PROSPECTUS
October 1, 1996
INVESCO EMERGING GROWTH FUND
INVESCO Emerging Growth Fund (the "Fund") seeks long-term capital growth.
Most of its investments are in equity securities of emerging growth companies
with market capitalizations of $1 billion or less at the time of initial
purchase ("small-cap companies"), but the Fund has the flexibility to invest in
other types of securities.
The Fund is a series of INVESCO Emerging Opportunity Funds, Inc., a
registered investment company which may offer additional funds in the future.
This prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated October 1, 1996, 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 Funds Group, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; or call 1-800-525-8085.
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 FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
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TABLE OF CONTENTS Page
ESSENTIAL INFORMATION................................................ 2
ANNUAL FUND EXPENSES................................................. 3
FINANCIAL HIGHLIGHTS................................................. 4
INVESTMENT OBJECTIVE AND STRATEGY.................................... 5
INVESTMENT POLICIES AND RISKS........................................ 6
THE FUND AND ITS MANAGEMENT.......................................... 8
FUND PRICE AND PERFORMANCE........................................... 9
HOW TO BUY SHARES.................................................... 9
FUND SERVICES........................................................ 12
HOW TO SELL SHARES................................................... 12
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS...................... 13
ADDITIONAL INFORMATION............................................... 14
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ESSENTIAL INFORMATION
Investment Goal And Strategy. INVESCO Emerging Growth Fund is a diversified
mutual fund that seeks long-term capital growth. It invests primarily in
small-capitalization equity securities of U.S. companies traded
"over-the-counter." There is no guarantee that the Fund will meet its objective.
See "Investment Objective And Strategy."
The Fund is Designed For: Investors seeking capital growth over the
long-term. While not intended as a complete investment program, the Fund may be
a valuable element of your investment portfolio. You also may wish to consider
the Fund as part of a Uniform Gift/Transfer To Minors Account or systematic
investing strategy. The Fund may be a suitable investment for many types of
retirement programs, including IRA, SEP-IRA, SARSEP, 401(k), Profit Sharing,
Money Purchase Pension, and 403(b) plans.
Time Horizon. Potential shareholders should consider this a long-term
investment due to the volatility of the securities held by the Fund.
Risks. The Fund uses an investment strategy, which at times may include
holdings in foreign securities and rapid portfolio turnover. The returns on
foreign investments may be influenced by currency fluctuations and other risks
of investing overseas. Rapid portfolio turnover may result in higher brokerage
commissions and the acceleration of taxable capital gains. Investors should
consider whether these policies make the Fund unsuitable for that portion of
your savings dedicated to current income or preservation of capital over the
short-term. See "Investment Objective and Strategy" and "Investment Policies and
Risks."
Organization and Management. The Fund is owned by its shareholders. It
employs INVESCO Funds Group, Inc. ("IFG"), founded in 1932, to serve as
investment adviser, administrator, distributor, and transfer agent. INVESCO
Trust Company ("INVESCO Trust"), founded in 1969, serves as sub-adviser.
INVESCO Trust senior vice president John Schroer, a chartered financial
analyst, has managed INVESCO Emerging Growth Fund since 1995. See "The
Fund And Its Management."
IFG and INVESCO Trust are part of a global firm that managed approximately
$84 billion as of December 31, 1995. The parent company, INVESCO PLC, is based
in London, with money managers located in Europe, North America and the Far
East.
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This Fund offers all of the following services at no charge:
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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, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans.
Minimum Subsequent Investment: $50 (Minimums are lower for certain
retirement plans.)
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares. The Fund is authorized to pay a Rule 12b-1 distribution fee of one
quarter of one percent each year. (See "How To Buy Shares -- Distribution
Expenses.")
Like any company, the Fund has operating expenses, such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts, and other expenses. These expenses are paid from the Fund's assets.
Lower expenses therefore benefit investors by increasing the Fund's total
return.
We calculate annual operating expenses as a percentage of the Fund's
average annual net assets. To keep expenses competitive, the Fund's manager
voluntarily reimburses the Fund for amounts in excess of 1.50% of average net
assets.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.75%
12b-1 Fees 0.25%
Other Expenses 0.48%
-----
Total Fund Operating Expenses(1) 1.48%
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(1) It shall be noted that the Fund's actual total operating expenses were
lower than the figures shown, because the Fund's custodian fees and pricing
expenses were reduced under an expense offset arrangement. 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 including and prior to the fiscal year ended May 31, 1995.
Example
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming a hypothetical 5% annual return and redemption at
the end of each time period. (Of course, actual operating expenses are paid from
the Fund's assets, and are deducted from the amount of income available for
distribution to shareholders; they are not charged directly to shareholder
accounts.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$15 $47 $81 $178
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, AND ACTUAL
ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For more
information on the Fund's expenses, see "The Fund and Its Management" and "How
to Buy Shares - Distribution Expenses."
Since the Fund pays a distribution fee, investors who own Fund shares 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.
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FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
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 appearing
in the Fund's 1996 Annual Report to Shareholders, which is incorporated by
reference into the Statement of Additional Information. Both are available
without charge by contacting IFG at the address or telephone number on the cover
of this prospectus. The Annual Report also contains more information about the
Fund's performance.
Period
Ended
Year Ended May 31 May 31
-----------------------------------------
1996 1995 1994 1993 1992^
PER SHARE DATA
Net Asset Value --
Beginning of Period $9.37 $11.40 $9.89 $7.55 $7.50
-----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.06) 0.04 (0.01) (0.04) (0.02)
Net Gains on Securities
(Both Realized and Unrealized) 5.25 0.46 1.53 2.38 0.07
-----------------------------------------
Total from Investment Operations 5.19 0.50 1.52 2.34 0.05
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LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.00 0.04 0.00 0.00 0.00
Distributions from Capital Gains 0.18 2.49 0.01 0.00 0.00
-----------------------------------------
Total Distributions 0.18 2.53 0.01 0.00 0.00
-----------------------------------------
Net Asset Value -- End of Period $14.38 $9.37 $11.40 $9.89 $7.55
=========================================
TOTAL RETURN 55.78% 4.98% 15.34% 30.95% 0.68%*
RATIOS
Net Assets -- End of Period
($000 Omitted) $370,029 $153,727 $176,510 $103,029 $25,579
Ratio of Expenses to
Average Net Assets# 1.48%@ 1.49% 1.37% 1.54% 1.93%~
Ratio of Net Investment Income
(Loss) to Average Net Assets# (0.78%) 0.41% (0.26%) (0.70%) (0.95%)~
Portfolio Turnover Rate 221% 228% 196% 153% 50%*
^ From December 27, 1991, commencement of operations, to May 31, 1992.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG for the year
ended May 31, 1995. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 1.52%, and ratio
of net investment income to average net assets would have been 0.38%.
@ Ratio is based on Total Expenses of the Fund, which is before any expense
offset arrangements.
