which is required to be disclosed for
fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31
-------------------------------------------------------------------------------------------------------
1997^ 1996 1995 1994 1993^ 1992 1991 1990 1989 1988
Gold Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $8.00 $5.21 $5.68 $6.23 $3.99 $4.26 $4.29 $5.29 $5.03 $5.60
-------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss)(0.02) (0.01) 0.01 (0.02) (0.01) (0.01) (0.01) 0.01 0.03 0.03
(Both Realized and
Unrealized) (2.62) 2.80 (0.47) (0.53) 2.25 (0.26) (0.02) (1.00) 0.28 (0.58)
--------------------------------------------------------------------------------------------------------
Total from Investment
Operations (2.64) 2.79 (0.46) (0.55) 2.24 (0.27) (0.03) (0.99) 0.31 (0.55)
--------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.00 0.00 0.01 0.00 0.00 0.00 0.00 0.01 0.05 0.02
In Excess of Net Investment
Income 2.15 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------------------------------------------------
Total Distributions 2.15 0.00 0.01 0.00 0.00 0.00 0.00 0.01 0.05 0.02
--------------------------------------------------------------------------------------------------------
Net Asset Value -
End of Period $3.21 $8.00 $5.21 $5.68 $6.23 $3.99 $4.26 $4.29 $5.29 $5.03
========================================================================================================
TOTAL RETURN (44.38%) 53.55% (8.12%) (8.83%) 56.27% (6.51%) (0.51%) (18.70%) 6.13% (9.84%)
<PAGE>
RATIOS
Net Assets - End of Period
($000 Omitted) $151,085 $277,892 $151,779 $271,163 $292,940 $46,212 $46,383 $35,757 $34,255 $32,481
Ratio of Expenses to Average
Net Assets 1.47%@ 1.22%@ 1.32%@ 1.07% 1.03% 1.41% 1.47% 1.32% 1.63% 1.58%
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.41%) (0.08%) 0.13% (0.32%) (0.21%) (0.23%) (0.25%) 0.26% 0.69% 0.62%
Portfolio Turnover Rate 148% 155% 72% 97% 142% 101% 43% 107% 77% 47%
Average Commission Rate
Paid^^ $0.0359 $0.0415 - - - - - - - -
</TABLE>
^ The per share information was computed based on average shares.
^ The per share information was computed based on weighted average shares.
@ Ratio is based on Total Expenses of the Portfolio, which is before any expense
offset arrangements.
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold which is required to be disclosed for
fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31
----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Health Sciences Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $55.24 $50.47 $35.09 $33.49 $35.65 $40.60 $20.61 $19.49 $14.29 $11.69
----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) 0.06 0.07 (0.03) (0.24) (0.13) 0.11 0.14 0.21 0.15 (0.09)
Net Gains or (Losses) on
Securities (Both Realized
and Unrealized) 10.85 8.78 15.41 1.84 (2.02) (4.52) 23.45 1.32 7.06 2.72
----------------------------------------------------------------------------------------------------
Total from Investment
Operations 10.91 8.85 15.38 1.60 (2.15) (4.41) 23.59 1.53 7.21 2.63
----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.06 0.07 0.00 0.00 0.01 0.10 0.12 0.20 0.06 0.00
Distributions from
Capital Gains+ 8.59 4.01 0.00 0.00 0.00 0.44 3.48 0.21 1.95 0.03
---------------------------------------------------------------------------------------------------
Total Distributions 8.65 4.08 0.00 0.00 0.01 0.54 3.60 0.41 2.01 0.03
---------------------------------------------------------------------------------------------------
Net Asset Value -
End of Period $57.50 $55.24 $50.47 $35.09 $33.49 $35.65 $40.60 $20.61 $19.49 $14.29
===================================================================================================
TOTAL RETURN 22.96% 17.99% 43.83% 4.78% (6.01%) (10.86%) 114.54% 7.85% 50.47% 22.56%
<PAGE>
RATIOS
Net Assets - End of Period
($000 Omitted) $944,498 $933,828 $860,926 $473,926 $560,294 $756,791 $744,927 $88,150 $26,765 $10,027
Ratio of Expenses to Average
Net Assets 1.08%@ 0.98%@ 1.15%@ 1.19% 1.16% 1.00% 1.03% 1.12% 1.42% 1.65%
Ratio of Net Investment
Income (Loss) to Average
Net Assets 0.11% 0.11% (0.08%) (0.57%) (0.34%) 0.26% 0.55% 1.18% 0.79% (0.48%)
Portfolio Turnover Rate 143% 90% 107% 80% 87% 91% 100% 242% 272% 280%
Average Commission Rate
Paid^^ $0.0600 $0.1204 - - - - - - - -
</TABLE>
+ For the year ended October 31, 1993, the Portfolio declared a Capital Gains
distribution which aggregated less than $0.01 on a per share basis.
@ Ratio is based on Total Expenses of the Portfolio, which is before any expense
offset arrangements.
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold which is required to be disclosed for
fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31
-------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Leisure Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $22.89 $23.78 $22.63 $25.47 $16.29 $14.85 $10.14 $14.53 $11.99 $9.00
-------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) 0.02 0.04 0.08 (0.01) (0.02) (0.01) (0.01) 0.01 0.22 0.04
(Both Realized and
Unrealized) 4.96 2.25 2.06 (0.94) 9.20 2.44 6.84 (3.69) 4.52 2.95
-------------------------------------------------------------------------------------------------------
Total from Investment
Operations 4.98 2.29 2.14 (0.95) 9.18 2.43 6.83 (3.68) 4.74 2.99
-------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.02 0.04 0.08 0.00 0.00 0.00 0.00 0.03 0.21 0.00
Distributions from Capital
Gains 0.64 2.25 0.91 1.89 0.00 0.99 2.12 0.68 1.99 0.00
In Excess of Capital Gains 0.00 0.89 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------------------------------------------------
Total Distributions 0.66 3.18 0.99 1.89 0.00 0.99 2.12 0.71 2.20 0.00
-------------------------------------------------------------------------------------------------------
Net Asset Value -
End of Period $27.21 $22.89 $23.78 $22.63 $25.47 $16.29 $14.85 $10.14 $14.53 $11.99
=======================================================================================================
TOTAL RETURN 22.32% 10.66% 9.98% (3.92%) 56.36% 16.34% 67.40% (25.33%) 39.58% 33.21%
<PAGE>
RATIOS
Net Assets - End of Period
($000 Omitted) $216,616 $252,297 $265,181 $282,649 $351,685 $40,140 $14,406 $5,064 $12,569 $5,624
Ratio of Expenses to Average
Net Assets 1.41%@ 1.30%@ 1.29%@ 1.17% 1.14% 1.51% 1.86% 1.84% 1.38% 1.89%
Ratio of Net Investment
Income (Loss) to Average
Net Assets 0.05% 0.18% 0.31% 0.00% (0.11%) (0.33%) (0.24%) 0.10% 1.44% 0.16%
Portfolio Turnover Rate 25% 56% 119% 116% 116% 148% 122% 89% 119% 136%
Average Commission Rate
Paid^^ $0.0672 $0.1503 - - - - - - - -
</TABLE>
< The per share information was computed based on weighted average shares.
+ Distributions in excess of net investment income for the years ended October
31, 1997, 1996 and 1995, aggregated less than $0.01 on a per share basis.
@ Ratio is based on Total Expenses of the Portfolio, which is before any expense
offset arrangements.
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold which is required to be disclosed for
fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31
------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991< 1990< ^ 1989 1988
Technology Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $34.2 $34.33 $24.94 $26.99 $20.20 $18.10 $11.61 $12.66 $10.11 $8.49
------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) 0.13 0.07 (0.02) (0.02) (0.15) (0.09) (0.09) (0.01) (0.29) (0.29)
Net Gains on Securities
(Both Realized and
Unrealized) 6.23 5.76 10.20 1.19 6.94 2.19 10.97 (1.04) 2.84 1.91
------------------------------------------------------------------------------------------------------
Total from Investment
Operations 6.36 5.83 10.18 1.17 6.79 2.10 10.88 (1.05) 2.55 1.62
------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.13 0.07 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions from
Capital Gains 4.49 5.86 0.79 3.22 0.00 0.00 4.39 0.00 0.00 0.00
------------------------------------------------------------------------------------------------------
Total Distributions 4.62 5.93 0.79 3.22 0.00 0.00 4.39 0.00 0.00 0.00
------------------------------------------------------------------------------------------------------
Net Asset Value -
End of Period $35.97 $34.23 $34.33 $24.94 $26.99 $20.20 $18.10 $11.61 $12.66 $10.11
======================================================================================================
TOTAL RETURN 20.71% 19.98% 42.19% 5.04% 33.63% 11.57% 93.73% (8.28%) 25.24% 19.02%
<PAGE>
RATIOS
Net Assets - End of Period
($000 Omitted) $1,039,968 $789,611 $563,109 $327,260 $248,803 $165,083 $63,119 $20,190 $8,525 $9,652
Ratio of Expenses to
Average Net Assets 1.05%@ 1.08%@ 1.12%@ 1.17% 1.13% 1.12% 1.19% 1.25% 1.59% 1.72%
Ratio of Net Investment
Income (Loss) to
Average Net Assets 0.41% 0.24% (0.06%) (0.55%) (0.69%) ( 0.45%) (0.53%) (0.06%) (0.62%) (0.90%)
Portfolio Turnover Rate 237% 168% 191% 145% 184% 169% 307% 345% 259% 356%#
Average Commission Rate
Paid^^ $0.0633 $0.1557 - - - - - - - -
</TABLE>
<The per share information was computed based on weighted average shares.
+ Distributions in excess of net investment income for the year ended October
31, 1996, aggregated less than $0.01 on a per share basis.
@ Ratio is based on Total Expenses of the Portfolio, which is before any expense
offset arrangements.
# For the year ended October 31, 1988, the value of securities acquired in
connection with the acquisition of the net assets of World of Technology, Inc.
was excluded when computing the Portfolio turnover rate.
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold which is required to be disclosed for
fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31
----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Utilities Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $12.04 $10.61 $9.76 $12.80 $10.10 $9.95 $8.35 $9.39 $8.59 $8.05
----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.32 0.37 0.44 0.33 0.29 0.27 0.39 0.32 0.39 0.40
(Both Realized and
Unrealized) 1.25 1.43 0.84 (1.12) 2.71 0.92 1.58 (1.04) 1.51 0.54
----------------------------------------------------------------------------------------------------------
Total from Investment
Operations 1.57 1.80 1.28 (0.79) 3.00 1.19 1.97 (0.72) 1.90 0.94
---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.32 0.37 0.43 0.25 0.30 0.26 0.37 0.32 0.38 0.40
Distributions from
Capital Gains 0.87 0.00 0.00 2.00 0.00 0.78 0.00 0.00 0.72 0.00
-----------------------------------------------------------------------------------------------------------
Total Distributions 1.19 0.37 0.43 2.25 0.30 1.04 0.37 0.32 1.10 0.40
-----------------------------------------------------------------------------------------------------------
Net Asset Value -
End of Period $12.42 $12.04 $10.61 $ 9.76 $12.80 $10.10 $9.95 $8.35 $9.39 $8.59
===========================================================================================================
TOTAL RETURN 14.37% 17.18% 13.48% (7.22%) 29.88% 12.04% 23.98% (7.82%) 22.40% 12.16%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RATIOS
Net Assets - End of Period
($000 Omitted) $132,423 $153,082 $134,468 $139,579 $181,738 $107,561 $69,267 $30,730 $23,955 $18,407
Ratio of Expenses to Average
Net Assets# 1.22%@ 1.17%@ 1.18%@ 1.13% 1.06% 1.13% 1.21% 1.26% 1.35% 1.39%
Ratio of Net Investment Income
to Average Net Assets# 2.74% 3.28% 4.47% 3.33% 2.66% 2.73% 4.19% 3.48% 4.07% 4.93%
Portfolio Turnover Rate 55% 141% 185% 180% 202% 226% 151% 264% 220% 164%
Average Commission Rate
Paid^^ $0.0866 $0.0895 - - - - - - - -
</TABLE>
+ Distributions in excess of net investment income for the year ended October
31, 1996, aggregated less than $0.01 on a per share basis.
#Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended October 31, 1997, 1996, 1995 and 1994. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would have
been 1.27%, 1.25%, 1.30%
and 1.14%, respectively, and ratio of net investment income to average net
assets would have been 2.69%, 3.20%, 4.34% and 3.32%, respectively.
@ Ratio is based on Total Expenses of the Portfolio, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold which is required to be disclosed for
fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
Each Portfolio, which is a separate series of the Fund, seeks capital
appreciation and, with respect to the Utilities Portfolio, income. This
investment objective is fundamental and cannot be changed without the approval
of the Portfolio's shareholders. The investment strategy is aggressive; holdings
are focused on equity securities whose price appreciation is expected to outpace
that of the overall sector in which the Portfolio invests. These stocks may not
pay regular dividends. Each Portfolio normally invests at least 80% of its total
assets in the equity securities (common and preferred stocks, and convertible
bonds) of companies principally engaged in a specific business sector. There is
no assurance that a Portfolio's investment objective will be met.
Each business sector typically consists of numerous industries. In
determining whether a company is principally engaged in a particular business
sector, Fund Management must determine that the company derives more than 50% of
its gross income or net sales from activities in that sector; or that the
company dedicates more than 50% of its assets to the production of revenues from
that sector; or, if based on available financial information a question exists
whether a company meets one of these standards, Fund Management determines that
the company's primary business is within the business sector designated for
investment by that Portfolio.
The remainder of each Portfolio's assets may be invested in any
securities or other instruments deemed appropriate by Fund Management,
consistent with the Portfolio's investment policies and restrictions. These
investments include debt securities issued by companies principally engaged in
the Portfolio's business sector, debt or equity securities issued by companies
outside the Portfolio's business sector, short-term high grade debt obligations
maturing no later than one year from the date of purchase (including U.S.
government and agency securities, domestic bank certificates of deposit,
commercial paper rated at least A-2 by Standard & Poor's or P-2 by Moody's
Investors Service, Inc., and repurchase agreements), and cash.
The Portfolios are actively traded. Economic conditions and market
circumstances vary from day to day; securities may be bought and sold relatively
frequently as their suitability as a portfolio holding changes.
When Fund Management believes market or economic conditions are
adverse, a Portfolio may assume a defensive position by temporarily investing up
to 100% of its total assets in high-quality money market instruments as
described above or cash, to seek to protect its assets until conditions
stabilize.
<PAGE>
INVESTMENT POLICIES AND RISKS
Industry Concentration. Each Portfolio's holdings normally will be
concentrated in a single, specific business sector. Compared to the broad
market, an individual sector may be more strongly affected by changes in the
economic climate; broad market shifts; moves in a particular, dominant stock; or
regulatory changes. Investors should be prepared for volatile short-term
movement in net asset value. Each Portfolio attempts to reduce these risks by
diversifying its investments among many individual securities; further, a
Portfolio may not, with respect to 75% of its total assets, invest more than 5%
of its total assets in the securities of any one issuer (other than obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities).
However, of itself, an investment in one or more of the Portfolios does not
constitute a balanced investment program.
The Technology Portfolio may not invest more than 25% of its total
assets in a single industry (e.g., computer software) within the technology
business sector. The other Portfolios do not operate under this restriction.
The Portfolios are concentrated in these industry sectors:
Energy: energy companies including oil, natural gas, coal, uranium;
geothermal, solar, or nuclear power; or new energy sources. Companies may be in
the business of exploration, development, production, processing or distribution
of these energy resources. Companies may also provide supplies, services, or
transportation to energy companies, or energy conservation or pollution control
technologies. Up to 25% of the Portfolio's total assets, measured at the time of
purchase, may be invested in foreign securities. Securities of Canadian issuers
and American Depository Receipts ("ADRs") are not subject to this 25%
limitation.
Market prices of these businesses may be adversely affected by foreign
government, federal or state regulations on energy production, distribution and
sale.
Environmental Services: waste management, pollution control, and
similar companies offering products and services related to environmental
concerns in the United States and foreign countries. Environmental services
include treatment, reduction, and/or disposal of waste; decontamination,
monitoring or transportation; remedial services; landfills, recycling,
incineration, pollution reduction projects and systems; environmental insurance
and surety bonding; development of alternative energy sources; safety and
protection equipment for environmental workers; specialty environmental
services; and the production of biodegradable or otherwise environmentally safe
products and technologies related to pollution control. Up to 100% of the
Portfolio's total assets may be invested in foreign companies.
<PAGE>
The environmental services sector has been positively influenced by
legislation that has resulted in stricter government regulations and enforcement
policies for both commercial and government generators of waste materials, as
well as specific expenditures designated for remedial clean-up efforts. These
regulations are subject to change, which could adversely affect these
businesses. Since the materials handled and processes involved include hazardous
components, there is significant liability risk. In addition, there are also
risks of intense competition within this sector.
Financial Services: financial service companies including commercial
and industrial banks, savings & loan associations, consumer and industrial
finance, leasing, securities brokerage and insurance companies. Up to 25% of the
Portfolio's total assets, measured at the time of purchase, may be invested in
foreign securities. Securities of Canadian issuers and ADRs are not subject to
this 25% limitation.
Many of these industries are subject to extensive governmental
regulation, which may change frequently. The firms' profitability is largely
dependent upon the availability and cost of capital funds, and may fluctuate
significantly in response to changes in interest rates, as well as changes in
general economic conditions. From time to time, severe competition may also
affect the profitability of insurance companies in particular.
Gold: companies engaged in mining, exploring, processing, or dealing
or investing in gold. Up to 10% of the Portfolio's total assets may be invested
in gold bullion. Up to 100% of the Portfolio's total assets may be invested in
foreign companies.
Due to monetary and political policies on a national and international
level, the price of gold is subject to substantial fluctuations, which will have
an effect on the profitability and market value of these companies. Changes in
political or economic climate for the two largest producers -- South Africa and
the former Soviet Union -- may have a direct impact on the price of gold
worldwide. The Gold Portfolio's investments in gold bullion will earn no income
return; appreciation in the market price of gold is the sole manner in which the
Portfolio would be able to realize gains on such investments. Furthermore, the
Portfolio may encounter storage and transaction costs in connection with its
ownership of gold bullion that may be higher than those associated with the
purchase, holding and sale of more traditional types of investments.
Health Sciences: companies which develop, produce, or distribute
products or services related to health-care. These include medical equipment or
supplies, pharmaceuticals, health-care facilities, and applied research and
development of new products or processes. Up to 25% of the Portfolio's total
assets, measured at the time of purchase, may be invested in foreign securities.
Securities of Canadian issuers and ADRs are not subject to this 25% limitation.
<PAGE>
Many of these activities are funded or subsidized by federal and state
governments; withdrawal or curtailment of this support could have an adverse
impact on the profitability, and market prices, of such companies. Changes in
government regulation could also have an adverse impact. Further, continuing
technological advances may mean rapid obsolescence of products and services.
Leisure: companies that design, produce or distribute leisure-time
products or services. These include recreational equipment, toys, games,
photographic equipment, and musical instruments, as well as entertainment
industries such as cable television, music, motion pictures, broadcasting,
advertising and publishing. In addition, companies engaged in air
transportation, lodging, sports arenas, gambling casinos, amusement or theme
parks, and restaurants may be included. Up to 25% of the Portfolio's total
assets, measured at the time of purchase, may be invested in foreign securities.