~ Annualized
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INVESTMENT OBJECTIVE AND STRATEGY
The Fund seeks long-term capital growth. This investment objective is
fundamental and may not be changed without the approval of the Fund's
shareholders. The Fund seeks to achieve this objective through the investment of
65% or more of its assets in equity securities of companies with market
capitalizations of $1 billion or less at the time we purchase them ("small-cap
companies"). The balance of the Fund's assets may be invested in the equity
securities of companies with market capitalizations in excess of $1 billion,
debt securities and short-term investments. With respect to small-cap companies,
we are primarily looking for companies in the developing stages of their life
cycle, which are currently undervalued in the marketplace, have earnings which
may be expected to grow faster than the U.S. economy in general, and/or offer
the potential for accelerated earnings growth due to rapid growth of sales, new
products, management changes, or structural changes in the economy. There is no
assurance that the Fund's investment objective will be met.
The majority of the Fund's holdings consists of common stocks traded
"over-the-counter." The Fund also has the flexibility to invest in other U.S.
and foreign securities.
The Fund's investments in debt securities include U.S. government and
corporate debt securities. Investments in U.S. government securities may consist
of securities issued or guaranteed by the U.S. government and any agency or
instrumentality of the U.S. government. In some cases, these securities are
direct obligations of the U.S. government, such as U.S. Treasury bills, notes
and bonds. In other cases, these securities are obligations guaranteed by the
U.S. government, consisting of Government National Mortgage Association
obligations, or obligations of U.S. government authorities, agencies or
instrumentalities, consisting of the Federal National Mortgage Association,
Federal Home Loan Bank, Federal Financing Bank and Federal Farm Credit Bank,
which are supported only by the assets of the issuer. The Fund may invest in
both investment grade and lower-rated corporate debt securities. However, the
Fund will not invest more than 5% of its total assets (measured at the time of
purchase) in corporate debt securities that are rated below BBB by Standard &
Poor's Ratings Group ("Standard & Poor's") or Baa by Moody's Investors Service,
Inc. ("Moody's") or, if unrated, are judged by Fund Management to be equivalent
in quality to debt securities having such ratings. In no event will the Fund
invest in a debt security rated below CCC by Standard & Poor's or Caa by
Moody's. The risks of investing in debt securities are discussed below under
"Risk Factors." For a description of each corporate bond rating category, please
refer to Appendix A to the Statement of Additional Information.
The short-term investments of the Fund may consist of U.S. government and
agency securities, domestic bank certificates of deposit and bankers'
acceptances, and commercial paper rated A-1 by Standard and Poor's or P-1 by
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Moody's, as well as repurchase agreements with banks and registered
broker-dealers and registered government securities dealers with respect to the
foregoing securities. The Fund's assets invested in U.S. government securities
and short-term investments will be used to meet current cash requirements, such
as to satisfy requests to redeem shares of the Fund and to preserve investment
flexibility. A commercial paper rating of A-1 by Standard & Poor's or P-1 by
Moody's is the highest rating category assigned by such rating organizations and
indicates that the issuer has a very strong capacity to make timely payments of
principal and interest on its commercial paper obligations. All bank
certificates of deposit and bankers' acceptances at the time of purchase by the
Fund must be issued by domestic banks (i) which are members of the Federal
Reserve System having total assets in excess of $5 billion, (ii) which have
received at least a B ranking from Thomson Bank Watch Credit Rating Service or
International Bank Credit Analysis, and (iii) which either directly or through
parent holding companies have securities outstanding which have been rated Aaa,
Aa or P-1 by Moody's or AAA, AA or A-1 by Standard & Poor's.
The Fund's investment portfolio is actively traded. Since our strategy
highlights many short-term factors -- current information about a company,
investor interest, price movements of the company's securities and general
market and monetary conditions -- securities may be bought and sold relatively
frequently. The Fund's portfolio turnover rate may be higher than many other
mutual funds, sometimes exceeding 200%; this turnover 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 Fund's portfolio turnover rate, its brokerage
practices and certain federal income tax matters.
When we believe market or economic conditions are unfavorable, the Fund
may assume a defensive position by temporarily investing up to 100% of its
assets in high quality money market instruments, such as short-term U.S.
government obligations, commercial paper or repurchase agreements, seeking to
protect its assets until conditions stabilize.
The Fund may invest in illiquid securities, including securities that are
subject to restrictions on resale and securities that are not readily
marketable. The Fund may also invest in restricted securities that may be resold
to institutional investors, known as "Rule 144A Securities." For more
information concerning illiquid and Rule 144A Securities, see "Investment
Policies and Restrictions" in the Statement of Additional Information.
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INVESTMENT POLICIES AND RISKS
Investors generally should expect to see their price per share vary with
movements in the stock market, changes in economic conditions and other factors.
The Fund invests in many different companies in a variety of industries; this
diversification reduces the Fund's overall exposure to investment and market
risks, but cannot eliminate these risks.
Small-Cap Stocks. The small-cap companies represented in the Fund's
investment portfolio (particularly those trading "over-the-counter") may be in
the early stages of development; have limited product lines, markets or
financial resources; and/or lack management depth. These factors may lead to
more intense competitive pressures on, greater volatility in earnings of, and
relative illiquidity or erratic price movements for the securities of these
companies, compared to larger-cap companies.
Foreign Securities. Up to 25% of the Fund's total assets, measured at the
time of purchase, may be invested directly in foreign securities. Securities of
Canadian issuers and American Depository Receipts ("ADRs") are not subject to
this 25% limitation. ADRs are receipts representing shares of a foreign
corporation held by a U.S. bank that entitle the holder to all dividends and
capital gains. ADRs are denominated in U.S. dollars and trade in the U.S.
securities markets.
For U.S. investors, the returns on foreign securities are influenced not
only by the returns on the foreign investments themselves, but also by currency
fluctuations. That is, when the U.S. dollar generally rises against foreign
currencies, returns on foreign securities for a U.S. investor 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.
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There is also the possibility of expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations; political
instability; potential restrictions on the flow of international capital; and
the possibility of the Fund experiencing difficulties in pursuing legal remedies
and collecting judgments.
ADRs are subject to some of the same risks as direct investments in
foreign securities, including the risk that material information about the
issuer may not be disclosed in the United States and the risk that currency
fluctuations may adversely affect the value of the ADR.
The Fund's investments in debt securities generally are subject to both
credit risk and market risk. Credit risk relates to the ability of the issuer to
meet interest or principal payments, or both, as they come due. Market risk
relates to the fact that the market values of the debt securities generally will
be affected by changes in the level of interest rates. An increase in interest
rates will tend to reduce the market values of debt securities, whereas a
decline in interest rates will tend to increase their values. Although Fund
Management limits the Fund's investments in debt securities to securities it
believes are not highly speculative, both kinds of risk are increased by
investing in debt securities rated BBB or lower by Standard & Poor's, Baa or
lower by Moody's or, if unrated, securities determined by Fund Management to be
of equivalent quality.