Securities of Canadian issuers and ADRs are not subject to this 25% limitation.
Many of these industries are dependent upon consumer discretionary
spending, which may fluctuate, particularly during economic downturns.
Securities of gambling casinos may be subject to above-average price volatility
and considered speculative. Video and electronic games are subject to risks of
rapid obsolescence. These factors may adversely affect the market value of the
securities of the companies involved.
Technology: technology-related industries such as computers,
communications, video, electronics, oceanography, office and factory automation,
and robotics. Up to 25% of the Portfolio's total assets, measured at the time of
purchase, may be invested in foreign securities. Securities of Canadian issuers
and ADRs are not subject to this 25% limitation.
Many of these products and services are subject to rapid obsolescence,
which may adversely affect market value of the securities of the companies
involved.
Utilities: companies that manufacture, produce, generate, transmit or
sell gas or electricity, as well as communications firms, such as telephone,
telegraph, satellite, microwave and other media (excluding broadcasting). Up to
25% of the Portfolio's total assets, measured at the time of purchase, may be
invested in foreign securities. Securities of Canadian issuers and ADRs are not
subject to the 25% limitation.
Difficulties in obtaining adequate financing and investment return,
environmental issues, prices of fuel for electric generation, availability of
natural gas, and risks associated with nuclear power facilities may each
adversely affect the market value of the Portfolio's holdings at different
<PAGE>
times. Compared to the broad market, the public utilities sector may be more
strongly affected by changes in the economic climate; broad market shifts; moves
in a particular, dominant stock; or regulatory changes.
Each Portfolio may invest in the following types of securities:
Equity Securities. The equity securities in which the Portfolios invest
may be issued by either established, well-capitalized companies, or newly-formed
small capitalization ("small cap") companies. These securities may be traded on
national, regional or foreign stock exchanges or in the over-the-counter market.
Small cap companies frequently have limited operating histories, product lines
and financial and managerial resources, and may face intense competitive
pressures from larger companies. The market prices of small cap stocks may be
more volatile than the stocks of larger companies both because they typically
trade in lower volumes and because small cap companies may be more vulnerable to
changes in their earnings and prospects.
Foreign Securities. Each Portfolio's investments may include
foreign securities, which involve certain risks.
For U.S. investors, the returns on foreign securities are
influenced not only by the returns on the foreign investments
themselves, but also by currency fluctuations. That is, when the
U.S. dollar generally rises against a foreign currency, returns for
a U.S. investor on foreign securities denominated in that foreign
currency may decrease. By contrast, in a period when the U.S.
dollar generally declines, those returns may increase.
Other aspects of international investing to consider include:
-less publicly available information than is generally
available about U.S. issuers;
-differences in accounting, auditing and financial reporting
standards;
-generally higher commission rates on foreign portfolio
transactions and longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility; and
-investments in certain countries may be subject to foreign withholding
taxes, which may reduce dividend income or capital gains payable to
shareholders.
There is also the possibility of expropriation or confiscatory
taxation; adverse changes in investment or exchange control regulations;
<PAGE>
political instability; potential restrictions on the flow of international
capital; and the possibility of a Portfolio experiencing difficulties in
pursuing legal remedies and collecting judgments.
ADRs represent shares of a foreign corporation held by a U.S. bank that
entitle the holder to all dividends and capital gains, net of certain fees paid
to the bank. ADRs are denominated in U.S. dollars and trade in the U.S.
securities markets. ADRs are subject to some of the same risks as direct
investments in foreign securities, including the risk that material information
about the issuer may not be disclosed in the United States and the risk that
currency fluctuations may adversely affect the value of the ADR.
In order to hedge against fluctuations in foreign exchange rates, the
Portfolios may enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts"). Forward contracts and their risks are
discussed under "Investment Policies and Restrictions" in the Statement of
Additional Information.
Illiquid and Rule 144A Securities. Each Portfolio may invest up to 10%
of its total assets, measured at the time of purchase, in securities which are
illiquid because they are subject to restrictions on their resale ("restricted
securities") or because, based upon the nature of the market for such
securities, they are not readily marketable. Investments in illiquid securities
are subject to the risk that a Portfolio may not be able to sell such securities
at the time or price desired. In addition, in order to resell a restricted
security, a Portfolio might have to bear the expense and incur the delays
associated with registration of the security. The Fund may purchase certain
securities that are not registered for sale to the general public, but that can
be resold to institutional investors ("Rule 144A Securities") without regard to
the foregoing 10% limitation, if a liquid trading market exists. The ^
Portfolio's board of directors has delegated to Fund Management the authority to
determine the liquidity of Rule 144A Securities pursuant to guidelines approved
by the board. In the event that a Rule 144A Security held by a Portfolio is
subsequently determined to be illiquid, the security will be sold as soon as
that can be done in an orderly fashion consistent with the best interests of the
Portfolio's shareholders. For more information concerning Rule 144A Securities,
see "Investment Policies and Restrictions" in the Statement of Additional
Information.
Securities Lending. The Portfolios may seek to earn additional income
by lending securities to qualified brokers, dealers, banks, or other financial
institutions, on a fully collateralized basis. For further information on this
policy, see "Investment Policies and Restrictions" in the Statement of
Additional Information.
Repurchase Agreements. The Portfolios may invest money, for as short a
time as overnight, using repurchase agreements ("repos"). With a repo, a
Portfolio buys a debt instrument, agreeing simultaneously to sell it back to the
<PAGE>
prior owner at an agreed-upon price and on an agreed-upon date. The Portfolio
could incur costs or delays in seeking to sell the instrument if the prior owner
defaults on its repurchase obligation. To reduce that risk, securities that are
the subject of the repurchase agreement will be maintained with the Fund's
custodian in an amount at least equal to the repurchase price under the
agreement (including accrued interest). These agreements are entered into only
with member banks of the Federal Reserve System, registered broker-dealers and
registered U.S. government securities dealers that are deemed creditworthy under
standards established by the Fund's board of directors.
Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover. The Portfolios do not trade for short-term profit; however, at the
discretion of Fund Management, securities may be sold regardless of how long
they have been held when investment considerations warrant such action. The
portfolio turnover rate of each Portfolio therefore may be higher than some
other mutual funds with the same investment objective. This policy also may
result in greater brokerage commissions and acceleration of capital gains which
are taxable when distributed to shareholders. The Statement of Additional
Information includes an expanded discussion of the Portfolios' portfolio
turnover rates, their brokerage practices and certain federal income tax
matters.
For a further discussion of risks associated with an investment in the
Fund, see "Investment Policies and Restrictions" and "Investment Practices" in
the Statement of Additional Information.
Investment Restrictions. Certain restrictions, which are set forth in
the Statement of Additional Information, may not be altered without the approval
of the Portfolios' shareholders. For example, a Portfolio may not borrow money
except from banks for temporary or emergency purposes (but not for investment)
in an amount not to exceed 10% of its net assets, with the exception of the
Energy, Environmental and Gold Portfolios, which may borrow up to 331/3% of
their net assets. In addition, except for the Portfolios' policies regarding
investments in foreign securities and foreign currencies, the investment
objective and policies described in this prospectus under "Investment Objective
and Strategy" and "Investment Policies And Risks" are fundamental and may not be
changed without a vote of the Portfolios' shareholders.
THE FUND AND ITS MANAGEMENT
The Fund is a no-load mutual fund, registered with the Securities and
Exchange Commission as a diversified, open-end management investment company. It
was incorporated on August 10, 1983, under the laws of Maryland.
The Fund's board of directors has responsibility for overall
supervision of the Fund and reviews the services provided by the adviser and
<PAGE>
sub-adviser. Under an agreement with the Fund, IFG, 7800 E. Union Avenue,
Denver, Colorado 80237, serves as investment manager for each Portfolio; it is
primarily responsible for providing the Fund with portfolio management and
various administrative services. IFG's wholly-owned subsidiary, INVESCO Trust,
is the sub-adviser for each Portfolio and is primarily responsible for managing
the Portfolios' investments.
On January 2, 1998, all employees of the Portfolios' sub-adviser,
INVESCO Trust Company ("INVESCO Trust"), that provided the Funds with
sub-advisory services were made employees of IFG. INVESCO Trust is a
wholly-owned subsidiary of IFG. Effective February 3, 1998, INVESCO Trust no
longer provides sub-advisory services to the Portfolios, and IFG provides such
day-to-day portfolio management services as the investment adviser to the
Portfolios. This change in no way changes the basis upon which investment advice
is provided to the Portfolios, the cost of those services to the Portfolios, or
the persons actually performing the investment advisory and other services
previously provided by INVESCO Trust.
All of the Portfolios, except for Health Sciences Portfolio, are
managed by members of INVESCO's Sector Team, which is headed by Daniel B.
Leonard. The following individuals are primarily responsible for the day-to-day
management of the Portfolios' holdings:
Energy: John Segner has been the portfolio manager of the Portfolio since
February 1997. Mr. Segner is also a vice president of INVESCO ^ Funds Group,
Inc. Mr. Segner was previously the managing director and principal with The
Mitchell Group, Inc. (1990-1997), manager of marketing development (1988-1990)
and manager of financial analysis (1986-1988) with First Tennessee National
Corporation, and a financial analyst with Amerada Hess Corporation (1985-1986^.
Mr. Segner received ^ a M.B.A. in Finance from the University of Texas-Austin
and a B.S. in Civil Engineering from the University of Alabama.
Environmental Services: Gerard F. Hallaren, Jr., a Chartered Financial Analyst,
has been the portfolio manager of the Portfolio since 1996. Mr. Hallaren also
co-manages INVESCO Strategic Technology Portfolio and INVESCO VIF - Technology
Fund and is a vice president of INVESCO ^ Funds Group, Inc. Mr. Hallaren was
previously a research analyst for INVESCO Trust Company (1994 to 1995), a vice
president and research analyst with Hanifen Imhoff (1992 to 1994), a retail
broker with Merrill Lynch (1991), director of business planning with MiniScribe
Corporation (1989 to 1990), and a research analyst with various firms beginning
in 1978. Mr. Hallaren received a B.A. in Economics from the University of
Massachusetts-Amherst.
Financial Services: Jeffrey G. Morris, a Chartered Financial Analyst, has been a
co-portfolio manager of the Portfolio since March 1997. Mr. Morris is also a
vice president of INVESCO ^ Funds Group, Inc. Mr. Morris joined INVESCO Trust
<PAGE>
Company in 1992 and served as a research analyst from 1994 to 1995. Mr. Morris
received ^ a M.S. in Finance from the University of Colorado-Denver and a B.S.
in Business Administration from Colorado State University.
Financial Services: Daniel B. Leonard has been a co-portfolio manager of the
Portfolio since March 1997 (portfolio manager from 1996 to 1997). Mr. Leonard
also manages INVESCO Strategic Gold Portfolio and co-manages INVESCO Strategic
Technology Portfolio and INVESCO VIF - Technology Fund. Mr. Leonard is also a
senior vice president of INVESCO ^ Funds Group, Inc. Mr. Leonard was previously
a portfolio manager (1977-1983; 1985-1991) and senior vice president (1975-1983;
1985-1991) of INVESCO Funds Group, Inc. and a vice president (1977-1983) of
INVESCO Trust Company. Mr. Leonard received a B.A. from Washington & Lee
University.
Gold: Daniel B. Leonard has been the portfolio manager of the Portfolio since
1989. Mr. Leonard also co-manages INVESCO Strategic Technology Portfolio,
INVESCO VIF - Technology Fund, and INVESCO Strategic Financial Services
Portfolio and is a senior vice president of INVESCO ^ Funds Group, Inc. Mr.
Leonard was previously a portfolio manager (1977-1983; 1985-1991) and senior
vice president (1975-1983; 1985-1991) of INVESCO Funds Group, Inc. and a vice
president (1977-1983) of INVESCO Trust Company. Mr. Leonard received a B.A. from
Washington & Lee University.
Health Sciences ^: The Portfolio is managed by John Schroer, a Chartered
Financial Analyst, who is the head of INVESCO's Health Team. Mr. Schroer has
been the portfolio manager of the Portfolio since October 1997 (co-portfolio
manager since 1994) and has primary responsibility for the day-to-day management
of the Portfolio's holdings. Mr. Schroer also manages INVESCO VIF - Health
Sciences Fund and INVESCO Global Health Sciences Fund and is a senior vice
president of INVESCO ^ Funds Group, Inc. and a vice president of INVESCO Global
Health Sciences Fund. Mr. Schroer was previously an assistant vice president
with Trust Company of the West. Mr. Schroer received ^ a M.B.A. and ^ B.S. from
the University of Wisconsin-Madison.
Leisure: Mark Greenberg, a Chartered Financial Analyst, has been the portfolio
manager of the Portfolio since 1996. Mr. Greenberg is also a vice president of
INVESCO ^ Funds Group, Inc. Mr. Greenberg was previously a vice president and
global media and entertainment analyst with Scudder, Stevens & Clark (1990 to
1996); media, technology and telecommunications analyst with Campbell Advisors
(1988 to 1989); media and technology analyst with Irving Trust Company (1983 to
1988); and an analyst with Argus Research and Bernstein Macauley (1980 to 1983).
Mr. Greenberg received a B.S.B.A. from Marquette University.
Technology: Daniel B. Leonard has been a co-portfolio manager of the Portfolio
since 1996 (portfolio manager from 1985 to 1996). Mr. Leonard also manages
INVESCO Strategic Gold Portfolio and co-manages INVESCO VIF - Technology Fund
and INVESCO Strategic Financial Services Portfolio. Mr. Leonard is also a senior
<PAGE>
vice president of INVESCO ^ Funds Group, Inc. Mr. Leonard was previously a
portfolio manager (1977-1983; 1985-1991) and senior vice president (1975-1983;
1985-1991) of INVESCO Funds Group, Inc. and a vice president (1977-1983) of
INVESCO Trust Company. Mr. Leonard received a B.A. from Washington & Lee
University.
Gerard F. Hallaren, Jr., a Chartered Financial Analyst, has been a co-portfolio
manager of the Portfolio since 1996. Mr. Hallaren also manages INVESCO Strategic
Environmental Services Portfolio and co-manages INVESCO VIF - Technology Fund.
Mr. Hallaren is also a vice president of INVESCO ^ Funds Group, Inc. Mr.
Hallaren was previously a research analyst for INVESCO Trust Company (1994 to
1995), a vice president and research analyst with Hanifen Imhoff (1992 to 1994),
a retail broker with Merrill Lynch (1991), director of business planning with
MiniScribe Corporation (1989 to 1990), and a research analyst with various firms
beginning in 1978. Mr. Hallaren received a B.A. in Economics from the University
of Massachusetts-Amherst.
Utilities: Brian B. Hayward, a Chartered Financial Analyst, has been the
portfolio manager of the Portfolio since July 1997. Mr. Hayward also manages
INVESCO VIF - Utilities Fund and INVESCO Worldwide Communications Fund. Mr.
Hayward began his investment career in 1985 and was most recently ^ the senior
equity analyst with Mississippi Valley Advisors in St. Louis, Missouri. Mr.
Hayward received ^ a M.A. in Economics and a B.A. in Mathematics from the
University of Missouri.
Fund Management permits investment and other personnel to purchase and
sell securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires Fund Management's personnel to conduct
their personal investment activities in a manner that Fund Management believes
is not detrimental to the Fund or Fund Management's other advisory clients. See
the Statement of Additional Information for more detailed information.
Each Portfolio pays IFG a monthly management fee which is based upon a
percentage of that Portfolio's average net assets determined daily. The
management fee is computed at the annual rate of 0.75% on the first $350 million
of a Portfolio's average net assets; 0.65% on the next $350 million of a
Portfolio's average net assets; and 0.55% on a Portfolio's average net assets
over $700 million. For the fiscal year ended October 31, 1997, the Portfolios
paid management fees (prior to the voluntary absorption of certain expenses for
Environmental Services and Utilities Portfolios by IFG) equal to the following
percentages of their average net assets: Energy 0.75%, Environmental Services
0.75%, Financial Services 0.67%, Gold 0.75%, Health Sciences 0.70%, Leisure
0.75%, Technology 0.66% and Utilities, 0.75%.
^
<PAGE>
Under a Distribution Agreement effective September 30, 1997, IDI became
the Portfolios' distributor. IDI, established in 1997, is a registered
broker-dealer that acts as distributor for all retail funds advised by IFG.
Prior to September 30, 1997, IFG served as the Portfolios' distributor.
Under a Transfer Agency Agreement, IFG acts as registrar, transfer
agent and dividend disbursing agent for the Fund. The Fund pays an annual fee of
$20.00 per shareholder account or, where applicable, per participant in an
omnibus account. Registered broker-dealers, third party administrators of
tax-qualified retirement plans and other entities, including affiliates of IFG,
may provide equivalent services to the Fund. In these cases, IFG may pay, out of
the fee it receives from the Fund, an annual sub-transfer agency or
record-keeping fee to the third party.
In addition, under an Administrative Services Agreement, IFG handles
additional administrative, recordkeeping, and internal sub-accounting services
for the Fund. For the fiscal year ended October 31, 1997, the Portfolios paid
IFG fees for these services in an amount equal to the following percentages of
the respective Portfolios' average net assets: Energy 0.02%; Environmental
Services 0.05%, Financial Services 0.02%, Gold 0.02%, Health Sciences 0.02%,
Leisure 0.02%, Technology 0.02% and Utilities 0.02%.
Each Portfolio's expenses, which are accrued daily, are deducted from
total income before dividends are paid. Total expenses of each Portfolio (prior
to any expense offset) for the fiscal year ended October 31, 1997, including
investment management fees (but excluding brokerage commissions, which are a
cost of acquiring securities), amounted to the following percentages of each
Portfolio's average net assets: Energy, 1.21%; Environmental Services, 1.72%;
Financial Services, 0.99%; Gold, 1.47%; Health Sciences, 1.08%; Leisure, 1.41%;
Technology, 1.05% and Utilities, 1.22%. Certain expenses of the Environmental
Services and Utilities Portfolios are absorbed voluntarily by IFG pursuant to a
commitment to the Fund. This commitment may be changed following consultation
with the Fund's board of directors. In the absence of this voluntary expense
limitation, the total operating expenses of the Environmental Services and
Utilities Portfolios for the year ended October 31, 1997, would have been 2.16%
and 1.27%, respectively, of each Portfolio's average net assets.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of
such brokers' and dealers' financial responsibility coupled with their ability
to effect transactions at the best available prices. Each Portfolio may place
orders for portfolio transactions with qualified broker-dealers that recommend
the Portfolio or sell shares of the Portfolio to clients, or act as agent in the
purchase of Portfolio shares for clients, if Fund Management believes that the
quality of the execution of the transaction and level of commission are
<PAGE>
comparable to those available from other qualified brokerage firms. For further
information, see "Investment Practices - Placement of Portfolio Brokerage" in
the Statement of Additional Information.
IFG^ and IDI are indirect wholly owned subsidiaries of AMVESCAP PLC.
AMVESCAP PLC is a publicly-traded holding company that, through its
subsidiaries, engages in the business of investment management on an
international basis. INVESCO PLC changed its name to AMVESCO PLC on March 3,
1997 and to AMVESCAP PLC on May 8, 1997, as part of a merger between a direct
subsidiary of INVESCO PLC and A I M Management Group Inc., that created one of
the largest independent investment management businesses in the world. IFG ^
continues to operate under ^ its existing ^ name. AMVESCAP PLC has approximately
^ $192.2 billion in assets under management. IFG was established in 1932 and, as
of October 31, 1997, managed 14 mutual funds, consisting of 45 separate
portfolios, with combined assets of approximately $16.3 billion on behalf of
over 851,000 shareholders. ^
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in a Portfolio will
vary daily. The price per share is also known as the Net Asset Value ("NAV").
IFG prices the Portfolios every day that the New York Stock Exchange is open, as
of the close of regular trading (generally, 4:00 p.m., New York time). NAV is
calculated by adding together the current market value of each Portfolio's
assets, including accrued interest and dividends; then subtracting liabilities,
including accrued expenses; and finally dividing that dollar amount by the total
number of outstanding shares of that Portfolio.
Performance Data. To keep shareholders and potential investors
informed, we will occasionally advertise a Portfolio's total return for one-,
five-, and ten-year periods (or since inception). Total return figures show the
rate of return on an investment in a Portfolio, assuming reinvestment of all
dividends and capital gain distributions for the periods cited. Cumulative total
return shows the actual rate of return on an investment; average annual total
return represents the average annual percentage change of an investment. Both
cumulative and average annual total returns tend to "smooth out" fluctuations in
a Portfolio's investment results, because they do not show the interim
variations in performance over the periods cited. More information about the
Portfolios' recent and historical performance is contained in the Fund's Annual
Report to Shareholders. You can get a free copy by calling or writing to IDI
using the phone number or address on the cover of this ^ Prospectus.
When we quote mutual fund rankings published by Lipper Analytical
Services, Inc., we may compare the Portfolios to the broad-based Lipper general
fund groupings, or to others in their respective categories:
<PAGE>
Portfolio Lipper Mutual Fund Category
- --------- ---------------------------
Energy Natural Resources
Environmental Services Environmental
Financial Services Financial Services
Gold Gold Oriented
Health Sciences Health/Biotechnology
Leisure Specialty/Miscellaneous
Technology Science & Technology
Utilities Utility
These rankings allow you to compare the Portfolios to their peers.
Other independent financial media also produce performance-or service-related
comparisons, which you may see in our promotional materials. For more
information, see "Fund Performance" in the Statement of Additional Information.
Performance figures are based on historical investment results and are
not intended to suggest future performance.
HOW TO BUY SHARES
The following chart shows several convenient ways to invest in one or
more Portfolios. Your new Portfolio shares will be priced at the NAV next
determined after your order is received in proper form. There is no charge to
invest, exchange or redeem shares when you make transactions directly through
IFG. However, if you invest in a Portfolio through a securities broker, you may
be charged a commission or transaction fee. IFG may from time to time make
payments from its revenues to securities dealers and other financial
institutions that provide distribution-related and/or administrative services
for the Fund. For all new accounts, please send a completed application form.
Please specify the Portfolio whose shares you wish to purchase.
Fund Management reserves the right to increase, reduce or waive the
minimum investment requirements in its sole discretion, where it determines this
action is in the best interests of the Portfolios. Further, Fund Management
reserves the right in its sole discretion to reject any order for the purchase
of Portfolio shares (including purchases by exchange) when, in its judgment,
such rejection is in a Portfolio's best interests.
<PAGE>
How To Buy Shares
================================================================================
Method Investment Minimum Please Remember
Per Portfolio
================================================================================
By Check
Mail to: $1,000 for regular If your check does
INVESCO Funds account; not clear, you will
Group, Inc. $250 for an IRA; be responsible for
P.O. Box 173706 $50 minimum for any related loss
Denver, CO each subsequent the Portfolio or
80217-3706. investment. IFG incurs. If you
Or you may send are already a
your check by shareholder in the
overnight courier INVESCO funds, the
to: 7800 E. Union Portfolio may seek
Ave., reimbursement from
Denver, CO 80237. your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
By Telephone or
Wire
Call 1-800-525-8085 $1,000. Payment must be
to request your received within 3
purchase. Then send business days, or
your check by the transaction may
overnight courier be canceled. If a
to our street telephone purchase
address: is canceled due to
7800 E. Union Ave., nonpayment, you
Denver, CO 80237. will be responsible
Or you may transmit for any related
your payment by loss the Portfolio
bank wire (call IFG or IFG incurs. If
for instructions). you are already a
shareholder in the
INVESCO funds, the
Portfolio may seek
reimbursement from
your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
With EasiVest or
Direct Payroll
Purchase
You may enroll on $50 per month for Like all regular
the fund EasiVest; $50 per investment plans,
application, or pay period for neither EasiVest
call us for the Direct Payroll nor Direct Payroll
correct form and Purchase. You may Purchase ensures a
more details. start or stop your profit or protects
Investing the same regular investment against loss in a
amount on a monthly plan at any time, falling market.
basis allows you to with two weeks' Because you'll
buy more shares notice to IFG. invest continually,
when prices are low regardless of
and fewer shares varying price
when prices are levels, consider
high. This your financial
"dollar-cost ability to keep
averaging" may help buying through low
offset market price levels. And
fluctuations. Over remember that you
a period of time, will lose money if
your average cost you redeem your
per share may be shares when the
less than the market value of all
actual average your shares is less
price per share. than their cost.
- --------------------------------------------------------------------------------
By PAL
Your "Personal $1,000. Be sure to write
Account Line" is down the
available for confirmation number
subsequent provided by PAL.
purchases and Payment must be
exchanges 24-hours received within 3
a day. Simply call business days, or
1-800-424-8085. the transaction may
be canceled. If a
telephone purchase
is canceled due to
nonpayment, you
will be responsible
for any related
loss the Portfolio
or IFG incurs. If
you are already a
shareholder in the
INVESCO funds, the
Portfolio may seek
reimbursement from
your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy," below.
INVESCO funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an (The exchange
Automatic Monthly minimum is $250 for
Exchange service purchases requested
between two INVESCO by telephone.)
funds; call IFG for
further details and
the correct form.
================================================================================
Exchange Policy. You may exchange your shares in a Portfolio for those
in another INVESCO fund or portfolio, on the basis of their respective net asset
values at the time of the exchange. Before making any exchange, be sure to
review the prospectuses of the funds involved and consider their differences.
Please note these policies regarding exchanges of fund shares:
(1) The fund accounts must be identically registered.
(2) You may make four exchanges out of each fund during each calendar
year.
(3) An exchange is the redemption of shares from one fund followed by
the purchase of shares in another. Therefore, any gain or loss
realized on the exchange is recognizable for federal income tax
purposes (unless, of course, your account is tax-deferred).
(4) The Portfolios reserve the right to reject any exchange request,
or to modify or terminate the exchange policy, when it is in the
best interests of the Fund and its shareholders. Notice of all
such modifications or termination will be given at least 60 days
prior to the effective date of the change in privilege, except in
unusual instances (such as when redemptions of the exchanged
shares are suspended under Section 22(e) of the Investment
Company Act of 1940, or when sales of the ^ Portfolio into which
you are exchanging are temporarily stopped).
Distribution Expenses. Each of the Portfolios is authorized under a
Plan and Agreement of Distribution (the "Plan") to use its assets to finance the
distribution of shares to investors. The Plan is permitted by Rule 12b-1 of the
Investment Company Act of 1940 and has been authorized by the Portfolios'
shareholders.
<PAGE>
Monthly payments may be made by the Portfolio to IDI allowing IDI to
provide distribution and administrative services to the Portfolio. Payment for
these services has been approved by the Fund's board of directors.
These services may include the payment of compensation to securities
dealers and other financial organizations for distribution and/or administrative
services, including payment of incentive compensation and/or continuing
compensation based on the amount of customer assets maintained by the financial
organization in the Portfolio. Payments may also be made to IDI-affiliated
companies for these services.
These services may include processing new shareholder account
applications, preparing and transmitting to the Fund's Transfer Agent computer
processable tapes of transactions and serving as the primary source of
information to customers in answering questions about the Portfolio and their
transactions with a Portfolio. Other permissible services include advertising,
the preparation, printing and distribution of sales literature, printing and
distribution of prospectuses to prospective investors, public relations efforts
and marketing programs that may be agreed on by the Fund and its board of
directors. These services may be performed by IDI, its affiliates, or by third
parties.
The Fund's payments to IDI on behalf of each Portfolio may not exceed
0.25% per year of each Portfolio's average net assets added after the Plan is
implemented. IDI may not receive payment for overhead expenses under the Plan.
IDI may be paid for all or a portion of the salaries and other employee benefits
for the personnel of IDI or IFG whose primary responsibilities involve marketing
shares of the Portfolio.
Monthly payments by each Portfolio may be made to IDI for services
provided by IDI during the rolling 12-month period in which that month falls.
Any obligations incurred by IDI in excess of the limitations described above
will not be paid by the Portfolio and will be borne by IDI. IDI and its
affiliates may make additional payments from its revenues to securities dealers
and other financial institutions that provide distribution and/or administrative
services to the Portfolio.
No payments will be made by a Portfolio under the Plan in the event the
Plan is terminated with respect to that Portfolio. Payments made by a Portfolio
may not be used to finance directly the distribution of shares of any other
portfolio of the Fund or other mutual fund advised by IFG. However, payments
received by IDI which are not used to finance the distribution of shares of a
Portfolio become part of IDI's revenues and may be used by IDI for ^ activities
^ that promote distribution of any of the mutual funds advised by IFG^. Subject
to review by the Fund's directors^, payments made by a Portfolio under the Plan
for compensation of marketing personnel are based on an allocation formula
designed to ensure that all such payments are appropriate. For more information
<PAGE>
see "How Shares Can be Purchased -- Distribution Plan" in the Statement of
Additional Information.
FUND SERVICES
Shareholder Accounts. IFG will maintain a share account that reflects
your current holdings. Share certificates will be issued only upon specific
request. You will have greater flexibility to conduct transactions if you do not
request certificates.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges and redemptions. If you choose certain recurring
transaction plans (for instance, EasiVest), your transactions will be confirmed
on your quarterly Investment Summary.
Investment Summaries. Each calendar quarter, shareholders receive a
written statement which consolidates and summarizes account activity and value
at the beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and capital gain distributions
are automatically invested in additional fund shares at the NAV on the
ex-dividend or ex-distribution date, unless you choose to have dividends and/or
capital gain distributions automatically reinvested in another INVESCO fund or
paid by check (minimum of $10.00).
Telephone Transactions. All shareholders may exchange and redeem
Portfolio shares by telephone, unless they expressly decline these privileges.
By signing the new account Application or a Telephone Transaction Authorization
Form, or otherwise using these privileges, the investor has agreed that, if the
Portfolio has followed reasonable procedures, such as recording telephone
instructions and sending written transaction confirmations, it will not be
liable for following telephone instructions that it believes to be genuine. As a
result of this policy, the investor may bear the risk of any loss due to
unauthorized or fraudulent instructions.
Retirement Plans and IRAs. Shares of these Portfolios may be purchased
for IRAs and many types of tax-deferred retirement plans. IFG can supply you
with information and forms to establish or transfer your existing plan or
account.
HOW TO SELL SHARES
The following chart shows several convenient ways to redeem your
Portfolio shares. Shares of any Portfolio may be redeemed at any time at the NAV
next determined after a request in proper form is received at the Fund's office.
The NAV at the time of the redemption may be more or less than the price you
paid to purchase your shares, depending primarily upon that Portfolio's
investment performance.
<PAGE>
Please specify from which Portfolio you wish to redeem shares.
Shareholders have a separate account for each fund or Portfolio in which they
invest.
How To Sell Shares
================================================================================
Method Minimum Redemption Please Remember
Per Portfolio
================================================================================
By Telephone
Call us toll-free $250 (or, if less, This option is not
at 1-800-525-8085. full liquidation of available for
the account) for a shares held in
redemption check; IRAs.
$1,000 for a wire
to bank of record.
The maximum amount
which may be
redeemed by
telephone is
generally $25,000.
These telephone
redemption
privileges may be
modified or
terminated in the
future at the
discretion of IFG.
- --------------------------------------------------------------------------------
In Writing
Mail your request Any amount. The If the shares to be
to INVESCO Funds redemption request redeemed are
Group, Inc., P.O. must be signed by represented by
Box 173706 all registered stock certificates,
Denver, CO owners of the the certificates
80217-3706. You may account. Payment must be sent to
also send your will be mailed to IFG.
request by your address of
overnight courier record, or to a
to 7800 E. Union pre-designated
Ave., Denver, CO bank.
80237.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy," page 42.
INVESCO funds. Call For written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an (The exchange
automatic monthly minimum is $250 for
exchange service exchanges requested
between two INVESCO by telephone.)
funds; call IFG for
further details and
the correct form.
- --------------------------------------------------------------------------------
Periodic Withdrawal
Plan
You may call us to $100 per payment, You must have at
request the on a monthly or least $10,000 total
appropriate form quarterly basis. invested with the
and more The redemption INVESCO funds, with
information at check may be made at least $5,000 of
1-800-525-8085. payable to any that total invested
party you in the fund from
designate. which withdrawals
will be made.
- --------------------------------------------------------------------------------
Payment To Third
Party
Mail your request Any amount. All registered
to INVESCO Funds owners of the
Group, Inc., P.O. account must sign
Box 173706 the request, with a
Denver, CO signature guarantee
80217-3706. from an eligible
guarantor financial
institution, such
as a commercial
bank or recognized
national or
regional securities
firm.
================================================================================
While the Portfolios will attempt to process telephone redemptions
promptly, there may be times -- particularly in periods of severe economic or
market disruption -- when you may experience delays in redeeming shares by
phone.
Payments of redemption proceeds will be mailed within seven days
following receipt of the redemption request in proper form. However, payment may
be postponed under unusual circumstances --for instance, if normal trading is
<PAGE>
not taking place on the New York Stock Exchange or during an emergency as
defined by the Securities and Exchange Commission. If your shares were purchased
by a check which has not yet cleared, payment will be made promptly upon
clearance of the purchase check (which will take up to 15 days).
If you participate in EasiVest, the Portfolios' automatic monthly
investment program, and redeem all of the shares in your account, we will
terminate any further EasiVest purchases unless you instruct us otherwise.
Because of the high relative costs of handling small accounts, should
the value of any shareholder's account in a Portfolio fall below $250 as a
result of shareholder action, each Portfolio reserves the right to involuntarily
redeem all shares in such account, in which case the account would be liquidated
and the proceeds forwarded to the shareholder. Prior to any such redemption, a
shareholder will be notified and given 60 days to increase the value of the
account to $250 or more.
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
Taxes. Each Portfolio intends to distribute to shareholders all of its
net investment income, net capital gains and net gains from foreign currency
transactions, if any. Distribution of all net investment income to shareholders
allows each Portfolio to maintain its tax status as a regulated investment
company. The Portfolios do not expect to pay any federal income or excise taxes
because of their tax status as regulated investment companies.
Shareholders must include all dividends and other distributions in
taxable income for federal, state and local income tax purposes, unless they are
exempt from income taxes. Dividends and other distributions are taxable whether
they are received in cash or automatically reinvested in shares of the Portfolio
or another fund in the INVESCO group.
Net realized capital gains of a Portfolio are classified as short-term
and long-term gains depending upon how long the Portfolio held the security that
gave rise to the gains. Short-term capital gains are included in income from
dividends and interest as ordinary income and are taxed at the taxpayer's
marginal tax rate. The Taxpayer Relief Act of 1997 (the "Tax Act"), enacted in
August 1997, changed the taxation of long-term capital gains by applying
different capital gains rates depending on the taxpayer's holding period and
marginal rate of federal income tax. Long-term gains realized on the sale of
securities held for more than one year but not for more than 18 months are
taxable at a rate of 28%. This category of long-term gains is often referred to
as "mid-term" gains but is technically termed "28% rate gains." Long-term gains
realized on the sale of securities held for more than 18 months are taxable at a
rate of 20%. At the end of each year, information regarding the tax status of
dividends and other distributions is provided to shareholders. Shareholders
<PAGE>
should consult their tax adviser as to the effect of the Tax Act on
distributions ^ of net capital ^ gains by the Portfolios.
Shareholders may realize capital gains or losses when they sell their
shares at more or less than the price originally paid. Capital gain on shares
held for more than one year will be long-term capital gain, in which event it
will be subject to federal income tax at the rates indicated above.
Each Portfolio may be subject to withholding of foreign taxes on
dividends or interest it receives on foreign securities. Foreign taxes withheld
will be treated as an expense of the Portfolio.
Individuals and certain other non-corporate shareholders may be subject
to backup withholding of 31% on dividends, capital gains and other distributions
and redemption proceeds. You can avoid backup withholding on your account by
ensuring that we have a correct, certified tax identification number, unless you
are subject to backup withholding for other reasons.
We encourage you to consult a tax adviser with respect to these
matters. For further information see "Dividends, Other Distributions And Taxes"
in the Statement of Additional
Information.
Dividends and Other Distributions. The Portfolios earn ordinary or net
investment income in the form of interest and dividends on investments.
Dividends paid by a Portfolio will be based solely on the income earned by it.
The Portfolios' policy is to distribute substantially all of this income, less
expenses, to shareholders on an annual basis, at the discretion of the Fund's
board of directors. Dividends are automatically reinvested in additional shares
of the Portfolio at the net asset value on the payable date unless otherwise
requested.
In addition, each Portfolio realizes capital gains and losses when it
sells securities or derivatives for more or less than it paid. If total gains on
sales exceed total losses (including losses carried forward from previous
years), the Portfolio has a net realized capital gain. Net realized capital
gains, if any, together with gains, if any, realized on foreign currency
transactions, are distributed to shareholders at least annually, usually in
December. Capital gain distributions are automatically reinvested in additional
shares of the Portfolio at the net asset value on the payable date unless
otherwise requested.
Dividend and other distributions are paid to shareholders who hold
shares on the record date of the distribution, regardless of how long the shares
have been held by the shareholder. The Portfolio's share price will then drop by
the amount of the distribution on the ex-dividend or ex-distribution date. If a
shareholder purchases shares immediately prior to the distribution, the
<PAGE>
shareholder will, in effect, have "bought" the distribution by paying the full
purchase price, a portion of which is then returned in the form of a taxable
distribution.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Fund have equal voting rights based on
one vote for each share owned. Voting with respect to certain matters, such as
ratification of independent accountants and the election of directors, will be
by all of the Portfolios voting together. In other cases, such as voting upon an
investment advisory contract, voting is on a Portfolio-by-Portfolio basis. To
the extent permitted by law, when not all Portfolios are affected by a matter to
be voted upon, only shareholders of the Portfolio or Portfolios affected by the
matter will be entitled to vote thereon. The Fund is not generally required and
does not expect to hold regular annual meetings of shareholders. However, when
requested to do so in writing by the holders of 10% or more of the outstanding
shares of the Fund or as may be required by applicable law or the Fund's
Articles of Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Fund. The Fund will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
<PAGE>
PROSPECTUS
March 1, ^ 1998
INVESCO STRATEGIC PORTFOLIOS, INC.