In addition to these investment performance risks, it should be recognized
that certain of the Fund's investment practices involve various risks. These
include the risks of investing in foreign securities and illiquid securities and
the risks involved in purchasing or selling securities on a when-issued or
delayed delivery basis. When purchasing or selling securities on a when-issued
or delayed delivery basis, the price and yield are normally fixed on the date of
the purchase commitment. During the period between purchase and settlement, no
payment is made by the Fund and no interest accrues to the Fund. At the time of
settlement, the market value of the security may be more or less than the
purchase price, and the Fund bears the risk of such market value fluctuations.
An additional risk is that, when the Fund enters into a repurchase agreement or
makes a securities loan, the other party to the transaction may default on its
obligation to repurchase or return the security involved in such transaction.
See "Foreign Securities" and "Other Investment Practices." The Fund's practice
of obtaining appropriate collateral in these transactions provides protection
against this risk, but the Fund could suffer a loss in the event its ability to
promptly dispose of the collateral is delayed or restricted.
When-Issued Securities. Up to 10% of the value of the Fund's total assets
may be committed to the purchase or sale of securities on a when-issued or
delayed-delivery basis -- that is, with settlement taking place in the future.
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The payment obligation and the interest rate received on the securities
generally are fixed at the time the Fund enters into the commitment. Between the
date of purchase and the settlement date, the market value of the securities may
vary, and no interest is payable to the Fund prior to settlement.
Put and Call Options. The Fund may purchase and write options on
securities and indices. These practices and their risks are discussed under
"Investment Policies and Restrictions" in the Statement of Additional
Information.
Repurchase Agreements. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price. The Fund could incur costs or delays in seeking to sell
the security if the prior owner defaults on its repurchase obligation. To reduce
that risk, the securities underlying each 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.
Securities Lending. The Fund may seek to earn additional income by lending
securities to qualified brokers, dealers, banks, or other financial
institutions, on a fully collateralized basis. For further information on this
policy, see "Investment Policies and Restrictions" in the Statement of
Additional Information.
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 Fund's shareholders. For example, the Fund limits to 5% the portion of its
total assets that may be invested in any one issuer, and to 25% the portion of
its total assets that may be invested in any one industry.
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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 December 6, 1990, 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 sub-adviser.
Under an agreement with the Fund, INVESCO Funds Group, Inc. ("IFG"), 7800 E.
Union Avenue, Denver, Colorado 80237, serves as the Fund's investment manager;
it is primarily responsible for providing the Fund with various administrative
services. IFG's wholly-owned subsidiary, INVESCO Trust Company ("INVESCO
Trust"), is the Fund's sub-adviser and is primarily responsible for managing the
Fund's investments. Together, IFG and INVESCO Trust constitute "Fund
Management."
John Schroer has served as portfolio manager for the Fund since 1995 and is
primarily responsible for the day-to-day management of the Fund's holdings. His
recent career includes these highlights: Portfolio manager of the Health
Sciences Portfolio of INVESCO Strategic Portfolios, Inc.; senior vice president
(since 1996), vice president (since 1995) and portfolio manager (1993 to
present) of INVESCO Trust. Formerly (1990 to 1993), assistant vice president
with Trust Company of the West. He earned BS and MBA degrees from the University
of Wisconsin-Madison. He is a Chartered Financial Analyst.
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.
The Fund pays IFG a monthly management fee which is based upon a
percentage of the Fund's average net assets determined daily. The management fee
is computed at the annual rate of 0.75% on the first $350 million of the Fund's
average net assets; 0.65% on the next $350 million of the Fund's average net
assets; and 0.55% on the Fund's average net assets over $700 million. For the
fiscal year ended May 31, 1996, investment management fees paid by the Fund
amounted to 0.75% of the Fund's average net assets. Out of this fee, IFG paid an
amount equal to 0.25% of the Fund's average net assets to INVESCO Trust as a
sub-advisory fee. No fee is paid by the Fund to INVESCO Trust.
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 omnibus account participant for these
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services. Registered broker-dealers, third party administrators of tax-qualified
retirement plans and other entities 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 fee to the third party.
In addition, under an Administrative Services Agreement, IFG handles
additional administrative, record-keeping, and internal sub-accounting services
for the Fund. For the fiscal year ended May 31, 1996, the Fund paid IFG a fee
for these services equal to 0.015% of the Fund's average net assets.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. Total expenses of the Fund for the fiscal year
ended May 31, 1996, including investment management fees (but excluding
brokerage commissions, which are a cost of acquiring securities), amounted to
1.48% of the Fund's average net assets. If necessary, certain Fund expenses will
be absorbed voluntarily by IFG in order to ensure that the Fund's total
operating expenses will not exceed 1.50% of the Fund'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
their financial responsibility coupled with their ability to effect transactions
at the best available prices. As discussed under "How to Buy Shares -
Distribution Expenses," the Fund may market its shares through intermediary
brokers or dealers that have entered into Dealer Agreements with IFG, as the
Fund's distributor. The Fund may place orders for portfolio transactions with
qualified broker/dealers which recommend the Fund, or sell shares of the Fund,
to clients, or act as agent in the purchase of Fund shares for clients, if Fund
Management believes that the quality of the execution of the transaction and
level of commission are comparable to those available from other qualified
brokerage firms. For further information, see "Investment Practices - Placement
of Portfolio Brokerage" in the Statement of Additional Information.
The parent company for IFG and INVESCO Trust is INVESCO PLC, a publicly
traded holding company whose subsidiaries provide investment services around the
world. IFG was established in 1932 and, as of May 31, 1996, managed 14 mutual
funds, consisting of 39 separate portfolios, with combined assets of
approximately $13.3 billion on behalf of over 800,000 shareholders. INVESCO
Trust (founded in 1969) served as adviser or sub-adviser to 45 investment
portfolios as of May 31, 1996, including 27 portfolios in the INVESCO group.
These 45 portfolios had aggregate assets of approximately $12.6 billion as of
May 31, 1996. In addition, INVESCO Trust provides investment management services
to private clients, including employee benefit plans that may be invested in a
collective trust sponsored by INVESCO Trust.
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FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the Fund will vary
daily. The price per share is also known as the Net Asset Value ("NAV"). IFG
prices the Fund every day that the New York Stock Exchange is open, as of the
close of regular trading (normally, 4:00 p.m., New York time). NAV is calculated
by adding together the current market value of all of the Fund's assets,
including accrued interest and dividends; then subtracting liabilities,
including accrued expenses; and finally dividing that dollar amount by the total
number of Fund shares outstanding.