A no-load mutual fund seeking
appreciation of capital and, with
respect to the Utilities Portfolio,
income.
INVESCO FUNDS
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
In addition, all documents filed
by the Fund with the Securities
and Exchange Commission can be located
on a web site maintained by the
Commission at http://www.sec.gov.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1998
INVESCO STRATEGIC PORTFOLIOS, INC.
A no-load mutual fund investing
in designated market sectors
Address: Mailing Address:
7800 E. Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
- -----------------------------------------------------------------
INVESCO STRATEGIC PORTFOLIOS, INC. (the "Fund") is a diversified,
managed, no-load mutual fund consisting of eight separate Portfolios of
investments. It seeks to provide investors with capital appreciation (and, with
respect to the Utilities Portfolio, income) through the investment of assets of
its professionally managed Portfolios primarily in equity securities. Each of
the Fund's separate Portfolios concentrates its investments in securities of
companies principally engaged in the business sector of that Portfolio.
Investors may purchase shares of any or all Portfolios. The following are
available:
ENERGY Portfolio HEALTH SCIENCES Portfolio
ENVIRONMENTAL SERVICES Portfolio LEISURE Portfolio
FINANCIAL SERVICES Portfolio TECHNOLOGY Portfolio
GOLD Portfolio UTILITIES Portfolio
Additional portfolios may be offered in the future.
A Prospectus dated March 1, 1998 for all of the Portfolios of the Fund
which provides the basic information you should know before investing in the
respective Portfolios, may be obtained without charge from INVESCO Distributors,
Inc., Post Office Box 173706, Denver, Colorado 80217-3706. This Statement of
Additional Information is not a prospectus, but contains information in addition
to and more detailed than that set forth in the Prospectus. It is intended to
provide you additional information regarding the activities and operations of
the Portfolios and should be read in conjunction with the Prospectus.
Investment Adviser: INVESCO Funds Group, Inc.
Distributor: INVESCO Distributors, Inc.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT POLICIES AND RESTRICTIONS...........................................3
THE FUND AND ITS MANAGEMENT...................................................14
HOW SHARES CAN BE PURCHASED...................................................27
HOW SHARES ARE VALUED.........................................................31
FUND PERFORMANCE..............................................................32
SERVICES PROVIDED BY THE FUND.................................................34
TAX-DEFERRED RETIREMENT PLANS.................................................35
HOW TO REDEEM SHARES..........................................................35
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES......................................36
INVESTMENT PRACTICES..........................................................39
ADDITIONAL INFORMATION........................................................43
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
In selecting securities for investment, each Portfolio's investment
adviser attempts to identify companies that have better-than-average earnings
growth potential. Each Portfolio seeks to purchase the securities of companies
that are thought to be best situated in the relevant industry grouping for that
Portfolio to benefit from the predicted economic environment.
Foreign Securities. The Gold and Environmental Services Portfolios may
invest in foreign securities without limitation on the percentage of assets
which may be so invested. Each of the other Portfolios (Energy, Financial
Services, Health Sciences, Leisure, Technology and Utilities) may invest up to
25% of its total assets, measured at the time of purchase, directly in foreign
securities. Securities of Canadian issuers and securities purchased by means of
American Depository Receipts ("ADRs") are not subject to this 25% limitation. As
described in the section of the Portfolios' Prospectus entitled "Investment
Policies and Risks," foreign securities involve certain risks not associated
with investment in domestic companies. Foreign companies generally are not
subject to uniform accounting, auditing, and financial reporting standards
comparable to those applicable to domestic companies. Securities of many foreign
companies may be less liquid and more volatile than securities of comparable
domestic companies. With respect to certain foreign countries, there may be a
possibility of political developments which could affect investments in those
countries. Finally, it may be more difficult for a Portfolio to obtain or
enforce a judgment against a foreign issuer than against a domestic issuer. In
determining individual portfolio investments, however, the investment advisers
will carefully consider all of the above.
Securities denominated in foreign currency, whether issued by a foreign
or a domestic issuer, may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and costs will be incurred
in connection with conversions between various currencies.
Restricted/144A Securities. As discussed in the Portfolios' Prospectus,
each Portfolio may invest in restricted securities, including restricted
securities that can be resold to institutional investors pursuant to Rule 144A
under the Securities Act of 1933 "Rule 144A Securities").
In recent years, a large institutional market has developed for Rule
144A Securities. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend on an efficient
institutional market in which Rule 144A Securities can readily be resold or on
an issuer's ability to honor a demand for repayment. Therefore, the fact that
there are contractual or legal restrictions on resale to the general public or
certain institutions is not dispositive of the liquidity of such investments.
<PAGE>
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for Rule 144A Securities
may provide both readily ascertainable values for Rule 144A Securities and the
ability to liquidate an investment in order to satisfy share redemption orders.
An insufficient number of qualified institutional buyers interested in
purchasing a Rule 144A Security held by a Portfolio, however, could adversely
affect the marketability of such portfolio security and the Portfolio might be
unable to dispose of such security promptly or at reasonable prices.
American Depository Receipts. As discussed in the Prospectus, the
Portfolios may invest in American Depository Receipts ("ADRs"). ADRs are
receipts representing shares of a foreign corporation held by a U.S. bank that
entitle the holder to all dividends and capital gains net of certain fees paid
to the bank. ADRs are denominated in U.S. dollars and trade in the U.S.
securities markets. ADRs may be issued in sponsored or unsponsored programs. In
sponsored programs, the issuer makes arrangements to have its securities traded
in the form of ADRs; in unsponsored programs, the issuer may not be directly
involved in the creation of the program. Although the regulatory requirements
with respect to sponsored and unsponsored programs are generally similar, the
issuers of unsponsored ADRs are not obligated to disclose material information
in the United States and, therefore, such information may not be reflected in
the market value of the ADRs.
Forward Foreign Currency Contracts. As discussed in the section of the
Prospectus entitled "Investment Policies and Risks," the Portfolios may enter
into forward foreign currency contracts, which are included in the types of
instruments sometimes known as derivatives, to purchase or sell foreign
currencies as a hedge against possible variations in foreign exchange rates. A
forward foreign currency contract ("forward contract") is an agreement between
the contracting parties to exchange an amount of currency at some future time at
an agreed-upon rate. The rate can be higher or lower than the spot rate between
the currencies that are the subject of the contract. A forward contract
generally has no deposit requirement, and such transactions do not involve
commissions. By entering into a forward contract for the purchase or sale of the
amount of foreign currency invested in a foreign security transaction, a
Portfolio can hedge against possible variations in the value of the dollar
versus the subject currency either between the date the foreign security is
purchased or sold and the date on which payment is made or received or during
the time the Portfolio holds the foreign security. The Portfolio will not
speculate in forward currency contracts. The Portfolio will not attempt to hedge
all of their foreign portfolio positions and will enter into such transactions
only to the extent, if any, deemed appropriate by Fund Management. The
Portfolios will not enter into forward contracts for a term of more than one
year. Investors should be aware that hedging against a decline in the value of a
<PAGE>
currency in the foregoing manner does not eliminate fluctuations in the prices
of portfolio securities or prevent losses if the prices of such securities
decline. Furthermore, such hedging transactions preclude the opportunity for
gain if the value of the hedged currency should rise. No predictions can be made
with respect to whether the total of such transactions will result in a better
or a worse position than had a Portfolio not entered into any forward contracts.
Forward contracts may, from time to time, be considered illiquid, in which case
they would be subject to a Portfolio's limitation on investing in illiquid
securities, discussed in the Prospectus.
Repurchase Agreements. As discussed in the Prospectus, the Portfolios
may enter into repurchase agreements with respect to debt instruments eligible
for investment by the Portfolios with member banks of the Federal Reserve
System, registered broker-dealers, and registered government securities dealers.
A repurchase agreement may be considered a loan collateralized by securities.
The resale price reflects an agreed upon interest rate effective for the period
the instrument is held by a Portfolio and is unrelated to the interest rate on
the underlying instrument. In these transactions, the collateral securities
acquired by a Portfolio (including accrued interest earned thereon) must have a
total value equal to the value of the repurchase agreement, and are held as
collateral by the Fund's custodian bank until the repurchase agreement is
completed.
Securities Lending. Each Portfolio also may lend its securities to
qualified brokers, dealers, banks or other financial institutions. This practice
permits a Portfolio to earn income which, in turn, can be invested in additional
securities to pursue the Portfolio's investment objectives. Loans of securities
by a Portfolio will be collateralized by cash, letters of credit or securities
issued or guaranteed by the U.S. government or its agencies equal to at least
100% of the current market value of the loaned securities, plus accrued interest
and dividends, determined on a daily basis. Lending securities involves certain
risks, the most significant of which is the risk that a borrower may fail to
return a portfolio security. Fund Management monitors the creditworthiness of
borrowers in order to minimize such risks. A Portfolio will not lend any
security if, as a result of the loan, the aggregate value of securities then on
loan would exceed 33 1/3% of the Portfolio's total assets (taken at market
value).
Gold Bullion. As is also discussed in the Prospectus, the Gold
Portfolio may invest up to 10% of its total assets in gold bullion. The two
largest national producers of gold bullion are the Republic of South Africa and
the Commonwealth of Independent States (the former Soviet Union). Changes in
political and economic conditions affecting either country may have a direct
impact on that country's sales of gold bullion. The Gold Portfolio will purchase
gold bullion from, and sell gold bullion to, banks (both U.S. and foreign) and
dealers who are members of, or affiliated with members of, a regulated U.S.
commodities exchange, in accordance with applicable investment laws. Values of
<PAGE>
gold bullion held by the Gold Portfolio are based upon daily quotes provided by
banks or brokers dealing in such commodities.
Gas and Electric Utilities. The gas and electric public utilities
industries are subject to various uncertainties, including: difficulty in
obtaining adequate returns on invested capital; frequent difficulty in obtaining
approval of rate increases by public service commissions; increased costs,
delays and restrictions as a result of environmental considerations; difficulty
and delay in securing financing of large construction projects; difficulties of
the capital markets in absorbing utility debt and equity securities;
difficulties in obtaining fuel for electric generation at reasonable prices;
difficulty in obtaining natural gas for resale; and special risks associated
with the construction and operation of nuclear power generating facilities,
including technical and cost factors of such construction and operation and the
possibility of imposition of additional governmental requirements for
construction and operation. Recent and ongoing deregulation of the gas and
electric utilities industry has increased competition in the power generation
and utilities businesses, which generally exposes these companies to increased
business risk from competitors.
Futures and Options. Each of the Portfolios has adopted a policy which
permits each Portfolio to purchase or sell put and call options on individual
securities, securities indexes and currencies, or financial futures or options
on financial futures. The following sub-sections entitled "Put and Call
Options," "Futures and Options on Futures," and "Options on Futures Contracts,"
apply to each of the Portfolios, except the Environmental Services Portfolio.
Put and Call Options. An option on a security provides the purchaser,
or "holder," with the right, but not the obligation, to purchase, in the case of
a "call" option or sell, in the case of a "put" option, the security or
securities underlying the option, for a fixed exercise price up to a stated
expiration date. The holder pays a non-refundable purchase price for the option,
known as the "premium." The maximum amount of risk the purchaser of the option
assumes is equal to the premium plus related transaction costs, although the
entire amount may be lost. The risk of the seller, or "writer," however, is
potentially unlimited, unless the option is "covered," which is generally
accomplished through the writer's ownership of the underlying security, in the
case of a call option, or the writer's segregation of an amount of cash or
securities equal to the exercise price, in the case of a put option. If the
writer's obligation is not so covered, it is subject to the risk of the full
change in value of the underlying security from the time the option is written
until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
<PAGE>
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such
as the Chicago Board of Options Exchange and the New York Stock Exchange, which
are regulated by the Securities and Exchange Commission. The Options Clearing
Corporation guarantees the performance of each party to an exchange-traded
option, by in effect taking the opposite side of each such option. A holder or
writer may engage in transactions in exchange-traded options on securities and
options on indices of securities only through a registered broker/dealer which
is a member of the exchange on which the option is traded.
An option position in an exchange-traded option may be closed out only
on an exchange which provides a secondary market for an option of the same
series. Although the Portfolio will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option at any particular time. In such event it might not be possible
to effect closing transactions in a particular option with the result that the
Portfolio would have to exercise the option in order to realize any profit. This
would result in the Portfolio's incurring brokerage commissions upon the
disposition of underlying securities acquired through the exercise of a call
option or upon the purchase of underlying securities upon the exercise of a put
option. If the Portfolio as covered call option writer is unable to effect a
closing purchase transaction in a secondary market, unless the Portfolio is
required to deliver the securities pursuant to the assignment of an exercise
notice, it will not be able to sell the underlying security until the option
expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or particular classes or series of options) in which event
the secondary market on that exchange (or in the class or series of options)
would cease to exist, although outstanding options on that exchange which had
<PAGE>
been issued by a clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms. There is no
assurance that higher than anticipated trading activity or other unforeseen
events might not, at a particular time, render certain of the facilities of any
of the clearing corporations inadequate and thereby result in the institution by
an exchange of special procedures which may interfere with the timely execution
of customers' orders. However, the Options Clearing Corporation ("OCC"), based
on forecasts provided by the U.S. exchanges, believes that its facilities are
adequate to handle the volume of reasonably anticipated options transactions,
and such exchanges have advised the OCC that they believe their facilities will
also be adequate to handle reasonably anticipated volume.
Futures Contracts and Options on Futures Contracts. As described in the
Portfolios' Prospectus, each Portfolio may enter into futures contracts, and
purchase and sell ("write") options to buy or sell futures contracts. The
Portfolios will comply with and adhere to all limitations in the manner and
extent to which they effect transactions in futures and options on such futures
currently imposed by the rules and policy guidelines of the Commodity Futures
Trading Commission ("CFTC") as conditions for exemption of a mutual fund, or
investment advisers thereto, from registration as a commodity pool operator. No
Portfolio will, as to any positions, whether long, short or a combination
thereof, enter into futures and options thereon for which the aggregate initial
margins and premiums exceed 5% of the fair market value of its assets after
taking into account unrealized profits and losses on options it has entered
into. In the case of an option that is "in-the-money," as defined in the
Commodity Exchange Act (the "CEA"), the in-the-money amount may be excluded in
computing such 5%. (In general a call option on a future is "in-the-money" if
the value of the future exceeds the exercise ("strike") price of the call; a put
option on a future is "in-the-money" if the value of the future which is the
subject of the put is exceeded by the strike price of the put.) Each Portfolio
may use futures and options thereon for bona fide hedging or for other
non-speculative purposes within the meaning and intent of the applicable
provisions of the CEA.
Unlike when a Portfolio purchases or sells a security, no price is paid
or received by a Portfolio upon the purchase or sale of a futures contract.
Instead, the Portfolio will be required to deposit in its segregated asset
account an amount of cash or qualifying securities (currently U.S. Treasury
bills), currently in a minimum amount of $15,000. This is called "initial
margin." Such initial margin is in the nature of a performance bond or good
faith deposit on the contract. However, since losses on open contracts are
required to be reflected in cash in the form of variation margin payments, a
Portfolio may be required to make additional payments during the term of the
contracts to its broker. Such payments would be required, for example, where,
during the term of an interest rate futures contract purchased by a Portfolio,
there was a general increase in interest rates, thereby making such Portfolio's
<PAGE>
securities less valuable. In all instances involving the purchase of futures
contracts by a Portfolio, an amount of cash together with such other securities
as permitted by applicable regulatory authorities to be utilized for such
purpose, at least equal to the market value of the futures contracts, will be
deposited in a segregated account with such Portfolio's custodian to
collateralize the position. At any time prior to the expiration of a futures
contract, a Portfolio may elect to close its position by taking an opposite
position which will operate to terminate its position in the futures contract.
Where futures are purchased to hedge against a possible increase in the
price of a security before a Portfolio is able in an orderly fashion to invest
in the security, it is possible that the market may decline instead. If the
Portfolio, as a result, concluded not to make the planned investment at that
time because of concern as to possible further market decline or for other
reasons, the Portfolio would realize a loss on the futures contract that is not
offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation or no correlation at all between movements in the futures contracts
and the portion of the portfolio being hedged, the price of a futures contract
may not correlate perfectly with movements in the prices due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between underlying
instruments and the value of the futures contract. Moreover, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market and may therefore cause increased participation by
speculators in the futures market. Such increased participation may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and because of the imperfect correlation between movements in the
underlying instrument and movements in the price of futures contracts, the value
of futures contracts as a hedging device may be reduced.
In addition, if a Portfolio has insufficient available cash, it may at
times have to sell securities to meet variation margin requirements. Such sales
may have to be effected at a time when it may be disadvantageous to do so.
As noted above, a Portfolio may buy and write options on futures
contracts for hedging purposes. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the price of the
underlying instrument, ownership of the option may or may not be less risky than
ownership of the futures contract or the underlying instrument. As with the
<PAGE>
purchase of futures contracts, when a Portfolio is not fully invested it may buy
a call option on a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, a
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in such Portfolio's
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures price at expiration of the option is higher than the exercise price,
a Portfolio will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the
Portfolio is considering buying. If a call or put option which a Portfolio has
written is exercised, such Portfolio will incur a loss which will be reduced by
the amount of the premium it received. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of the futures positions, a Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Portfolio may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices.
The amount of risk a Portfolio assumes when it buys an option on a
futures contract is the premium paid for the option plus related transactions
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be reflected fully in the value of the options bought.
For a more complete discussion of the risks involved in futures and
options on futures and other securities, refer to Appendix A ("Description of
Futures, Options and Forward Contracts").
Investment Restrictions. As described in the section of the Prospectus
entitled "Investment Objective And Strategy," the Portfolios operate under
certain investment restrictions. The following restrictions are fundamental and
may not be changed with respect to a particular Portfolio without the prior
approval of the holders of a majority, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act") of the outstanding voting securities of
that Portfolio. For purposes of the following restrictions, all percentage
limitations apply immediately after a purchase or initial investment. Any
<PAGE>
subsequent change in a particular percentage resulting from fluctuations in
value does not require elimination of any security from the Portfolio.
Each Portfolio, unless otherwise indicated, may not:
(1) issue senior securities as defined in the 1940 Act (except
insofar as the Portfolio may be deemed to have issued a senior
security by reason of entering into a repurchase agreement, or
borrowing money, in accordance with the restrictions described
below, and in accordance with the position of the staff of the
Securities and Exchange Commission set forth in Investment
Company Act Release No. 10666);
(2) mortgage, pledge or hypothecate portfolio securities or borrow
money, except borrowings from banks for temporary or emergency
purposes (but not for investment) are permitted in an amount not
exceeding with respect to the Financial Services, Health
Sciences, Leisure, Technology or Utilities Portfolios 10%, or,
with respect to the Energy, Environmental Services and Gold
Portfolios, 33-1/3% of the value of the Portfolio's total assets,
i.e., its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to
exceed the relevant 10% or 33-1/3% limitation by reason of a
decline in total assets will be reduced within three business
days to the extent necessary to comply with the relevant 10% or
33-1/3% limitation. A Portfolio will not purchase additional
securities while any borrowings on behalf of that Portfolio
exist;
(3) buy or sell commodities or commodity contracts (however, the
Portfolio may purchase securities of companies which invest in
the foregoing). The Environmental Services Portfolio also may not
buy or sell oil, gas or other mineral interests or exploration
programs (however, the Environmental Services Portfolio may
purchase securities of companies which invest in the foregoing).