Performance Data. To keep shareholders and potential investors informed,
we will occasionally advertise the Fund's total return for periods of one-year
and since inception (December 1991), as well as the five-year period when it
becomes available. Total return figures show the rate of return on an investment
in the Fund, assuming reinvestment of all dividends and capital gain
distributions for the periods cited. Cumulative total return shows the actual
rate of return on an investment over a stated period; average annual total
return represents the average annual percentage change in the value of an
investment. Both cumulative and average annual total returns tend to "smooth
out" fluctuations in the Fund's investment results, not showing the interim
variations in performance over the periods cited. More information about the
Fund's 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 IFG
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 Fund to others in its category of Small
Company Growth Funds, as well as the broad-based Lipper general fund groupings.
These rankings allow you to compare the Fund to its peers. Other independent
financial media also produce performance- or service-related comparisons, which
you may see in our promotional materials. For more information see "Fund
Performance" in the Statement of Additional Information.
Performance figures are based on historical earnings and are not intended
to suggest future performance.
HOW TO BUY SHARES
The chart on page 11 shows several convenient ways to invest in the Fund.
Your new Fund shares will be priced at the NAV next determined after your order
is received in proper form. There is no charge to invest, exchange, or redeem
shares when you make transactions directly through IFG. However, if you invest
in the Fund through a securities broker, you may be charged a commission or
transaction fee. For all new accounts, please send a completed application form.
Please specify which Fund 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 Fund. Further, Fund Management reserves
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the right in its sole discretion to reject any order for the purchase of Fund
shares (including purchases by exchange) when, in its judgment, such rejection
is in the Fund's best interests.
Exchange Privilege. You may exchange your shares in this Fund for those in
another INVESCO fund 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 up to 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 Fund reserves the right to reject any exchange request, or to
modify or terminate exchange privileges, 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 for 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 fund into which you are exchanging are temporarily stopped).
<PAGE>
================================================================================
Method Investment Minimum Please Remember
- --------------------------------------------------------------------------------
By Check
Mail to: $1,000 for regular If your check does
INVESCO Funds account; not clear, you will
Group, Inc. $250 for an be responsible for
P.O. Box 173706 Individual any related loss
Denver, CO 80217- Retirement Account; the Fund or IFG
3706. $50 minimum for incurs. If you are
Or you may send each subsequent already a
your check by investment. shareholder in the
overnight courier INVESCO funds, the
to: 7800 E. Union Fund may seek
Ave., Denver, CO reimbursement from
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 cancelled. If a
to our street purchase is
address: cancelled 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 Fund or
bank wire (call IFG IFG incurs. If you
for instructions). are already a
shareholder in the
INVESCO funds, the Fund
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 cancelled. If a
purchase is cancelled
due to nonpayment, you
will be responsible for
any related loss the
Fund or IFG incurs. If
you are already a
shareholder in the
INVESCO funds, the Fund
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 Privilege," page
INVESCO funds. Call for written 14.
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.
================================================================================
Distribution Expenses. The Fund is authorized under a Plan and Agreement
of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Plan") to use its assets to finance certain activities relating to the
distribution of shares. These expenditures may include compensation (including
incentive compensation and/or continuing compensation based on the amount of
customer assets maintained in the Fund) to securities dealers and other
financial institutions and organizations, which may include IFG-affiliated
companies, to obtain various distribution-related and/or administrative services
for the Fund. Such services may include, among other things, processing new
shareholder account applications, preparing and transmitting to the Fund's
transfer agent computer-processable tapes of all transactions by customers, and
serving as the primary source of information to customers in answering questions
concerning the Fund and their transactions.
In addition, other reimbursable expenditures include advertising,
preparation and distribution of sales literature, printing and distribution of
prospectuses to prospective investors, public relations efforts, marketing
programs and other services and promotional activities agreed upon from time to
time by the Fund and its board of directors.
IFG is not entitled to reimbursement for overhead expenses under the Plan,
but may be reimbursed for all or a portion of the compensation paid for salaries
and other employee benefits for IFG personnel whose primary responsibilities
involve marketing shares of the INVESCO funds, including the Fund. Also, any
payments made by the Fund may not be used to finance the distribution of shares
of any other mutual fund advised by IFG. Payments made by the Fund under the
Plan for compensation of marketing personnel, as noted above, are based on an
allocation formula designed to ensure that all such payments are appropriate.
Under the Plan, the Fund's reimbursement to IFG is limited to an amount
computed at a maximum rate of 0.25% of the Fund's annual average net assets.
<PAGE>
Payments by the Fund under the Plan, for any month, may only be made to
reimburse expenditures incurred during the rolling 12-month period in which that
month falls. Therefore, any reimbursable expenses incurred by IFG in excess of
the limitation described above are not reimbursable and will be borne by IFG. In
addition, IFG may from time to time make additional payments from its revenues
to securities dealers and other financial institutions that provide
distribution-related and/or administrative services for the Fund. No further
payments will be made by the Fund under the Plan in the event of its
termination.
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 date, unless you choose to have dividends and/or capital gain
distributions automatically reinvested in another INVESCO fund or paid by check
(minimum of $10.00).
Telephone Transactions. All shareholders may exchange and redeem Fund
shares by telephone, unless they expressly decline these privileges. By signing
the new account Application, a Telephone Transaction Authorization Form, or
otherwise using these privileges, the investor has agreed that, if the Fund has
followed reasonable procedures, such as recording telephone instructions and
sending written transaction confirmations, it will not be liable for following
telephoned 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. Fund shares may be purchased for Individual
Retirement Accounts ("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.
<PAGE>
HOW TO SELL SHARES
The chart on page 13 shows several convenient ways to redeem your Fund
shares. Shares of the Fund may be redeemed at any time at their current 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 the Fund's investment
performance.
Please specify from which fund you wish to redeem shares. Shareholders
have a separate account for each fund in which they invest.
While the Fund will attempt to process telephone redemptions promptly,
there may be times -- particularly in periods of severe economic or market
disruption -- when you may experience delays in redeeming shares by phone.
<PAGE>
================================================================================
Method Minimum Redemption Please Remember
================================================================================
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; Individual
$1,000 for a wire Retirement Accounts
to bank of record. ("IRAs").
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 IFG's
discretion.
- --------------------------------------------------------------------------------
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 80217- shareholder(s). the certificates
3706. You may also Payment will be must be sent to
send your request mailed to your IFG.
by overnight address of record,
courier to 7800 E. or to a designated
Union Ave., Denver, bank.
CO 80237.
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Privilege," page
INVESCO funds. Call for written 14.
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.
<PAGE>
- --------------------------------------------------------------------------------
Periodic Withdrawal
Plan
You may call us to $100 per payment on You must have at
request the a monthly or least $10,000 total
appropriate form quarterly basis. invested with the
and more The redemption INVESCO funds, with
information at 1- check may be made at least $5,000 of
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 80217- signature guarantee
3706. from an eligible
guarantor financial
institution, such as a
commercial bank or a
recognized national or
regional securities
firm.
================================================================================
Payments of redemption proceeds will be mailed within seven days following
receipt of the redemption request in proper form. However, payment may be
postponed under unusual circumstances -- for instance, if normal trading is not
taking place on the New York Stock Exchange, or during an emergency as defined
by the Securities and Exchange Commission. If your shares were purchased by a
check which has not yet cleared, payment will be made promptly upon clearance of
the purchase check (which may take up to 15 days).
If you participate in Easivest, the Fund's 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 fall below $250 as a result of shareholder
action, the Fund reserves the right to individually 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.
<PAGE>
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders substantially all of
its net investment income, net capital gains and net gains from foreign currency
transactions, if any, in order to continue to qualify for tax treatment as a
regulated investment company. Thus, the Fund does not expect to pay any federal
income or excise taxes.
Unless shareholders are exempt from income taxes, they must include all
dividends and capital gain distributions in taxable income for federal, state,
and local income tax purposes. Dividends and other distributions are taxable
whether they are received in cash or automatically invested in shares of the
Fund or another fund in the INVESCO group.
The Fund may be subject to the withholding of foreign taxes on dividends
or interest it receives on foreign securities. Foreign taxes withheld will be
treated as an expense of the Fund unless the Fund meets the qualifications to
enable it to pass these taxes through to shareholders for use by them as a
foreign tax credit or deduction.
Shareholders may be subject to backup withholding of 31% on dividends,
capital gain distributions and redemption proceeds. Unless you are subject to
backup withholding for other reasons, you can avoid backup withholding on your
Fund account by ensuring that we have a correct, certified tax identification
number.
Dividends and Capital Gain Distributions. The Fund earns ordinary or net
investment income, in the form of dividends and interest on its investments. The
Fund's policy is to distribute substantially all of this income, less Fund
expenses, to shareholders on an annual or semiannual basis, at the discretion of
the Fund's board of directors.
In addition, the Fund realizes capital gains and losses when it sells
securities for more or less than it paid. If total gains on sales exceed total
losses (including losses carried forward from previous years), the Fund has a
net realized capital gain. Net realized capital gains, if any, are distributed
to shareholders at least annually, usually in December.
Dividends and capital gain distributions are paid to shareholders who hold
shares on the record date of the distribution regardless of how long the shares
have been held. The Fund's share price will then drop by the amount of the
distribution on the day the distribution is made. If a shareholder purchases
shares immediately prior to the distribution, the shareholder will, in effect,
have "bought" the distribution by paying full purchase price, a portion of which
is then returned in the form of a taxable distribution.
At the end of each year, information regarding the tax status of dividends
and capital gain distributions is provided to shareholders. Net realized capital
<PAGE>
gains are divided into short-term and long-term gains depending on how long the
Fund held the security which gave rise to the gains. The capital gain
distribution consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest as ordinary income and are paid to shareholders as dividends.
Shareholders also may realize capital gains or losses when they sell Fund
shares at more or less than the price originally paid.
We encourage you to consult your tax adviser with respect to these
matters. For further information see "Dividends, Capital Gain Distributions and
Taxes" in the Statement of Additional Information.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Fund have equal voting rights based on
one vote for each share owned. 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>
INVESCO EMERGING GROWTH FUND A no-load
mutual fund seeking capital growth from
small-capitalization stocks.
PROSPECTUS
October 1, 1996
To receive general information and
prospectuses on any of INVESCO's funds
or retirement plans, or to obtain
current account or price information,
or responses to other questions, call
toll-free:
1-800-525-8085
To reach PAL, your 24-hour Personal
Account Line call:
1-800-424-8085
Or write to:
INVESCO Funds Group, Inc., Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
You can find us on the World Wide Web:
http://www.invesco.com
If you're in Denver, please visit one
of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
Lobby Level
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
October 1, 1996
INVESCO EMERGING OPPORTUNITY FUNDS, INC.
Address: Mailing Address:
7800 East Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In Continental U.S., 1-800-525-8085
- --------------------------------------------------------------------------------
INVESCO EMERGING OPPORTUNITY FUNDS, Inc. (the "Company") is an open-end,
diversified management investment company ("mutual fund"). As of the date of
this Statement of Additional Information, the Company offers one portfolio of
investments, INVESCO Emerging Growth Fund (the "Fund"). Additional funds may be
offered in the future.
The Fund seeks long-term capital growth. It pursues this objective by
investing its assets principally in a diversified group of equity securities of
emerging growth companies with market capitalizations of $1 billion or less at
the time of initial purchase ("small cap companies"). In managing the Fund's
investments the Fund's investment adviser or sub-adviser seeks to identify
securities that are undervalued in the marketplace, and/or have earnings that
may be expected to grow faster than the U.S. economy in general. Under normal
circumstances, the Fund invests at least 65% of its total assets in the equity
securities of small cap companies (consisting of common and preferred stocks,
convertible debt securities, and other securities having equity features). The
balance of the Fund's assets may be invested in the equity securities of
companies with market capitalizations in excess of $1 billion, debt securities
and short-term investments. The Fund is designed for investors seeking long-term
capital appreciation with little or no current income.
<PAGE>
A Prospectus for the Fund, dated October 1, 1996, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from INVESCO Funds Group, 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 with additional
information regarding the activities and operations of the Fund, and should be
read in conjunction with the Prospectus.
Investment Adviser and Distributor: INVESCO Funds Group, Inc.
TABLE OF CONTENTS Page
INVESTMENT POLICIES AND RESTRICTIONS 32
THE FUND AND ITS MANAGEMENT 43
HOW SHARES CAN BE PURCHASED 55
HOW SHARES ARE VALUED 59
FUND PERFORMANCE 60
SERVICES PROVIDED BY THE FUND 61
TAX-DEFERRED RETIREMENT PLANS 62
HOW TO REDEEM SHARES 63
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, AND TAXES 63
INVESTMENT PRACTICES 66
ADDITIONAL INFORMATION 69
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
As discussed in the Fund's Prospectus in the section entitled "Investment
Objective and Policies," the Fund may invest in a variety of securities, and
employ a broad range of investment techniques, in seeking to achieve its
investment objective. Such securities and techniques include the following:
Types of Equity Securities
As described in the Prospectus, equity securities which may be purchased by
the Fund consist of common, preferred and convertible preferred stocks, and
securities having equity characteristics such as rights, warrants and
convertible debt securities. Common stocks and preferred stocks represent equity
ownership interests in a corporation and participate in the corporation's
earnings through dividends which may be declared by the corporation. Unlike
common stocks, preferred stocks are entitled to stated dividends payable from
the corporation's earnings, which in some cases may be "cumulative" if prior
stated dividends have not been paid. Dividends payable on preferred stock have
priority over distributions to holders of common stock, and preferred stocks
generally have preferences on the distribution of assets in the event of the
corporation's liquidation. Preferred stocks may be "participating" which means
that they may be entitled to dividends in excess of the stated dividend in
certain cases. The rights of common and preferred stocks are generally
subordinate to rights associated with a corporation's debt securities. Rights
and warrants are securities which entitle the holder to purchase the securities
of a company (generally, its common stock) at a specified price during a
specified time period. Because of this feature, the values of rights and
warrants are affected by factors similar to those which determine the prices of
common stocks and exhibit similar behavior. Rights and warrants may be purchased
directly or acquired in connection with a corporate reorganization or exchange
offer.