This restriction shall not prevent the Portfolios from purchasing
or selling options on individual securities, security indexes,
and currencies, or financial futures or options on financial
futures, or undertaking forward currency contracts. This
restriction shall not prevent the Gold Portfolio from investing
up to 10% of its total assets in gold bullion;
(4) purchase the securities of any company if as a result of such
purchase more than 10% of total assets would be invested in
securities which are subject to legal or contractual restrictions
on resale ("restricted securities") and in securities for which
there are no readily available market quotations; or enter into a
repurchase agreement maturing in more than seven days, if
<PAGE>
as a result, such repurchase agreements, together with restricted
securities and securities for which there are no readily
available market quotations, would constitute more than 10% of
total assets;
(5) sell short or buy on margin. This restriction shall not prevent
the Portfolios ^ from purchasing or selling options on futures,
or writing, purchasing, or selling puts and calls;
(6) buy or sell real estate or interests therein (however, securities
issued by companies which invest in real estate or interests
therein may be purchased and sold);
(7) invest in the securities of any other investment company except
for a purchase or acquisition in accordance with a plan of
reorganization, merger or consolidation;
(8) invest in any company for the purpose of exercising control or
management;
(9) engage in the underwriting of any securities, except insofar as
the Fund may be deemed an underwriter under the Securities Act of
1933 in disposing of a portfolio security;
(10) make loans to any person, except through the purchase of debt
securities in accordance with the investment policies of the
Portfolios, or the lending of portfolio securities to
broker-dealers or other institutional investors, or the entering
into repurchase agreements with member banks of the Federal
Reserve System, registered broker-dealers and registered
government securities dealers. The aggregate value of all
portfolio securities loaned may not exceed 33-1/3% of a
Portfolio's total assets (taken at current value). No more than
10% of a Portfolio's total assets may be invested in repurchase
agreements maturing in more than seven days;
(11) purchase securities of any company in which any officer or
director of the Fund or its investment adviser owns more than 1/2
of 1% of the outstanding securities of such company and in which
the officers and directors of the Fund and its investment
adviser, as a group, own more than 5% of such securities;
(12) with respect to seventy-five percent (75%) of each Portfolio's
total assets, purchase the securities of any one issuer (except
cash items and "government securities" as defined under the 1940
Act), if the purchase would cause a Portfolio to have more than
5% of the value of its total assets invested in the securities of
such issuer or to own more than 10% of the outstanding voting
securities of such issuer;
<PAGE>
(13) invest more than 5% of its total assets in an issuer having a
record, together with predecessors, of less than three years'
continuous operation.
In addition to the above restrictions, a fundamental policy of the
Technology Portfolio is not to invest more than 25% of its total assets (taken
at market value at the time of each investment) in the securities of issuers in
any one industry. In applying this restriction, the Technology Portfolio uses an
industry classification system based on a modified S&P industry code
classification schema which uses various sources to classify securities.
In applying restriction (4) above, each Portfolio also includes
illiquid securities (those which cannot be sold in the ordinary course of
business within seven days at approximately the valuation given to them by the
Fund) among the securities subject to the 10% of total assets limit.
With respect to investment restriction (4) above, the board of
directors has delegated to the Fund's investment adviser the authority to
determine that a liquid market exists for securities eligible for resale
pursuant to Rule 144A under the 1933 Act, or any successor to such rule, and
that such securities are not subject to a Portfolio's limitations on investing
in illiquid securities and securities for which there are no readily available
market quotations. Under guidelines established by the board of directors, the
adviser will consider the following factors, among others, in making this
determination: (1) the unregistered nature of a Rule 144A security; (2) the
frequency of trades and quotes for the security; (3) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security; and (5)
the nature of the security and the nature of marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). However, Rule 144A Securities are still subject to a
Portfolio's limitation on investments in restricted securities (securities for
which there are legal or contractual restrictions on resale), unless they are
readily marketable outside the United States, in which case they are not deemed
to be restricted.
An additional investment restriction adopted by the Fund on behalf of
each of the Portfolios, and which may be changed by the Directors at their
discretion, provides that the Portfolio will not:
(a) enter into any futures contracts, options on futures, puts and
calls if immediately thereafter the aggregate margin deposits on all
outstanding derivative positions held by the Portfolio and premiums
paid on outstanding positions, after taking into account unrealized
profits and losses, would exceed 5% of the market value of the total
assets of the Portfolio, or (b) enter into any derivative positions if
<PAGE>
the aggregate net amount of Portfolio's commitments under outstanding
derivative positions of the Portfolio would exceed the market value of
the total assets of the Portfolio.
THE FUND AND ITS MANAGEMENT
The Fund. The Fund was incorporated under the laws of Maryland on
August 10, 1983 as "Financial Strategic Portfolios, Inc." On December 2, 1994
the Fund changed its name to INVESCO Strategic Portfolios, Inc.
The Investment Adviser. INVESCO Funds Group, Inc., a Delaware
corporation ("IFG"), is employed as the Fund's investment adviser. IFG was
established in 1932 and also serves as an investment adviser to INVESCO Capital
Appreciation Funds, Inc. (formerly, INVESCO Dynamics Fund, Inc.), INVESCO
Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO
Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO Industrial Income Fund,
Inc., INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc.,
INVESCO Multiple Asset Funds, Inc., INVESCO Specialty Funds, Inc., INVESCO
Tax-Free Income Funds, Inc., INVESCO Value Trust, and INVESCO Variable
Investment Funds, Inc.
^ Prior to February 3, 1998, INVESCO Trust Company ("INVESCO Trust") ^
provided sub-advisory ^ services to the Portfolios. ^ Effective February 3,
1998, INVESCO Trust no longer provides sub-advisory services to the Portfolios
and IFG provides such day-to-day portfolio management services as the investment
adviser to the Portfolios. This change in no way changes the basis upon which
investment advice is provided to the Portfolios, the cost of those services to
the Portfolios or the persons actually performing the investment advisory and
other services previously provided by INVESCO Trust.
The Distributor. Effective September 30, 1997, INVESCO Distributors,
Inc. ("IDI") became the Portfolios' distributor. IDI, established in 1997, is a
registered broker-dealer that acts as distributor for all retail mutual funds
advised by IFG. Prior to September 30, 1997, IFG served as the Portfolios'
distributor.
IFG^ and IDI are indirect wholly-owned subsidiaries of AMVESCAP PLC, a
publicly-traded holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. INVESCO PLC changed
its name to AMVESCO PLC on March 3, 1997 and to AMVESCAP PLC on May 8, 1997, as
part of a merger between a direct subsidiary of INVESCO PLC and A I M Management
Group, Inc. that created one of the largest investment management businesses in
the world with approximately ^ $192.2 billion in assets under management. IFG
was established in 1932 and as of October 31, 1997, managed 14 mutual funds,
consisting of 45 separate portfolios, on behalf of over 851,000 shareholders.
AMVESCAP PLC's other North American subsidiaries include the following:
<PAGE>
--INVESCO Capital Management, Inc. of Atlanta, Georgia manages
institutional investment portfolios, consisting primarily of discretionary
employee benefit plans for corporations and state and local governments, and
endowment funds. INVESCO Capital Management, Inc. is the sole shareholder of
INVESCO Services, Inc., a registered broker-dealer.
--INVESCO Management & Research, Inc. of Boston, Massachusetts primarily
manages pension and endowment accounts.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
--INVESCO Realty Advisors, Inc. of Dallas, Texas is responsible for
providing advisory services in the U.S. real estate markets for pension plans
and public pension funds, as well as endowment and foundation accounts.
--INVESCO Trust Company ("INVESCO Trust") of Denver, Colorado, provides
retirement account custodian and/or trust services for individual retirement
accounts ("IRAs") and other retirement plan accounts. This includes services
such as recordkeeping, tax reporting and compliance. INVESCO Trust acts as
trustee or custodian to these plans. INVESCO Trust accepts contributions and
provides, through IFG, complete transfer agency functions (correspondence,
subaccounting, telephone communications and processing of distributions).
--A I M Advisors, Inc. of Houston, Texas provides investment advisory and
administrative services for retail and institutional mutual funds.
--A I M Capital Management, Inc. of Houston, Texas provides investment
advisory services to individuals, corporations, pension plans and other private
investment advisory accounts and also serves as a sub-adviser to certain retail
and institutional mutual funds, one Canadian mutual fund and one portfolio of an
open-end registered investment company that is offered to separate accounts of
variable insurance companies.
--A I M Distributors, Inc. and Fund Management Company of Houston, Texas
are registered broker-dealers that act as the principal underwriters for retail
and institutional mutual funds.
The corporate headquarters of AMVESCAP PLC are located at 11 Devonshire
Square, London, EC2M4YR, England.
As indicated in the Portfolios' Prospectus, IFG ^ permits investment and
other personnel to purchase and sell securities for their own accounts in
accordance with a compliance policy governing personal investing by directors,
officers and employees of IFG^ and ^ its North American affiliates. The policy
requires officers, inside directors, investment and other personnel of IFG^ and
^ its
<PAGE>
North American affiliates to pre-clear all transactions in securities not
otherwise exempt under the policy. Requests for trading authority will be denied
when, among other reasons, the proposed personal transaction would be contrary
to the provisions of the policy or would be deemed to adversely affect any
transaction then known to be under consideration for or to have been effected on
behalf of any client account, including any of the Portfolios.
In addition to the pre-clearance requirement described above, the
policy subjects officers, inside directors, investment and other personnel of
IFG^ and ^ its North American affiliates to various trading restrictions and
reporting obligations. All reportable transactions are reviewed for compliance
with the policy. The provisions of this policy are administered by and subject
to exceptions authorized by IFG.
Investment Advisory Agreement. IFG serves as investment adviser to the
Portfolios pursuant to an investment advisory agreement dated February 28, 1997
(the "Agreement") with the Fund which was approved on November 6, 1996, by a
vote cast in person by a majority of the directors of the Fund, including a
majority of the directors who are not "interested persons" of the Fund or IFG at
a meeting called for such purpose. The Agreement was approved by shareholders of
each Portfolio of the Fund on January 31, 1997, for an initial term expiring
February 28, 1999. Thereafter, the Agreement may be continued from year to year
as to each Portfolio as long as such continuance is specifically approved at
least annually by the board of directors of the Fund, or by a vote of the
holders of a majority, as defined in the 1940 Act, of the outstanding shares of
the Portfolio. Any such continuance also must be approved by a majority of the
Fund's directors who are not parties to the Agreement or interested persons (as
defined in the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such continuance. The Agreement may be terminated
at any time without penalty by either party upon sixty (60) days' written notice
and terminates automatically in the event of an assignment to the extent
required by the 1940 Act and the rules thereunder.
The Agreement provides that IFG shall manage the investment portfolios
of the Fund's Portfolios in conformity with the Portfolios' investment policies
(either directly or by delegation to a sub-adviser which may be a company
affiliated with IFG). Further, IFG shall perform all administrative, internal
accounting (including computation of net asset value), clerical, statistical,
secretarial and all other services necessary or incidental to the administration
of the affairs of the Fund excluding, however, those services that are the
subject of separate agreement between the Fund and IFG or any affiliate thereof,
including the distribution and sale of Fund shares and provision of transfer
agency, dividend disbursing agency, and registrar services, and services
furnished under an Administrative Services Agreement with IFG discussed below.
<PAGE>
Services provided under the Agreement include, but are not limited to: supplying
the Fund with officers, clerical staff and other employees, if any, who are
necessary in connection with the Fund's operations; furnishing office space,
facilities, equipment and supplies; providing personnel and facilities required
to respond to inquiries related to shareholder accounts; conducting periodic
compliance reviews of the Fund's operations; preparation and review of required
documents, reports and filings by IFG's in-house legal and accounting staff
(including the prospectus, statement of additional information, proxy
statements, shareholder reports, tax returns, reports to the SEC and other
corporate documents of the Fund), except insofar as the assistance of
independent accountants or attorneys is necessary or desirable; supplying basic
telephone service and other utilities; and preparing and maintaining certain of
the books and records required to be prepared and maintained by the Fund under
the 1940 Act. Expenses not assumed by IFG are borne by the Fund.
As full compensation for its advisory services to the Fund, IFG
receives a monthly fee. The fee is calculated daily at an annual rate of: 0.75%
on the first $350 million of the average net assets of each Portfolio of the
Fund; 0.65% on the next $350 million of the average net assets of each Portfolio
of the Fund; and 0.55% of each Portfolio's average net assets in excess of $700
million. The advisory fee is calculated daily at the applicable annual rate and
paid monthly. While the portions of ^ IFG's fees which are equal to 0.75% of the
net assets are higher than those generally charged by investment advisers to
mutual funds, they are not higher than those charged by most other investment
advisers to funds comparable to the Portfolios of the Fund, whose assets are
primarily invested in securities of companies principally engaged in the sector
or business activity designated for investment by each Portfolio.
^
Administrative Services Agreement. IFG, either directly or through
affiliated companies, also provides certain administrative, sub-accounting and
recordkeeping services to the Fund pursuant to an Administrative Services
Agreement dated February 28, 1997 (the "Administrative Agreement"). The
Administrative Agreement was approved on November 6, 1996, by a vote cast in
person by all of the directors of the Fund, including all of the directors who
are not "interested persons" of the Fund or IFG at a meeting called for such
purpose. The Administrative Agreement is for an initial term of one year.
Thereafter, the Administrative Agreement may be continued from year to year as
long as each such continuance is specifically approved by the board of directors
of the Fund, including a majority of the directors who are not parties to the
Administrative Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such continuance. The Administrative Agreement may be terminated at any time
<PAGE>
without penalty by IFG on sixty (60) days' written notice, or by the Fund upon
thirty (30) days' written notice, and terminates automatically in the event of
an assignment unless the Fund's board of directors approves such assignment.
The Administrative Agreement provides that IFG shall provide the
following services to the Fund: (A) such sub-accounting and recordkeeping
services and functions as are reasonably necessary for the operation of the
Fund; and (B) such sub-accounting, recordkeeping, and administrative services
and functions as are reasonably necessary for the operation of Fund shareholder
accounts maintained by certain retirement plans and employee benefit plans for
the benefit of participants in such plans. As full compensation for services
provided under the Administrative Agreement, the Fund pays a fee to IFG
consisting of a base fee of $10,000 per year per Portfolio, plus an additional
incremental fee computed daily and paid monthly, by each Portfolio, at an annual
rate of 0.015% of the average net assets of the Portfolio.
Transfer Agency Agreement. IFG also performs transfer agent, dividend
disbursing agent, and registrar services for the Fund pursuant to a Transfer
Agency Agreement dated February 28, 1997, which was approved by the board of
directors of each Portfolio of the Fund, including a majority of the Fund's
directors who are not parties to the Transfer Agency Agreement or "interested
persons" of any such party, on November 6, 1996, for a term of one year. The
Transfer Agency Agreement may be continued from year to year as to each
Portfolio as long as such continuance is specifically approved at least annually
by the board of directors of the Fund, or by a vote of the holders of a majority
of the outstanding shares of the Portfolio. Any such continuance must also be
approved by a majority of the Fund's directors who are not parties to the
Transfer Agency Agreement or interested persons (as defined by the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such continuance. The Transfer Agency Agreement may be terminated at any time
without penalty by either party upon sixty (60) days' written notice and
terminates automatically in the event of assignment.
The Transfer Agency Agreement provides that the Fund shall pay to IFG a
fee of $20.00 per shareholder account or, where applicable, per participant in
an omnibus account. This fee is paid monthly at a rate of 1/12 of the annual fee
and is based upon the actual number of shareholder accounts and omnibus account
participants in existence during each month.
Set forth below is a table showing the advisory fees, transfer agency
fees and administrative services fees paid by each of the Fund's Portfolios for
the fiscal years ended October 31, 1997, 1996 and 1995.
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31, 1997 Year Ended October 31, 1996 Year Ended October 31, 1995
--------------------------- --------------------------- ---------------------------
Adminis- Adminis- Adminis-
Transfer trative Transfer trative Transfer trative
Advisory Agency Services Advisory Agency Services Advisory Agency Services
Fees Fees(1) Fees Fees Fees Fees Fees Fees Fees
---------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Energy $1,788,892 $ 710,090 $ 45,876 $ 813,779 $ 385,446 $ 26,275 $ 454,001 $ 304,482 $ 19,080
Environmental
Services(2) 188,133 208,784 13,763 237,561 227,295 14,751 234,331 250,666 14,686
Financial
Services 5,705,247 1,995,619 137,504 3,306,980 1,298,961 78,234 2,128,548 1,083,492 52,704
Gold 1,703,349 982,788 44,069 2,136,116 889,509 52,965 1,544,711 826,471 40,898
Health
Sciences 6,276,181 2,910,149 152,539 7,016,028 2,584,098 172,697 4,221,937 1,991,219 99,730
Leisure 1,598,185 1,048,771 41,964 2,026,976 1,133,674 50,540 2,063,891 1,099,340 51,278
Technology 6,217,324 2,686,039 150,934 4,677,778 1,863,571 110,454 3,210,186 1,236,694 76,216
Utilities(2) 1,063,655 530,316 31,273 1,032,013 471,705 30,640 952,421 481,868 29,048
----------------------------------- ----------------------------------- -----------------------------------
Totals $24,540,966 $11,072,556 $617,922 $21,247,231 $8,854,259 $536,556 $14,810,026 $7,274,232 $383,640
</TABLE>
(1) Includes amounts earned as credits by the Portfolios from security brokerage
transactions under certain broker/service arrangements with third parties.
(2) These amounts do not reflect the voluntary expense limitations applicable to
the Environmental Services and Utilities Portfolios described in the Portfolios'
Prospectus.
<PAGE>
Officers and Directors of the Fund. The overall direction and
supervision of the Fund is the responsibility of the board of directors, which
has the primary duty of seeing that the Fund's general investment policies and
programs of the Fund are carried out and that the Fund's Portfolios are properly
administered. The officers of the Fund, all of whom are officers and employees
of, and are paid by, IFG, are responsible for the day-to-day administration of
the Fund. The investment sub-adviser for each Portfolio has the primary
responsibility for making investment decisions on behalf of that Portfolio.
These investment decisions are reviewed by the investment committee of IFG.
All of the officers and directors of the Fund hold comparable positions
with INVESCO Capital Appreciation Funds, Inc. (formerly, INVESCO Dynamics Fund,
Inc.), INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds,
Inc., INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO Industrial
Income Fund, Inc., INVESCO International Funds, Inc., INVESCO Money Market
Funds, Inc., INVESCO Multiple Asset Funds, Inc., INVESCO Specialty Funds, Inc.,
INVESCO Tax-Free Income Funds, Inc., and INVESCO Variable Investment Funds, Inc.
All of the directors of the Fund also serve as trustees of INVESCO Value Trust.
In addition, all of the directors of the Fund, with the exception of Dan Hesser,
also serve as trustees of INVESCO Treasurer's Series Trust. All of the officers
of the Fund also hold comparable positions with INVESCO Value Trust. Set forth
below is information with respect to each of the Fund's officers and directors.
Unless otherwise indicated, the address of the directors and officers is Post
Office Box 173706, Denver, Colorado 80217-3706. Their affiliations represent
their principal occupations during the past five years.
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive Officer and
Director of AMVESCAP PLC, London, England, and of various subsidiaries thereof.
Chairman of the Board of INVESCO Treasurer's Series Trust. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. Vice Chairman of INVESCO
Treasurer's Series Trust. Trustee of INVESCO Global Health Sciences Fund.
Formerly, Chairman of the Executive Committee and Chairman of the Board of
Security Life of Denver Insurance Company, Denver, Colorado; Director of ING
America Life Insurance Company, Urbaine Life Insurance Company and Midwestern
United Life Insurance Company. Address: Security Life Center, 1290 Broadway,
Denver, Colorado. Born: January 12, 1928.
DAN J. HESSER,+* President, CEO and Director. Chairman of the Board,
President, and Chief Executive Officer of INVESCO Funds Group, Inc. and INVESCO
Distributors, Inc; President and Director of INVESCO Trust Company; President
and Chief Operating Officer of INVESCO Global Health Sciences Fund. Born:
December 27, 1939.
<PAGE>
VICTOR L. ANDREWS,** Director. Professor Emeritus, Chairman Emeritus and
Chairman of the CFO Roundtable of the Department of Finance at Georgia State
University, Atlanta, Georgia; President, Andrews Financial Associates, Inc.
(consulting firm); since October 1984, Director of the Center for the Study of
Regulated Industry at Georgia State University; formerly, member of the
faculties of the Harvard Business School and the Sloan School of Management of
MIT. Dr. Andrews is also a Director of the Southeastern Thrift and Bank Fund,
Inc. and The Sheffield Funds, Inc. Address: 4625 Jettridge Drive, Atlanta,
Georgia. Born: June 23, 1930.
BOB R. BAKER,+** Director. President and Chief Executive Officer of AMC
Cancer Research Center, Denver, Colorado, since January 1989; until mid-December
1988, Vice Chairman of the Board of First Columbia Financial Corporation (a
financial institution), Englewood, Colorado. Formerly, Chairman of the Board and
Chief Executive Officer of First Columbia Financial Corporation. Address: 1775
Sherman Street, #1000, Denver, Colorado. Born: August 7, 1936.
LAWRENCE H. BUDNER,# Director. Trust Consultant; prior to June 30, 1987,
Senior Vice President and Senior Trust Officer of InterFirst Bank, Dallas,
Texas. Address: 7608 Glen Albens Circle, Dallas, Texas. Born: July 25, 1930.
DANIEL D. CHABRIS,+# Director. Financial Consultant; Assistant Treasurer of
Colt Industries Inc., New York, New York, from 1966 to 1988. Address: 19
Kingsbridge Way, Madison, Connecticut. Born: August 1, 1923.
WENDY L. GRAMM, Ph.D.,** Director. Self-employed (since 1993); Professor of
Economics and Public Administration, University of Texas at Arlington. Formerly,
Chairman, Commodity Futures Trading Commission from 1988 to 1993, administrator
for Information and Regulatory Affairs at the Office of Management and Budget
from 1985 to 1988, Executive Director of the Presidential Task Force on
Regulatory Relief and Director of the Federal Trade Commission's Bureau of
Economics. Dr. Gramm is also a director of the Chicago Mercantile Exchange,
Enron Corporation, IBP, Inc., State Farm Insurance Company, State Farm Life
Insurance Company, Independent Women's Forum, International Republic Institute,
and the Republican Women's Federal Forum. Dr. Gramm is also a member of the
Board of Visitors, College of Business Administration, University of Iowa, and a
member of the Board of Visitors, Center for Study of Public Choice, George Mason
University. Address: 4201 Yuma Street, N.W., Washington, D.C. Born: January 10,
1945.
HUBERT L. HARRIS, JR.,* Director. Chairman (since 1996) and President
(January 1990 to May 1996) of INVESCO Services, Inc.; Chief Executive Officer of
INVESCO Individual Services Group. Director of INVESCO Global Health Sciences
Fund. Member of the Executive Committee of the Alumni Board of Trustees of
Georgia Institute of Technology. Address: 1315 Peachtree Street, NE, Atlanta,
Georgia. Born: July 15, 1943.
<PAGE>
KENNETH T. KING,# Director. Formerly, Chairman of the Board of The Capitol
Life Insurance Company, Providence Washington Insurance Company, and Director of
numerous subsidiaries thereof in the U.S. Formerly, Chairman of the Board of The
Providence Capitol Companies in the United Kingdom and Guernsey. Chairman of the
Board of the Symbion Corporation (a high technology company) until 1987.
Address: 4080 North Circulo Manzanillo, Tucson, Arizona. Born: November 16,
1925.
JOHN W. MCINTYRE,# Director. Retired. Formerly, Vice Chairman of the Board
of Directors of the Citizens and Southern Corporation and Chairman of the Board
and Chief Executive Officer of the Citizens and Southern Georgia Corporation and
Citizens and Southern National Bank. Director of Golden Poultry Co., Inc.
Trustee of INVESCO Global Health Sciences Fund and Gables Residential Trust.
Address: 7 Piedmont Center, Suite 100, Atlanta, Georgia. Born: September 14,
1930.
LARRY SOLL, Ph.D., Director.** Formerly, Chairman of the Board (1987 to
1994), Chief Executive Officer (1982 to 1989 and 1993 to 1994) and President
(1982 to 1989) of Synergen Corp. Director of Synergen since incorporation in
1982. Director of ISD Pharmaceuticals, Inc., Trustee of INVESCO Global Health
Sciences Fund. Address: 345 Poorman Road, Boulder, Colorado. Born: April 26,
1942.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995), General
Counsel and Secretary of INVESCO Funds Group, Inc. and INVESCO Trust Company and
INVESCO Distributors, Inc. (since 1997); Vice President (May 1989 to April
1995), Secretary and General Counsel of INVESCO Funds Group, Inc.; formerly,
employee of a U.S. regulatory agency, Washington, D.C., (June 1973 through May
1989). Born: September 25, 1947.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
Funds Group, Inc. and INVESCO Trust Company (since 1988). Senior Vice President
and Treasurer of INVESCO Distributors, Inc. (since 1997). Born: October 1, 1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO Funds Group, Inc. (since 1995) and of INVESCO Distributors, Inc. (since
1997) and Trust Officer of INVESCO Trust Company (since July 1995) and formerly
(August 1992 to July 1995), Vice President of INVESCO Funds Group, Inc. and
Trust Officer of INVESCO Trust Company. Formerly, Vice President of 440
Financial Group from June 1990 to August 1992; Assistant Vice President of
Putnam Companies from November 1986 to June 1990. Born: August 21, 1956.
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO Funds Group,
Inc. (since 1984) and Trust Officer of INVESCO Trust Company. Born: September
14, 1941.
<PAGE>
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO Funds Group,
Inc. (since 1984) and of INVESCO Distributors, Inc. (since 1997) and Trust
Officer of INVESCO Trust Company. Born: February 3, 1948.
#Member of the audit committee of the Fund.
+Member of the executive committee of the Fund. On occasion, the
executive committee acts upon the current and ordinary business of the Fund
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Fund. All decisions are
subsequently submitted for ratification by the board of directors.
*These directors are "interested persons" of the Fund as
defined in the Investment Company Act of 1940.
**Member of the management liaison committee of the Fund.
As of December 19, 1997, officers and directors of the Fund, as a
group, beneficially owned less than 1% of the Company's outstanding shares and
less than 1% of the outstanding shares of the Fund and of each Portfolio of the
Fund.
Director Compensation
The following table sets forth, for the fiscal year ended October 31,
1997: the compensation paid by the Fund to its eligible independent directors
for services rendered in their capacities as directors of the Fund; the benefits
accrued as Fund expenses with respect to the Defined Benefit Deferred
Compensation Plan discussed below; and the estimated annual benefits to be
received by these directors upon retirement as a result of their service to the
Fund. In addition, the table sets forth the total compensation paid by all of
the mutual funds distributed by IDI (including the Fund), INVESCO Advisor Funds,
Inc., INVESCO Treasurer's Series Trust, and INVESCO Global Health Sciences Fund
(collectively, the "INVESCO Complex") to these directors for services rendered
in their capacities as directors or trustees during the year ended December 31,
1996. As of December 31, 1996, there were 49 funds in the INVESCO Complex. Dr.
Soll became an independent director of the Fund effective May 15, 1997. Dr.
Gramm became an independent director of the Fund effective July 29, 1997.
<PAGE>
Total
Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
tion From Fund Upon Paid To
Fund(1) Expenses(2) Retirement(3)Directors(1)
Fred A. Deering, $ 17,590 $ 6,297 $ 6,131 $ 98,850
Vice Chairman of
the Board
Victor L. Andrews 17,459 5,950 7,097 84,350
Bob R. Baker 17,955 5,313 9,511 84,850
Lawrence H. Budner 16,862 5,950 7,097 80,350
Daniel D. Chabris 17,382 6,790 5,044 84,850
A. D. Frazier, Jr.(4) 3,576 0 0 81,500
Wendy L. Gramm 3,459 0 0 0
Kenneth T. King 14,864 6,539 5,561 71,350
John W. McIntyre 16,277 0 0 90,350
Larry Soll 6,672 0 0 17,500
-------- -------- -------- --------
Total $132,096 $ 36,839 $ 40,441 $693,950
% of Net Assets 0.0034%(5) 0.0009%(5) 0.0045%(6)
(1)The vice chairman of the board, the chairmen of the audit,
management liaison and compensation committees, and the members of the executive
and valuation committees each receive compensation for serving in such
capacities in addition to the compensation paid to all independent directors.
(2)Represents estimated benefits accrued with respect to the Defined
Benefit Deferred Compensation Plan discussed below, and not compensation
deferred at the election of the directors.
(3)These figures represent the Fund's share of the estimated annual
benefits payable by the INVESCO Complex (excluding INVESCO Global Health
Sciences Fund, which does not participate in any retirement plan) upon the
directors' retirement, calculated using the current method of allocating
director compensation among the funds in the INVESCO Complex. These estimated
benefits assume retirement at age 72 and that the basic retainer payable to the
directors will be adjusted periodically for inflation, for increases in the
number of funds in the INVESCO Complex, and for other reasons during the period
<PAGE>
in which retirement benefits are accrued on behalf of the respective directors.
This results in lower estimated benefits for directors who are closer to
retirement and higher estimated benefits for directors who are further from
retirement. With the exception of Messrs. Frazier and McIntyre and Drs. Gramm
and Soll, each of these directors has served as a director/trustee of one or
more of the funds in the INVESCO Complex for the minimum five-year period
required to be eligible to participate in the Defined Benefit Deferred
Compensation Plan.
(4) Effective February 28, 1997, Mr. Frazier resigned as a director of
the Fund. Effective November 1, 1996 Mr. Frazier was employed by INVESCO PLC
(the predecessor to AMVESCAP PLC), a company affiliated with IFG and did not
receive any director's fees or other compensation from the Fund or other funds
in the INVESCO Complex for his services as a director after that date.
(5)Totals as a percentage of the Fund's net assets as of October 31,
1997.
(6)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1996.
Messrs. Brady, Harris and Hesser, as "interested persons" of the Fund
and the other funds in the INVESCO Complex, receive compensation as officers or
employees of INVESCO or its affiliated companies, and do not receive any
director's fees or other compensation from the Fund or the other funds in the
INVESCO Complex for their service as directors.
The boards of directors/trustees of the mutual funds managed by IFG and
INVESCO Treasurer's Series Trust have adopted a Defined Benefit Deferred
Compensation Plan for the non-interested directors and trustees of the funds.
Under this plan, each director or trustee who is not an interested person of the
funds (as defined in the 1940 Act) and who has served for at least five years (a
"qualified director") is entitled to receive, upon retiring from the boards at
the mandatory retirement age of 72 (or the retirement age of 73 to 74, if the
retirement date is extended by the boards for one or two years but less than
three years), continuation of payments for one year (the "first year retirement
benefit") of the annual basic retainer payable by the funds to the qualified
director at the time of his or her retirement (the "basic retainer"). Commencing
with any such director's second year of retirement, and commencing with the
first year of retirement of a director whose retirement has been extended by the
board for three years, a qualified director shall receive quarterly payments at
an annual rate equal to 40% of the basic retainer. These payments will continue
for the remainder of the qualified director's life or ten years, whichever is
longer (the "reduced retainer payments"). If a qualified director dies or
becomes disabled after age 72 and before age 74 while still a director of the
funds, the first year retirement benefit and the reduced retainer payments will
be made to him or her or to his or her beneficiary or estate. If a qualified
<PAGE>
director becomes disabled or dies either prior to age 72 or during his 74th year
while still a director of the funds, the director will not be entitled to
receive the first year retirement benefit; however, the reduced retainer
payments will be made to his or her beneficiary or estate. The plan is
administered by a committee of three directors who are also participants in the
plan and one director who is not a plan participant. The cost of the plan will
be allocated among the INVESCO and Treasurer's Series Trust funds in a manner
determined to be fair and equitable by the committee. The Fund is not making any
payments to directors under the plan as of the date of this Statement of
Additional Information. The Fund has no stock options or other pension or
retirement plans for management or other personnel and pays no salary or
compensation to any of its officers.
The Fund has an audit committee that is comprised of five of the
directors who are not interested persons of the Fund. The committee meets
periodically with the Fund's independent accountants and officers to review
accounting principles used by the Fund, the adequacy of internal controls, the
responsibilities and fees of the independent accountants, and other matters.
The Fund also has a management liaison committee which meets quarterly
with various management personnel of IFG in order (a) to facilitate better
understanding of management and operations of the Fund, and (b) to review legal
and operational matters which have been assigned to the committee by the board
of directors, in furtherance of the board of directors' overall duty of
supervision.
HOW SHARES CAN BE PURCHASED
The shares of each Portfolio are sold on a continuous basis at the net
asset value per share of the Portfolio next calculated after receipt of a
purchase order in good form. The net asset value per share for each Portfolio is
computed separately for each Portfolio and is determined once each day that the
New York Stock Exchange is open as of the close of regular trading on that
Exchange, but may also be computed at other times. See "How Shares Are Valued."
IDI acts as the Fund's Distributor under a distribution agreement with the Fund
under which it receives no compensation and bears all expenses, including the
costs of printing and distribution of prospectuses incident to direct sales and
distribution of Fund shares on a no-load basis.
Each of the Portfolios has adopted a Plan and Agreement of Distribution
(the "Plan") pursuant to Rule 12b-1 under the 1940 Act, which was implemented on
November 1, 1997. The Plan was approved on May 16, 1997, at a meeting called for
such purpose by a majority of the directors of the Fund, including a majority of
the directors who neither are "interested persons" of the Fund nor have any
financial interest in the operation of the Plan ("12b-1 directors"). The Plan
was approved by the shareholders of the Portfolios, except the Environmental
Services Portfolio, on October 28, 1997. The Plan was approved by the
<PAGE>
shareholders of the Environmental Services Portfolio on November 25, 1997. The
following disclosures regarding the Plan relate to all of the Portfolios.
The Plan provides that the Portfolios may make monthly payments to IDI
of amounts computed at an annual rate no greater than 0.25% of each Portfolio's
new sales of shares, exchanges into the Portfolio and reinvestments of dividends
and capital gain distributions made after November 1, 1997 (December 1, 1997 for
the Environmental Services Portfolio), to compensate IDI for expenses incurred
by it in connection with the distribution of their shares to investors. Payments
by a Portfolio under the Plan, for any month, may only be made to compensate or
pay expenditures incurred during the rolling 12-month period in which that month
falls. As noted in the Prospectus, one type of expenditure permitted by the Plan
is the payment of compensation to securities companies, and other financial
institutions and organizations, which may include IDI-affiliated companies, in
order to obtain various distribution-related and/or administrative services for
the Portfolios. Each Portfolio is authorized by the Plan to use its assets to
finance the payments made to obtain those services. Payments will be made by IDI
to broker-dealers who sell shares of a Portfolio and may be made to banks,
savings and loan associations and other depository institutions. Although the
Glass-Steagall Act limits the ability of certain banks to act as underwriters of
mutual fund shares, the Portfolios do not believe that these limitations would
affect the ability of such banks to enter into arrangements with IDI, but can
give no assurance in this regard. However, to the extent it is determined
otherwise in the future, arrangements with banks might have to be modified or
terminated, and, in that case, the size of one or more of the Portfolios
possibly could decrease to the extent that the banks would no longer invest
customer assets in a particular Portfolio. Neither the Fund nor its investment
adviser will give any preference to banks or other depository institutions which
enter into such arrangements when selecting investments to be made by each
Portfolio.
The Plan was not implemented until November 1, 1997 (December 1, 1997
for the Environmental Services Portfolio). Therefore, for the fiscal year ended
October 31, 1997, no 12b-1 amounts were paid by the Portfolios.
The nature and scope of services which are provided by securities
dealers and other organizations may vary by dealer but include, among other
things, processing new stockholder account applications, preparing and
transmitting to the Fund's Transfer Agent computer-processable tapes of each
Portfolio's transactions by customers, serving as the primary source of
information to customers in answering questions concerning each Portfolio, and
assisting in other customer transactions with each Portfolio.
The Plan provides that it shall continue in effect with respect to each
Portfolio for so long as such continuance is approved at least annually by the
<PAGE>
vote of the board of directors cast in person at a meeting called for the
purpose of voting on such continuance. The Plan can also be terminated at any
time with respect to any Portfolio, without penalty, if a majority of the 12b-1
directors, or shareholders of such Portfolio, vote to terminate the Plan. The
Fund may, in its absolute discretion, suspend, discontinue or limit the offering
of its shares of any Portfolio at any time. In determining whether any such
action should be taken, the board of directors intends to consider all relevant
factors including, without limitation, the size of a particular Portfolio, the
investment climate for any particular Portfolio, general market conditions, and
the volume of sales and redemptions of a Portfolio's shares. The Plan may
continue in effect and payments may be made under the Plan following any such
temporary suspension or limitation of the offering of a Portfolio's shares;
however, none of the Portfolios are contractually obligated to continue the Plan
for any particular period of time. Suspension of the offering of a Portfolios
shares would not, of course, affect a shareholder's ability to redeem his
shares. So long as the Plan is in effect, the selection and nomination of
persons to serve as independent directors of the Fund shall be committed to the
independent directors then in office at the time of such selection or
nomination. The Plan may not be amended to increase materially the amount of any
Portfolio's payments thereunder without approval of the shareholders of that
Portfolio, and all material amendments to the Plan must be approved by the board
of directors, including a majority of the 12b-1 directors. Under the agreement
implementing the Plan, IDI or any Portfolio, the latter by vote of a majority of
the 12b-1 directors, or of the holders of a majority of a Portfolio's
outstanding voting securities, may terminate such agreement as to that Portfolio
without penalty upon 30 days' written notice to the other party. No further
payments will be made by a Portfolio under the Plan in the event of its
termination as to that Portfolio.