Convertible securities which may be purchased by the Fund include
convertible debt obligations and convertible preferred stock. A convertible
security entitles the holder to exchange it for a fixed number of shares of
common stock (or other equity security), usually at a fixed price within a
specified period of time. Until conversion, the holder receives the interest
paid on a convertible bond or the dividend preference of a preferred stock.
Convertible securities have an "investment value" which is the theoretical
value determined by the yield they provide in comparison with similar securities
without the conversion feature. Investment value changes are based upon
prevailing interest rates and other factors. They also have a "conversion value"
which is the worth in market value if the security were exchanged for the
underlying equity security. Conversion value fluctuates directly with the price
of the underlying security. If conversion value is substantially below
<PAGE>
investment value, the price of the convertible security is governed principally
by its investment value. If the conversion value is near or above investment
value, the price of the convertible security generally will rise above
investment value and may represent a premium over conversion value due to the
combination of the convertible security's right to interest (or dividend
preference) and the possibility of capital appreciation from the conversion
feature. A convertible security's price, when price is influenced primarily by
its conversion value, generally will yield less than a senior non-convertible
security of comparable investment value. Convertible securities may be purchased
at varying price levels above their investment values or conversion values.
However, there is no assurance that any premium above investment value or
conversion value will be recovered because prices change and, as a result, the
ability to achieve capital appreciation through conversion may be eliminated.
Foreign Securities
As discussed in the section of the Fund's Prospectus entitled "Investment
Objective and Policies--Foreign Securities," the Fund may invest up to 25% of
its total assets, measured at the time of purchase, in foreign securities.
Securities of Canadian issuers and securities purchased by means of sponsored
American Depository Receipts ("ADRs") are not subject to this 25% limitation.
There is generally less publicly available information, reports and ratings
about foreign companies and other foreign issuers than that which is available
about companies and issuers in the United States. Foreign issuers are also
generally subject to fewer uniform accounting and auditing and financial
reporting standards, practices, and requirements as compared to those applicable
to United States issuers.
The Fund's investment adviser normally will purchase foreign securities in
over-the-counter ("OTC") markets or on exchanges located in the countries in
which the respective principal offices of the issuers of the various securities
are located, as such markets or exchanges are generally the best available
market for foreign securities. Foreign securities markets are generally not as
developed or efficient as those in the United States. While growing in volume,
they usually have substantially less volume than the New York Stock Exchange,
and securities of some foreign issuers are less liquid and more volatile than
securities of comparable United States issuers. Fixed commissions on foreign
exchanges are generally higher than negotiated commissions on United States
exchanges, although the Fund will endeavor to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Moreover, the
<PAGE>
economies of foreign countries may differ favorably or unfavorably from the
United States' economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payment position.
The dividends and interest payable on certain of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Fund's shareholders.
Illiquid and 144A Securities
As discussed in the section of the Fund's Prospectus entitled "Investment
Objective and Policies," the Fund may invest in illiquid securities, including
restricted securities and other investments which are not readily marketable.
Restricted securities are securities which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933 (the
"1933 Act"). These limitations on resale and marketability may have the effect
of preventing the Fund from disposing of such a security at the time desired or
at a reasonable price. In addition, in order to resell a restricted security,
the Fund might have to bear the expense and incur the delays associated with
effecting registration. In purchasing restricted securities, the Fund does not
intend to engage in underwriting activities, except to the extent the Fund may
be deemed to be a statutory underwriter under the Securities Act in disposing of
such securities. Restricted securities will be purchased for investment purposes
only and not for the purpose of exercising control or management of other
companies.
The Fund also may invest in restricted securities that can be resold to
institutional investors pursuant to Rule 144A under the 1933 Act ("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. 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 the Fund, however, could adversely affect the
marketability of such security, and the Fund might be unable to dispose of such
security promptly or at reasonable prices.
<PAGE>
The board of directors has delegated to Fund Management the authority to
determine whether a liquid market exists for securities eligible for resale
pursuant to Rule 144A under the 1933 Act, or any successor to such rule, and
whether such securities are subject to the Fund's restriction against investing
more than 10% of its total assets in illiquid securities. Under guidelines
established by the board of directors, Fund Management 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).
When-Issued and Delayed Delivery Securities
As discussed in the section of the Fund's Prospectus entitled "Investment
Objective and Policies," the Fund may purchase and sell securities on a
when-issued or delayed delivery basis. When-issued or delayed delivery
transactions arise when securities (normally, equity obligations of issuers
eligible for investment by the Fund) are purchased or sold by the Fund with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield. However, the yield on a
comparable security available when delivery takes place may vary from the yield
on the security at the time that the when-issued or delayed delivery transaction
was entered into. When the Fund engages in when-issued and delayed delivery
transactions, it relies on the seller or buyer, as the case may be, to
consummate the sale. Failure to do so may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous.
When-issued and delayed delivery transactions generally may be expected to
settle within one month from the date the transactions are entered into, but in
no event later than 90 days. However, no payment or delivery is made by the Fund
until it receives delivery or payment from the other party to the transaction.
To the extent that the Fund remains substantially fully invested at the
same time that it has purchased when-issued securities, as it would normally
expect to do, there may be greater fluctuations in its net assets than if the
Fund set aside cash to satisfy its purchase commitments.
When the Fund purchases securities on a when-issued basis, it will
maintain in a segregated account cash, U.S. government securities or other
high-grade debt obligations readily convertible into cash having an aggregate
value equal to the amount of such purchase commitments, until payment is made.
If necessary, additional assets will be placed in the account daily so that the
value of the account will equal or exceed the amount of the Fund's purchase
commitments.
<PAGE>
Repurchase Agreements
As discussed in the section of the Fund's Prospectus entitled "Investment
Objective and Policies," the Fund may invest in repurchase agreements with
commercial banks, registered brokers or registered government securities
dealers. A repurchase agreement is an agreement under which the Fund acquires a
debt instrument (generally a security issued by the U.S. government or an agency
thereof, a banker's acceptance or a certificate of deposit) from a commercial
bank, broker or dealer, subject to resale to the seller at an agreed upon price
and date (normally, the next business day). 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 the
Fund and is unrelated to the interest rate on the underlying instrument. In
these transactions, the securities acquired by the Fund (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement and are held by the Fund's custodian bank until
repurchased. In addition, the Company's board of directors monitors the Fund's
repurchase agreement transactions and has established guidelines and standards
for review by the investment adviser of the creditworthiness of any bank, broker
or dealer party to a repurchase agreement with the Fund. The Fund will not enter
into repurchase agreements maturing in more than seven days if as a result more
than 10% of its total assets would be invested in such repurchase agreements and
other illiquid securities.