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it shall remain in effect as such, so
as to authorize the use of each Portfolio's assets in the amounts and for the
purposes set forth therein, notwithstanding the occurrence of an assignment, as
defined by the 1940 Act, and rules thereunder. To the extent it constitutes an
agreement pursuant to the Plan, each Portfolio's obligation to make payments to
IDI shall terminate automatically, in the event of such assignment, in which
case the Portfolio may continue to make payments pursuant to the Plan to IDI or
another organization only upon the approval of new arrangements, which may or
may not be with IDI, regarding the use of the amounts authorized to be paid by
it under the Plan, by the directors, including a majority of the 12b-1
directors, by a vote cast in person at a meeting called for such purpose.
Information regarding the services rendered under the Plan and the
amounts paid therefor by the Portfolios are provided to, and reviewed by, the
<PAGE>
directors on a quarterly basis. On an annual basis, the directors consider the
continued appropriateness of the Plan and the level of compensation provided
therein.
The only members of the board of directors or officers of the Fund who
are interested persons, as that term is defined in Section 2(a)(19) of the 1940
Act, of the Fund and who have a direct or indirect financial interest in the
operation of the Plan are the officers and directors of the Fund listed herein
under the section entitled "The Fund And Its Management -- Officers and
Directors of the Fund" who are also officers either of IDI or companies
affiliated with IDI. The benefits which the Portfolios believe will be
reasonably likely to flow to them and to their respective shareholders under the
Plan include the following:
(1) Enhanced marketing efforts, if successful, should result in an
increase in net assets through the sale of additional shares
and afford greater resources with which to pursue the
investment objectives of the Portfolios;
(2) The sale of additional shares reduces the likelihood that
redemption of shares will require the liquidation of
securities of the Portfolios in amounts and at times that are
disadvantageous for investment purposes;
(3) The positive effect which increased Portfolio assets will have
on IFG's revenues could allow IFG and its affiliated
companies:
(a) To have greater resources to make the financial
commitments necessary to improve the quality and
level of each Portfolio's shareholder services (in
both systems and personnel),
(b) To increase the number and type of mutual funds
available to investors from IFG and its affiliated
companies (and support them in their infancy), and
thereby expand the investment choices available to
all shareholders, and
(c) To acquire and retain talented employees who desire
to be associated with a growing organization; and
(4) Increased Portfolio assets may result in reducing each
investor's share of certain expenses through economies of
scale (e.g. exceeding established breakpoints in the advisory
fee schedule and allocating fixed expenses over a larger asset
base), thereby partially offsetting the costs of the Plan.
HOW SHARES ARE VALUED
As described in the section of each Portfolio's Prospectus entitled
"Fund Price And Performance," the net asset value of shares of each Portfolio of
<PAGE>
the Fund is computed once each day that the New York Stock Exchange is open as
of the close of regular trading on that Exchange (generally 4:00 p.m., New York
time) and applies to purchase and redemption orders received prior to that time.
Net asset value per share is also computed on any other day on which there is a
sufficient degree of trading in the securities held by a Portfolio that the
current net asset value per share might be materially affected by changes in the
value of the securities held, but only if on such day the Fund receives a
request to purchase or redeem shares of that Portfolio. Net asset value per
share is not calculated on days the New York Stock Exchange is closed, such as
federal holidays including New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. The net asset value per share of each Portfolio is
calculated by dividing the value of all securities held by that Portfolio and
its other assets (including dividends and interest accrued but not collected),
less the Portfolio's liabilities (including accrued expenses) by the number of
outstanding shares of that Portfolio.
Securities traded on national securities exchanges, the NASDAQ National
Market System, the NASDAQ Small Cap Market and foreign markets are valued at
their last sale prices on the exchanges or markets where such securities are
primarily traded. Securities traded in the over-the-counter market for which
last sales prices are not available, and listed securities for which no sales
are reported on a particular date, are valued at their highest closing bid
prices (or, for debt securities, yield equivalents thereof) obtained from one or
more dealers making markets for such securities. If market quotations are not
readily available, securities will be valued at their fair values as determined
in good faith by the Fund's board of directors or pursuant to procedures adopted
by authority of the board of directors. The above procedures may include the use
of valuations furnished by a pricing service which employs a matrix to determine
valuations for normal institutional-size trading units of debt securities. Prior
to utilizing a pricing service, the Fund's board of directors reviews the
methods used by such service to assure itself that securities will be valued at
their fair values. The Fund's board of directors also periodically monitors the
methods used by such pricing services. Debt securities with remaining maturities
of 60 days or less at the time of purchase are normally valued at amortized
cost.
The values of securities held by the Portfolios and other assets used
in computing net asset value generally are determined as of the time regular
trading in such securities or assets is completed each day. Because regular
trading in most foreign securities markets is completed simultaneously with, or
prior to, the close of regular trading on the New York Stock Exchange, closing
prices for foreign securities usually are available for purposes of computing
the Portfolios' net asset value. However, in the event that the closing price of
a foreign security is not available in time to calculate a Portfolio's net asset
<PAGE>
value on a particular day, the Fund's board of directors has authorized the use
of the market price for the security obtained from an approved pricing service
at an established time during the day which may be prior to the close of regular
trading in the security. The value of all assets and liabilities expressed in
foreign currencies will be converted into U.S. dollars at the spot rate of such
currencies against U.S. dollars provided by an approved pricing service.
FUND PERFORMANCE
As discussed in the section of each Portfolio's Prospectus entitled
"Fund Price And Performance," the Fund advertises the total return performance
of the Portfolios, as well as the yield of the Utilities Portfolio. Average
annual total return performance for each Portfolio for the indicated periods
ended October 31, 1997, was as follows:
10 Years/
Life of
Portfolio 1 Year 5 Years Portfolio
- --------- ------ ------- ---------
Energy 40.65% 18.87% 11.01%
Environmental Services 19.13% 10.41% 6.59%(1)
Financial Services 39.80% 24.88% 24.41%
Gold (44.38%) 2.26% (2.10%)
Health Sciences 22.96% 15.49% 22.83%
Leisure 22.32% 17.46% 19.72%
Technology 20.71% 23.65% 23.92%
Utilities 14.37% 12.88% 12.41%
- -----------------
(1) The Environmental Services Portfolio did not commence operations
until January 2, 1991. The total return of Environmental Services for the
82-month period from January 2, 1991 (date of inception) through October 31,
1997 was 6.59%.
Average annual total return performance for each of the periods
indicated was computed by finding the average annual compounded rates of return
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1 + T) exponent n = ERV
where: P = initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown above were
determined by solving the above formula for "T" for each time period and
Portfolio indicated.
<PAGE>
The yield of the Utilities Portfolio for the month ended October 31,
1997, was 2.48%. This yield was computed by dividing the net investment income
per share earned during the period as calculated according to a prescribed
formula by the net asset value per share on October 31, 1997. Because dividends
received on the common stocks held by the Utilities Portfolio are generally paid
near the end of calendar quarters and are accounted for on ex-dividend dates,
such dividend income is recognized, for purposes of yield calculations, on an
annualized basis.
In conjunction with performance reports and/or analyses for the
Portfolios, comparative data between a Portfolio's performance for a given
period and recognized indices of investment results for the same period, and/or
assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company,
Standard & Poor's, Lipper Analytical Services, Inc., Lehman Brothers, National
Association of Securities Dealers Automated Quotations, Frank Russell Company,
Value Line Investment Survey, the American Stock Exchange, Morgan Stanley
Capital International, Wilshire Associates, the Financial Times Stock Exchange,
the New York Stock Exchange, the Nikkei Stock Average and Deutcher Aktienindex,
all of which are unmanaged market indicators. In addition, rankings, ratings and
comparisons of investment performance and/or assessments of the quality of
shareholder service made by independent sources may be used in advertisements,
sales literature or shareholder reports, including reprints of, or selections
from, editorials or articles about the Funds. These sources utilize information
compiled (i) internally; (ii) by Lipper Analytical Services, Inc.; or (iii) by
other recognized analytical services. The Lipper Analytical Services, Inc.
mutual fund rankings and comparisons which may be used by the Portfolios in
performance reports will be drawn from the mutual fund groupings listed in each
Portfolio's prospectus, in addition to the broad-based Lipper general fund
groupings. Sources for Portfolio performance information and articles about the
Portfolios include, but are not limited to, the following:
<PAGE>
American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
CNBC
CNN
Consumer Digest
Financial Times
Financial World
Forbes
Fortune
Ibbotson Associates, Inc.
Institutional Investor
Investment Company Data, Inc.
Investor's Business Daily
Kiplinger's Personal Finance
Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis
Money
Morningstar
Mutual Fund Forecaster
No-Load Analyst
No-Load Fund X
Personal Investor
Smart Money
The New York Times
The No-Load Fund Investor
U.S. News and World Report
United Mutual Fund Selector
USA Today
Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
SERVICES PROVIDED BY THE FUND
Periodic Withdrawal Plan. As described in the section of each
Portfolio's Prospectus entitled "How To Sell Shares," the Fund offers a Periodic
Withdrawal Plan. All dividends and distributions on shares owned by shareholders
participating in this Plan are reinvested in additional shares. Because
withdrawal payments represent the proceeds from sales of shares, the amount of
shareholders' investments in the Fund will be reduced to the extent that
withdrawal payments exceed dividends and other distributions paid and
reinvested. Any gain or loss on such redemptions must be reported for tax
purposes. In each case, shares will be redeemed at the close of business on or
about the 20th day of each month preceding payment and payments will be mailed
within five business days thereafter.
<PAGE>
The Periodic Withdrawal Plan involves the use of principal and is not a
guaranteed annuity. Payments under such a Plan do not represent income or a
return on investment.
Participation in the Periodic Withdrawal Plan may be terminated at any
time by sending a written request to IFG. Upon termination, all future dividends
and capital gain distributions will be reinvested in additional shares unless a
shareholder requests otherwise.
Exchange Policy. As discussed in the section of each Portfolio's
Prospectus entitled "How To Buy Shares -- Exchange Policy," the Fund offers
shareholders the ability to exchange shares of any Portfolio of the Fund for
shares of any other Portfolio and of exchanging shares of the Fund for shares of
certain other no-load mutual funds advised by IFG. Exchange requests may be made
either by telephone or by written request to IFG, using the telephone number or
address on the cover of this Statement of Additional Information. Exchanges made
by telephone must be in an amount of at least $250 if the exchange is being made
into an existing account of one of the INVESCO funds. All exchanges that
establish a new account must meet the fund's applicable minimum initial
investment requirements. Written exchange requests into an existing account have
no minimum requirements other than the fund's applicable minimum subsequent
investment requirements. Any gain or loss realized on such an exchange is
recognized for federal income tax purposes. This privilege is not an option or
right to purchase securities but is a revocable privilege permitted under the
present policies of each of the funds and is not available in any state or other
jurisdiction where the shares of the mutual fund into which transfer is to be
made are not qualified for sale or when the net asset value of the shares
presented for exchange is less than the minimum dollar purchase required by the
appropriate prospectus.
TAX-DEFERRED RETIREMENT PLANS
As described in the section of the Portfolios' Prospectus entitled
"Fund Services," shares of the Portfolios may be purchased as the investment
medium for various tax-deferred retirement plans. Persons who request
information regarding these plans from IFG will be provided with prototype
documents and other supporting information regarding the type of plan requested.
Each of these plans involves a long-term commitment of assets and is subject to
possible regulatory penalties for excess contributions, premature distributions
or for insufficient distributions after age 70-1/2. The legal and tax
implications may vary according to the circumstances of the individual investor.
Therefore, the investor is urged to consult with an attorney or tax adviser
prior to the establishment of such a plan.
<PAGE>
HOW TO REDEEM SHARES
Normally, payments for shares redeemed will be mailed within seven (7)
days following receipt of the required documents as described in the section of
each Portfolio's Prospectus entitled "How To Sell Shares." The right of
redemption may be suspended and payment postponed when: (a) the New York Stock
Exchange is closed for other than customary weekends and holidays; (b) trading
on that exchange is restricted; (c) an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable, or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets; or (d) the Securities and Exchange Commission (the "SEC") by
order so permits.
It is possible that in the future conditions may exist which would, in
the opinion of the Fund's investment adviser, make it undesirable for a
Portfolio to pay for redeemed shares in cash. In such cases, the investment
adviser may authorize payment to be made in portfolio securities or other
property of the Fund. However, the Fund is obligated under the 1940 Act to
redeem for cash all shares of a Portfolio presented for redemption by any one
shareholder having a value up to $250,000 (or 1% of the Portfolio's net assets
if that is less) in any 90-day period. Securities delivered in payment of
redemptions are selected entirely by the investment adviser based on what is in
the best interests of the Portfolio and its shareholders, and are valued at the
value assigned to them in computing the Portfolio's net asset value per share.
Shareholders receiving such securities are likely to incur brokerage costs on
their subsequent sales of the securities.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
The Fund intends to continue to conduct its business and satisfy the
applicable diversification of assets and source of income requirements to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The Fund so qualified in the
fiscal year ended October 31, 1997, and intends to continue to qualify during
its current taxable year. As a result, it is anticipated that the Fund will pay
no federal income or excise taxes and will be accorded conduit or "pass through"
treatment for federal income tax purposes.
Dividends paid by the Fund from net investment income as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
the Fund sends shareholders information regarding the amount and character of
dividends paid in the year.
Distributions by the Fund of net capital gains (the excess of net
long-term capital gain over net short-term capital loss) are, for federal income
tax purposes, taxable to the shareholder as long-term capital gains regardless
<PAGE>
of how long a shareholder has held shares of the Fund. The Taxpayer Relief Act
of 1997 (the "Tax Act"), enacted in August 1997, changed the taxation of
long-term capital gains for individuals by applying different capital gains
rates depending on the taxpayer's holding period and marginal rate of federal
income tax. Long-term gains realized on the sale of securities held for more
than one year but not for more than 18 months are taxable at a rate of 28%. This
category of long-term gains is often referred to as "mid-term" gains but is
technically termed "28% rate gains." Long-term gains realized on the sale of
securities held for more than 18 months are taxable at a rate of 20%. At the end
of each year, information regarding the tax status of dividends and other
distributions is provided to shareholders. Shareholders should consult their tax
advisers as to the effect of the Tax Act on distributions by the Fund of net
capital gains.
All dividends and other distributions are regarded as taxable to the
investor, whether or not such dividends and distributions are reinvested in
additional shares of the Fund or another fund in the INVESCO group. The net
asset value of Fund shares reflects accrued net investment income and
undistributed realized capital and foreign currency gains; therefore, when a
distribution is made, the net asset value is reduced by the amount of the
distribution. If the net asset value of Fund shares were reduced below a
shareholder's cost as a result of a distribution, such distribution would be
taxable to the shareholder although a portion would be, in effect, a return of
invested capital. If shares are purchased shortly before a distribution, the
full price for the shares will be paid and some portion of the price may then be
returned to the shareholder as a taxable dividend or capital gain. However, the
net asset value per share will be reduced by the amount of the distribution,
which would reduce any gain (or increase any loss) for tax purposes on any
subsequent redemption of shares.
IFG may provide Fund shareholders with information concerning the
average cost basis of their shares in order to help them prepare their tax
returns. This information is intended as a convenience to shareholders and will
not be reported to the Internal Revenue Service (the "IRS"). The IRS permits the
use of several methods to determine the cost basis of mutual fund shares. The
cost basis information provided by IFG will be computed using the
single-category average cost method, although neither IFG nor the Fund
recommends any particular method of determining cost basis. Other methods may
result in different tax consequences. If a shareholder has reported gains or
losses for a Portfolio in past years, the shareholder must continue to use the
method previously used, unless the shareholder applies to the IRS for permission
to change the method.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gains distributions received on those shares.
<PAGE>
Each Portfolio will be subject to a non-deductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and net capital gains for the one-year
period ending on October 31 of that year, plus certain other amounts.
Dividends and interest received by each Portfolio may be subject to
income, withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on its securities. Tax conventions
between certain countries and the United States may reduce or eliminate these
foreign taxes, however, and many foreign countries do not impose taxes on
capital gains in respect of investments by foreign investors. Foreign taxes
withheld will be treated as an expense of the Portfolio. If more than 50% of the
value of a Portfolio's total assets at the close of any taxable year consists of
securities of foreign corporations, the Fund will be eligible to, and may, file
an election with the IRS that will enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions income taxes paid by it. Each Portfolio will report to its
shareholders shortly after each taxable year their respective shares of the
Portfolio's income from sources within, and taxes paid to, foreign countries and
U.S. possessions if it makes this election.
The Portfolios may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation (other than a controlled
foreign corporation) that, in general, meets either of the following tests: (1)
at least 75% of its gross income is passive, or (2) an average of at least 50%
of its assets produce, or are held for the production of, passive income. Under
certain circumstances, a Portfolio will be subject to federal income tax on a
portion of any "excess distribution" received on the stock of a PFIC or of any
gain on disposition of the stock (collectively "PFIC income"), plus interest
thereon, even if the Portfolio distributes the PFIC income as a taxable dividend
to its shareholders. The balance of the PFIC income will be included in the
Portfolio's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders.
Each Portfolio may elect to "mark-to-market" its stock in any PFIC.
Marking-to-market, in this context, means including in ordinary income for each
taxable year the excess, if any, of the fair market value of the PFIC stock over
a Portfolio's adjusted tax basis therein as of the end of that year. Once the
election has been made, a Portfolio also will be allowed to deduct from ordinary
income the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the end of the year, but only to the extent of any
net mark-to-market gains with respect to that PFIC stock included by a Portfolio
for prior taxable years. A Portfolio's adjusted tax basis in each ^ PFICs stock
with respect to which it makes this election will be adjusted to reflect the
amounts of income included and deductions taken under the election.
<PAGE>
Gains or losses (1) from the disposition of foreign currencies, (2)
from the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Portfolio accrues interest, dividends or other receivables or accrues expenses
or other liabilities denominated in a foreign currency and the time the
Portfolio actually collects the receivables or pays the liabilities, generally
will be treated as ordinary income or loss. These gains or losses may increase
or decrease the amount of the Portfolio's investment company taxable income to
be distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and capital gain
distributions will generally be subject to applicable state and local taxes.
Qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended, for income tax purposes does not entail government
supervision of management or investment policies.
INVESTMENT PRACTICES
Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover for any of the Fund's Portfolios. Brokerage costs to the Fund are
commensurate with the rate of portfolio activity. Portfolio turnover rates for
the fiscal years ended October 31, 1997, 1996 and 1995, were as follows:
Portfolio 1997 1996 1995
--------- ---- ---- ----
Energy 249% 392% 300%
Environmental Services 187 142 195
Financial Services 96 141 171
Gold 148 155 72
Health Sciences 143 90 107
Leisure 25 56 119
Technology 237 168 191
Utilities 55 141 185
In computing the portfolio turnover rate, all investments with
maturities or expiration dates at the time of acquisition of one year or less
are excluded. Subject to this exclusion, the turnover rate is calculated by
dividing (A) the lesser of purchases or sales of portfolio securities for the
fiscal year by (B) the monthly average of the value of portfolio securities
owned by the Portfolio during the fiscal year.