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within the control
of the Fund and therefore the realization by the Fund on such collateral may
automatically be stayed. Finally, it is possible that the Fund may not be able
to substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Fund's
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.
Lending of Securities
The Fund may lend its securities to qualified institutional investors who
need to borrow securities in order to complete certain transactions, such as
covering short sales, avoiding failures to deliver securities, or completing
arbitrage operations. By lending its securities, the Fund will be attempting to
generate income through the receipt of interest on the loan which, in turn, can
be invested in additional securities to pursue the Fund's investment objective.
Any gain or loss in the market price of the securities loaned that might occur
during the term of the loan would be for the account of the Fund. The Fund may
<PAGE>
lend its portfolio securities to qualified brokers, dealers, banks or other
financial institutions, so long as the terms, structure and the aggregate amount
of such loans are not inconsistent with the Investment Company Act of 1940, as
amended (the "1940 Act") or the rules and regulations or interpretations of the
Securities and Exchange Commission (the "Commission") thereunder. Loans of
securities by the Fund will be collateralized by cash, letters of credit, or
securities issued or guaranteed by the U.S. government or its agencies equal to
at least 100% of the current market value of the loaned securities, determined
on a daily basis. Cash collateral will be invested only in high quality
short-term investments offering maximum liquidity. Lending securities involves
certain risks, the most significant of which is the risk that a borrower may
fail to return a portfolio security. The Fund monitors the creditworthiness of
borrowers in order to minimize such risks. The Fund will not lend any security
if, as a result of the loan, the aggregate value of securities then on loan
would exceed 33-1/3% of the Fund's total assets (taken at market value).
At the present time, the Fund may pay reasonable negotiated finder's fees
in connection with loaned securities, so long as such fees are set forth in a
written contract and approved by the Company's board of directors. In addition,
voting rights may pass with the loaned securities, but if a material event
(e.g., proposed merger, sale of assets, or liquidation) will occur affecting an
investment on loan, the loan must be called and the securities voted.
U.S. Government Obligations
These securities consist of treasury bills, treasury notes, and treasury
bonds, which differ only in their interest rates, maturities, and dates of
issuance. Treasury bills have a maturity of one year or less. Treasury notes
generally have a maturity of one to ten years, and treasury bonds generally have
maturities of more than ten years. As discussed in the Fund's Prospectus, U.S.
government obligations also include securities issued or guaranteed by agencies
or instrumentalities of the U.S. government.
Some obligations of United States government agencies, which are
established under the authority of an act of Congress, such as Government
National Mortgage Association ("GNMA") participation certificates, are supported
by the full faith and credit of the United States Treasury. GNMA Certificates
are mortgage-backed securities representing part ownership of a pool of mortgage
loans. These loans -- issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations -- are either insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. A "pool" or
group of such mortgages is assembled and, after being approved by GNMA, is
offered to investors through securities dealers. Once approved by GNMA, the
timely payment of interest and principal on each mortgage is guaranteed by GNMA
and backed by the full faith and credit of the U.S. government. The market value
<PAGE>
of GNMA Certificates is not guaranteed. GNMA Certificates differ from bonds in
that principal is paid back monthly by the borrower over the term of the loan
rather than returned in a lump sum at maturity. GNMA Certificates are called
"pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the Certificate.
Upon receipt, principal payments will be used by the Fund to purchase additional
securities under its investment objective and investment policies.
Other United States government obligations, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury to repay its obligations. Still others, such as bonds issued by the
Federal National Mortgage Association, a federally chartered private
corporation, are supported only by the credit of the instrumentality.
Obligations of Domestic Banks
These obligations consist of certificates of deposit ("CDs") and bankers'
acceptances issued by domestic banks (including their foreign branches) having
total assets in excess of $5 billion, which meet the Fund's minimum rating
requirements. CDs are issued against deposits in a commercial bank for a
specified period and rate and are normally negotiable. Eurodollar CDs are
certificates issued by a foreign branch (usually London) of a U.S. domestic
bank, and, as such, the credit is deemed to be that of the domestic bank.
Bankers' acceptances are short-term credit instruments evidencing the
promise of the bank (by virtue of the bank's "acceptance") to pay at maturity a
draft which has been drawn on it by a customer (the "drawer"). These instruments
are used to finance the import, export, transfer, or storage of goods and
reflect the obligation of both the bank and the drawer to pay the face amount.
<PAGE>
Commercial Paper
These obligations are short-term promissory notes issued by domestic
corporations to meet current working capital requirements. Such paper may be
unsecured or backed by a bank letter of credit. Commercial paper issued with a
letter of credit is, in effect, "two party paper," with the issuer directly
responsible for payment, plus a bank's guarantee that if the note is not paid at
maturity by the issuer, the bank will pay the principal and interest to the
buyer. Commercial paper is sold either as interest-bearing or on a discounted
basis, with maturities not exceeding 270 days.
Options on Securities and Indices
As discussed in the section of the Fund's Prospectus entitled "Investment
Policies and Risks," the Fund may purchase and write options on securities and
indices. 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. The Fund will only
write options if they are covered.
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.
In addition to purchasing and writing options on securities, the Fund may
purchase and write put and call options on stock indices. A stock index measures
the movement of a certain group of stocks by assigning relative values to the
common stocks included in the index. Options on stock indices are similar to
options on securities. However, because options on stock indices do not involve
<PAGE>
the delivery of an underlying security, the option represents the holder's right
to obtain from the writer in cash a fixed multiple of the amount by which the
exercise price exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the exercise date.
Options on securities and indices 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 ("OCC") 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 Fund will generally purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option at
any particular time. In such event it might not be possible to effect closing
transactions in a particular option, with the result that the Fund would have to
exercise the option in order to realize any profit. This would result in the
Fund incurring brokerage commissions upon the disposition of underlying
securities acquired through the exercise of a call option or upon the purchase
of underlying securities upon the exercise of a put option. If the Fund as a
covered call option writer is unable to effect a closing purchase transaction in
a secondary market, unless the Fund is required to deliver the securities
pursuant to the assignment of an exercise 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 a 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
<PAGE>
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 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
such clearing corporation that they believe their facilities will also be
adequate to handle reasonably anticipated volume.
In addition, options on securities and indices may be traded
over-the-counter ("OTC") through financial institutions dealing in such options
as well as the underlying instruments. OTC options are purchased from or sold
(written) to dealers or financial institutions which have entered into direct
agreements with the Fund. With OTC options, such variables as expiration date,
exercise price and premium will be agreed upon between the Fund and the
transacting dealer, without the intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities
underlying an option it has written, in accordance with the terms of that option
as written, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction. The Fund will engage in OTC option
transactions only with primary U.S. Government securities dealers recognized by
the Federal Reserve Bank of New York.