Placement of Portfolio Brokerage. ^ IFG, as the Fund's investment
adviser, ^ places orders for the purchase and sale of securities with brokers
and dealers based upon IFG's ^ evaluation of the brokers' and dealers' financial
responsibility, subject to such brokers' and dealers' ability to effect
<PAGE>
transactions at the best available prices. ^ IFG evaluates the overall
reasonableness of brokerage commissions or underwriting discounts (the
difference between the full acquisition price to acquire a new offering and the
discount offered to members of the underwriting syndicate) paid by reviewing the
quality of executions obtained on portfolio transactions of each applicable
Portfolio, viewed in terms of the size of transactions, prevailing market
conditions in the security purchased or sold, and general economic and market
conditions. In seeking to ensure that any commissions or discounts charged the
Portfolios are consistent with prevailing and reasonable commissions, IFG ^ also
^ endeavors to monitor brokerage industry practices with regard to the
commissions charged by broker-dealers on transactions effected for other
comparable institutional investors. While IFG ^ seeks reasonably competitive
rates, the Portfolios do not necessarily pay the lowest commission, spread or
discount available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, IFG ^ may select brokers that provide research services
to effect such transactions. Research services consist of statistical and
analytical reports relating to issuers, industries, securities and economic
factors and trends, which may be of assistance or value to IFG ^ in making
informed investment decisions. Research services prepared and furnished by
brokers through which the Portfolios effect securities transactions may be used
by IFG ^ in servicing all of their respective accounts and not all such services
may be used by IFG ^ in connection with the Fund's Portfolios.
In recognition of the value of the above-described brokerage and
research services provided by certain brokers, IFG ^, consistent with the
standard of seeking to obtain the best execution on portfolio transactions, may
place orders with such brokers for the execution of transactions for the Fund's
Portfolios on which the commissions are in excess of those which other brokers
might have charged for effecting the same transactions.
Portfolio transactions may be effected through qualified broker-dealers
who recommend the Portfolios to their clients or who act as agent in the
purchase of any of the Portfolios' shares for their clients. When a number of
brokers and dealers can provide comparable best price and execution on a
particular transaction, the Fund's adviser may consider the sale of Portfolio
shares by a broker or dealer in selecting among qualified broker-dealers.
Certain financial institutions (including brokers who may sell shares
of the Fund, or affiliates of such brokers) are paid a fee (the "Services Fee")
for recordkeeping, shareholder communications and other services provided by the
financial institution or such affiliates to investors purchasing shares of the
Portfolios through no transaction fee programs ("NTF Programs") offered by the
financial institution or its affiliated broker (an "NTF Program Sponsor"). The
Services Fee is based on the average daily value of the investments in each
<PAGE>
Portfolio made in the name of such NTF Program Sponsor and held in omnibus
accounts maintained on behalf of investors participating in the NTF Program. The
Fund's directors have authorized each Portfolio to pay transfer agency fees to
IFG based on the number of investors who have beneficial interests in the NTF
Program Sponsor's omnibus accounts in the Fund. IFG, in turn, pays these
transfer agency fees to the NTF Program Sponsor as a sub-transfer agency or
recordkeeping fee in payment of all or a portion of the Services Fee. In the
event that the sub-transfer agency or recordkeeping fee is insufficient to pay
all of the Services Fee with respect to these NTF Programs, IFG itself pays the
portion of the Fund's Services Fee, if any, that exceeds the sum of the
sub-transfer agency or recordkeeping fee. The Fund's directors have further
authorized IFG to place a portion of the Fund's brokerage transactions with
certain NTF Program Sponsors or their affiliated brokers, if IFG reasonably
believes that, in effecting the Fund's transactions in portfolio securities, the
broker is able to provide the best execution of orders at the most favorable
prices. A portion of the commissions earned by such a broker from executing
portfolio transactions on behalf of the Fund may be credited by the NTF Program
Sponsor against its Services Fee. Such credit shall be applied against any
sub-transfer agency or recordkeeping fee payable with respect to the Fund on a
basis which has resulted from negotiations between IFG or IDI and the NTF
Program Sponsor. Thus, the Fund pays sub-transfer agency or recordkeeping fees
to the NTF Program Sponsor in payment of the Services Fee only to the extent
that such fees are not offset by the Fund's credits. In the event that the
transfer agency fee paid by the Fund to IFG with respect to investors who have
beneficial interests in a particular NTF Program Sponsor's omnibus accounts in
the Fund exceeds the Services Fee applicable to the Fund, after application of
credits, IFG may carry forward the excess and apply it to future Services Fees
payable to that NTF Program Sponsor with respect to the Fund. The amount of
excess transfer agency fees carried forward will be reviewed for possible
adjustment by IFG prior to each fiscal year-end of the Fund.
The aggregate dollar amounts of brokerage commissions paid by the Fund
for the fiscal years ended October 31, 1997, 1996 and 1995 were $19,588,903,
$17,056,949 and $14,162,585, respectively. On a Portfolio basis, the aggregate
amount of brokerage commissions paid in fiscal 1997 breaks down as follows:
Energy, $2,930,676; Environmental Services, $389,416; Financial Services,
$2,984,942; Gold, $2,041,911; Health Sciences, $3,867,011; Leisure, $678,011;
Technology, $6,214,757; and Utilities, $481,479. For the year ended October 31,
1997, brokers providing research services received $7,484,369 in commissions on
portfolio transactions effected for the Fund. On a Portfolio basis, this breaks
down as follows: Energy, $1,056,892; Environmental Services, $81,883; Financial
Services, $972,552; Gold, $1,180,686; Health Sciences, $1,843,742; Leisure,
$122,417; Technology, $2,088,347 and Utilities, $137,850. The aggregate dollar
amount of such portfolio transactions was $4,404,563,694. On a Portfolio basis
this figure breaks down as follows: Energy, $553,816,858; Environmental
Services, $32,277,206; Gold, $332,821,821; Health Sciences, $1,237,093,851;
<PAGE>
Financial Services, $789,895,358; Leisure, $48,748,634; Technology,
$1,342,507,339; and Utilities $67,402,627. The Fund paid $2,344,896 in
compensation to brokers for the sale of shares of the Fund during the fiscal
year ended October 31, 1997. On a Portfolio basis this breaks down as follows:
Energy, $200,136; Environmental Services, $33,506; Financial Services, $465,330;
Gold, $238,380; Health Sciences, $458,920; Leisure, $147,816; Technology,
$743,112; and Utilities, $57,696.
At October 31, 1997 the Fund's Portfolios held securities of their
regular brokers or dealers, or the parent companies of such brokers and dealers,
as follows:
Value of
Securities
Portfolio Broker or Dealer at 10/31/97
- --------- ---------------- -----------
ENERGY FUND None
ENVIRONMENTAL None
SERVICES FUND
FINANCIAL SERVICES Associates Corporation of $28,460,000.00
FUND North America
State Street Boston $828,711,500.00
Corporation
Ford Motor Credit $28,463,000.00
Household Finance $30,496,000.00
Morgan Stanley Dean Witter $12,740,000.00
GOLD FUND None
HEALTH SCIENCES Household Finance $27,100,000.00
FUND
Household Finance $35,130,000.00
LEISURE FUND CIGNA $6,302,000.00
TECHNOLOGY FUND Household Finance $42,851,000.00
UTILITIES FUND Associates Corporation of $4,620,000.00
North America
Neither IFG nor INVESCO Trust receives any brokerage commissions on
portfolio transactions effected on behalf of the Fund, and there is no
affiliation between IFG, INVESCO Trust or any person affiliated with IFG,
INVESCO Trust or the Fund and any broker or dealer that executes transactions
for the Fund.
<PAGE>
ADDITIONAL INFORMATION
Common Stock. The Fund has one billion authorized shares of common
stock with a par value of $0.01 per share. Of the Fund's authorized shares,
100,000,000 shares have been allocated to each of the Fund's eight Portfolios.
As of November 30, 1997, shares outstanding for each Portfolio were as follows:
Portfolio Shares Outstanding
--------- ------------------
Energy 14,941,799
Environmental Services 1,904,144
Financial Services 38,794,048
Gold 44,994,993
Health Sciences 16,378,410
Leisure 7,868,413
Technology 30,431,538
Utilities 14,387,953
The board of directors has the authority to designate additional
classes of Common Stock without seeking the approval of shareholders and may
classify and reclassify any authorized but unissued shares.
Shares of each Portfolio represent the interests of the shareholders of
such Portfolio in a particular portfolio of investments of the Fund. Each
Portfolio of the Fund's shares is preferred over all other Portfolio in respect
of the assets specifically allocated to that Portfolio, and all income,
earnings, profits and proceeds from such assets, subject only to the rights of
creditors, are allocated to shares of that Portfolio. The assets of each
Portfolio are segregated on the books of account and are charged with the
liabilities of that Portfolio and with a share of the Fund's general
liabilities. The board of directors determines those assets and liabilities
deemed to be general assets or liabilities of the Fund, and these items are
allocated among Portfolio in proportion to the relative total assets of each
Portfolio. In the unlikely event that a liability allocable to one Portfolio
exceeds the assets belonging to the Portfolio, all or a portion of such
liability may have to be borne by the holders of shares of the Fund's other
Portfolio.
All shares, regardless of Portfolio, have equal voting rights. Voting
with respect to certain matters, such as ratification of independent accountants
or election of directors, will be by all Portfolios of the Fund. When not all
series are affected by a matter to be voted upon, such as approval of an
investment advisory contract or changes in a Portfolio's investment policies,
only shareholders of the Portfolio affected by the matter may be entitled to
vote. Fund shares have noncumulative voting rights, which means that the holders
of a majority of the shares voting for the election of directors can elect 100%
of the directors if they choose to do so. In such event, the holders of the
remaining shares voting for the election of directors will not be able to elect
any person or persons to the board of directors. After they have been elected by
<PAGE>
shareholders, the directors will continue to serve until their successors are
elected and have qualified or they are removed from office, in either case by a
shareholder vote, or until death, resignation, or retirement. Directors may
appoint their own successors, provided that always at least a majority of the
directors have been elected by the Fund's shareholders. It is the intention of
the Fund not to hold annual meetings of shareholders. The directors will call
annual or special meetings of shareholders for action by shareholder vote as may
be required by the 1940 Act or the Fund's Articles of Incorporation, or at their
discretion.
Principal Shareholders. As of December 1, 1997, the following entities
held more than 5% of the Fund's and each Portfolio's outstanding equity
securities.
Amount and Nature Class and Percent
Name and Address of Ownership of Class
- ---------------- ----------------- -----------------
Energy Portfolio
Charles Schwab & Co. Inc. 5,832,849.7560 39.45%
Special Custody Acct. For
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
National Financial 888,472.5800 6.01%
Services Corp.
The Exclusive Benefit
of Customers
One World Financial Center
200 Liberty St., 5th Floor
New York, NY 10281
<PAGE>
Donaldson Lufkin & 783,043.7120 5.30%
Jenrette Securities Corp.
Mutual Funds 5th Floor
P.O. Box 2052
Jersey City, NJ 07303
Gold Portfolio
Charles Schwab & Co. Inc. 16,524,602.3570 36.80%
Special Custody Acct. For
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
Health Sciences Portfolio
Charles Schwab & Co. Inc. 3,869,764.4860 23.62%
Special Custody Acct. For
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
Leisure Portfolio
Charles Schwab & Co. Inc. 2,083,903.9250 26.47%
Special Custody Acct. For
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
Technology Portfolio
Charles Schwab & Co. Inc. 10,108,421.2150 33.20%
Special Custody Acct. For
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
Financial Services Portfolio
Charles Schwab & Co. Inc. 12,730,098.5900 32.89%
Special Custody Acct. For
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
<PAGE>
Utilities Portfolio
Charles Schwab & Co. Inc. 4,378,963.0350 29.91%
Special Custody Acct. For
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
Environmental Services Portfolio
Charles Schwab & Co. Inc. 488,806.9490 25.74%
Special Custody Acct. For
The Exclusive Benefit
of Customers
101 Montgomery St.
San Francisco, CA 94104
Independent Accountants. Price Waterhouse LLP, 950 Seventeenth Street,
Denver, Colorado, has been selected as the independent accountants of the Fund.
The independent accountants are responsible for auditing the financial
statements of the Fund.
Custodian. State Street Bank and Trust Company, P.O. Box 351, Boston,
Massachusetts, has been designated as custodian of the cash and investment
securities of the Fund. The bank is also responsible for, among other things,
receipt and delivery of the Fund's investment securities in accordance with
procedures and conditions specified in the custody agreement. Under its contract
with the Fund, the custodian is authorized to establish separate accounts in
foreign countries and to cause foreign securities owned by the Fund to be held
outside the United States in branches of U.S. banks and, to the extent permitted
by applicable regulations, in certain foreign banks and securities depositories.
Transfer Agent. IFG, 7800 E. Union Avenue, Denver, Colorado 80237, acts
as registrar, dividend disbursing agent and transfer agent for the Fund pursuant
to the Transfer Agency Agreement described in "The Fund and Its Management."
Such services include the issuance, cancellation and transfer of shares of the
Fund, and the maintenance of records regarding the ownership of such shares.
Reports to Shareholders. The Fund's fiscal year ends on October 31. The
Fund distributes reports at least semiannually to its shareholders. Financial
statements regarding the Fund, audited by the independent accountants, are sent
to shareholders annually.
Legal Counsel. The firm of Kirkpatrick & Lockhart, LLP, Washington,
D.C. is legal counsel for the Fund. The firm of Moye, Giles, O'Keefe, Vermeire &
Gorrell, Denver, Colorado, acts as special counsel for the Fund.
<PAGE>
Financial Statements. The Fund's audited financial statements and the
notes thereto for the fiscal year ended October 31, 1997, and the report of
Price Waterhouse LLP with respect to such financial statements, are incorporated
herein by reference from the Fund's Annual Report to Shareholders for the fiscal
year ended October 31, 1997.
Prospectus. The Fund will furnish, without charge, a copy of the
Prospectus upon request. Such requests should be made to the Fund at the mailing
address or telephone number set forth on the first page of this Statement of
Additional Information.
Registration Statement. This Statement of Additional Information and
the Prospectus do not contain all of the information set forth in the
Registration Statement the Fund has filed with the Securities and Exchange
Commission. The complete Registration Statement may be obtained from the
Securities and Exchange Commission upon payment of the fee prescribed by the
rules and regulations of the Commission.
<PAGE>
APPENDIX A
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS
Options on Securities
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchase of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
segregation of an amount of cash or securities equal to the exercise price, in
the case of a put option. If the writer's obligation is not so covered, it is
subject to the risk of the full change in value of the underlying security from
the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such
as the Chicago Board of Options Exchange and the New York Stock Exchange, which
are regulated by the Securities and Exchange Commission. The Options Clearing
Corporation guarantees the performance of each party to an exchange-traded
option, by in effect taking the opposite side of each such option. A holder or
writer may engage in transactions in exchange-traded options on securities and
options on indices of securities only through a registered broker-dealer which
is a member of the exchange on which the option is traded.
An option position in an exchange-traded option may be closed out only
on an exchange which provides a secondary market for an option of the same
series. Although the Portfolio will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option at any particular time. In such event it might not be possible
<PAGE>
to effect closing transactions in a particular option with the result that the
Portfolio would have to exercise the option in order to realize any profit. This
would result in the Portfolio's incurring brokerage commissions upon the
disposition of underlying securities acquired through the exercise of a call
option or upon the purchase of underlying securities upon the exercise of a put
option. If the Portfolio as covered call option writer is unable to effect a
closing purchase transaction in a secondary market, unless the Portfolio is
required to deliver the securities pursuant to the assignment of an exercise
note, it will not be able to sell the underlying security until the option
expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume; or (vi) one or more exchange could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or particular class or series of options) in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange which had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at a particular time, render certain of the facilities of any of the
clearing corporations inadequate and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders. However, the Options Clearing Corporation, based on forecasts
provided by the U.S. exchanges, believe that its facilities are adequate to
handle the volume of reasonably anticipated options transactions, and such
exchanges have advised such clearing corporation that they believe their
facilities will also be adequate to handle reasonable anticipated volume.
In addition, options on securities may be traded over-the-counter
through financial institutions dealing in such options as well as the underlying
instruments. OTC options are purchased from or sole (written) to dealers or
financial institutions which have enters into direct agreements with a
Portfolio. With OTC options, such variables as expiration date, exercise price
and premium will be agreed upon between a Portfolio and the transacting dealer,
without the intermediation of a third party such as the OCC. If the transacting
dealer fails to make or take delivery of the securities underlying an option it
has written, in accordance with the terms of that option as written, the
Portfolio would lose the premium paid for the option as well as any anticipated
<PAGE>
benefit of the transaction. A Portfolio will engage OTC option transactions only
with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York.
Futures Contracts
A Futures Contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future, for a fixed price. By its terms, a Futures Contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that they are bilateral agreements,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, Futures Contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their term.
The purchase or sale of a Futures Contract also differs from the
purchase or sale of a security or the purchase of an option in that no purchase
price is paid or receive. Instead, an amount of cash or cash equivalent, which
varies but may be as low as 5% or less of the value of the contract, must be
deposited with the broker as "initial margin." Subsequent payments to and from
the broker, referred to as "variation margin," are made on a daily basis as the
value of the index or instrument underlying the futures Contract fluctuates,
making positions in the Futures Contract more or less valuable, a process known
as "marking to the market."
A Futures Contract may be purchased or sold only on an exchange, known
as a "contract market," designated by the Commodity Futures Trading Commission
for the trading of such contract, and only through a registered futures
commission merchant which is a member of such contract market. A commission must
be paid on each completed purchase and sale transaction. The contract market
clearing house guarantees the performance of each party to a Futures Contract,
by in effect taking the opposite side of such Contract. At any time prior to the
expiration of a Futures Contract, a trader may elect to close out its position
by taking an opposite position on the contract market on which the position was
entered into, subject to the availability of a secondary market, which will
operate to terminate the initial position. At that time, a final determination
of variation margin is made and any loss experienced by the trader is required
to be paid to the contract market clearing house while any profit due to the
trader must be delivered to it.
<PAGE>
Interest rate futures contracts currently are traded on a variety of
fixed income securities, including long-term U.S. Treasury Bonds, Treasury
Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, U.S. Treasury Bills, bank certificates of deposit
and commercial paper. In addition, interest rate futures contracts include
contracts on indices of municipal securities. Foreign currency futures contracts
currently are traded on the British pound, Canadian dollar, Japanese yen, Swiss
franc, German mark and on Eurodollar deposits.
Options on Futures Contracts
An Option on a Futures Contract provides the holder with the right to
enter into a "long" position in the underlying Futures Contract, in the case of
a call option, or a "short" position in the underlying Futures Contract, in the
case of a put option, at a fixed exercise price to a stated expiration date.
Upon exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, int he case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of Futures Contracts, such as payment
of variation margin deposits. In addition, the writer of an Option on a Futures
Contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a Futures Contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration ate. A writer therefore has no
control over whether an option will be exercised against it, nor over the time
of such exercise.