Investment Restrictions. As described in the section of the Fund's
Prospectus entitled "Investment Policies and Risks," the Fund has adopted
certain fundamental investment restrictions. Under these restrictions, which may
not be changed without prior approval by the holders of a majority, as defined
in the 1940 Act, of the outstanding voting securities of the Fund, the Fund may
not:
(1) sell short or buy on margin, except for the Fund's writing of put or
call options and except for such short-term credits as are necessary
for the clearance of purchases of securities;
(2) issue senior securities as defined in the Investment Company Act of
1940 or borrow money, except that the Fund may borrow from banks in
an amount not in excess of 10% of the value of its total assets
(including the amount borrowed) less liabilities (not including the
amount borrowed) at the time the borrowing is made, as a temporary
measure for emergency purposes (the Fund will not purchase
securities while any such borrowings exist);
(3) 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;
(4) purchase the securities of any one issuer (other than U.S.
government securities) if as a result more than 5% of the value of
<PAGE>
its total assets would be invested in the securities of any one
issuer or the Fund would own more than 10% of the voting securities
of such issuer;
(5) lend money or securities to any person, provided, however, that this
shall not be deemed to prohibit the purchase of debt securities or
entering into repurchase agreements in accordance with the Fund's
investment policies, or to prohibit the Fund from lending portfolio
securities in an amount up to 33-1/3% of the Fund's total assets
(taken at current value);
(6) buy or sell commodities, commodity contracts or real estate
(however, the Fund may purchase securities of companies investing in
real estate);
(7) invest in any company for the purpose of exercising control or
management;
(8) engage in the underwriting of any securities (except to the extent
the Fund may be deemed an underwriter under the Securities Act of
1933 in disposing of a security);
(9) 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, or in which all of the officers and
directors of the Fund and its investment adviser, as a group, own
more than 5% of such securities;
(10) invest more than 25% of the value of the Fund's assets in one
particular industry.
(11) pledge, hypothecate, mortgage or otherwise encumber its assets,
except as necessary to secure permitted borrowings;
(12) purchase oil, gas or other mineral leases, rights or royalty
contracts or development programs (except that the Fund may invest
in the securities of issuers engaged in the foregoing activities);
(13) purchase the securities (other than United States government
securities) of an issuer having a record, together with
predecessors, of less than three years' continuous operations, if as
a result of such purchase more than 5% of the value of the Fund's
total assets would be invested in such securities.
In applying restriction (10) above, the Fund uses an industry
classification system based on the O'Neil Database published by William O'Neil &
Co., Inc.
<PAGE>
The Company also has given the following undertaking to the State of Texas.
The Fund will not buy or sell real property (including limited partnership
interests therein), but may buy or sell readily marketable interests in real
estate investment trusts or readily marketable securities of companies which
invest in real estate.
The Company also has given an undertaking to the State of Arkansas that the
Fund may purchase or write put and call options on securities, or straddles,
spreads, or combinations thereof, only if by reason thereof the value of its
aggregate investment in such classes of securities will be 5% or less of its
total assets.
Unless otherwise noted, the Fund's investment restrictions and its
investment policies are not fundamental and may be changed by action of the
Company's board of directors. Unless otherwise noted, all percentage limitations
contained in the Fund's investment policies and restrictions apply at the time
an investment is made. Thus, subsequent changes in the value of an investment
after purchase or in the value of the Fund's total assets will not cause any
such limitation to have been violated or to require the disposition of any
investment, except as otherwise required by law.
THE FUND AND ITS MANAGEMENT
The Company. The Company was incorporated under the laws of Maryland on
December 6, 1990. On December 2, 1994, the Company's name was changed from
"INVESCO Emerging Growth Fund, Inc." to "INVESCO Emerging Opportunity Funds,
Inc."
The Investment Adviser. INVESCO Funds Group, Inc. ("INVESCO") is employed
as the Fund's investment adviser. INVESCO was established in 1932 and also
serves as an investment adviser to INVESCO Diversified Funds, Inc., INVESCO
Dynamics Fund, 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 Strategic Portfolios, Inc., INVESCO Tax-Free Income Funds,
Inc., INVESCO Value Trust and INVESCO Variable Investment Funds, Inc.
The Sub-Adviser. INVESCO, as investment adviser, has contracted with
INVESCO Trust Company ("INVESCO Trust") to provide investment advisory and
research services on behalf of the Fund. INVESCO Trust has the primary
responsibility for providing portfolio investment management services to the
Fund. INVESCO Trust, a trust company founded in 1969, is a wholly-owned
subsidiary of INVESCO.
INVESCO is an indirect, wholly-owned subsidiary of INVESCO PLC, a
publicly-traded holding company organized in 1935. Through subsidiaries located
in London, Denver, Atlanta, Boston, Louisville, Dallas, Tokyo, Hong Kong, and
the Channel Islands, INVESCO PLC provides investment services around the world.
<PAGE>
INVESCO was acquired by INVESCO PLC in 1982 and as of May 31, 1996, managed 14
mutual funds, consisting of 39 separate portfolios, on behalf of approximately
827,000 shareholders. INVESCO PLC's other North American subsidiaries
include the following:
--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 whose primary business is the
distribution of shares of two registered investment companies.
--INVESCO Management & Research, Inc. (formerly Gardner and Preston Moss,
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 of Dallas, Texas, is responsible for providing
advisory services in the U.S. real estate markets for INVESCO PLC's clients
worldwide. Clients include corporate plans, public pension funds as well as
endowment and foundation accounts.
The corporate headquarters of INVESCO PLC are located at 11 Devonshire
Square, London, EC2M 4YR, England.
As indicated in the Prospectus, INVESCO and INVESCO Trust permit
investment and other personnel to purchase and sell securities for their own
accounts in accordance with a compliance policy governing personal investing by
directors, officers and employees of INVESCO, INVESCO Trust and their North
American affiliates. The policy requires officers, inside directors, investment
and other personnel of INVESCO, INVESCO Trust and their 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 the Fund.
In addition to the pre-clearance requirement described above, the policy
subjects officers, inside directors, investment and other personnel of INVESCO,
INVESCO Trust and their 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 INVESCO or INVESCO Trust.
<PAGE>
Investment Advisory Agreement. INVESCO serves as investment adviser
pursuant to an investment advisory agreement (the "Agreement") with the Company
which was approved on April 24, 1991, by a vote cast in person by all of the
directors of the Company, including all of the directors who are not "interested
persons" of the Company or INVESCO at a meeting called for such purpose. The
Agreement was approved by INVESCO on December 31, 1991 as the then sole
shareholder of the Fund, and was approved by the Fund's public shareholders on
May 24, 1993. The Agreement was for an initial term of two years expiring
December 31, 1993, and has been continued by action of the board of directors
until April 30, 1997. Thereafter, the Agreement may be continued from year to
year as to the Fund as long as each such continuance is specifically approved at
least annually by the board of directors of the Company, or by a vote of the
holders of a majority, as defined in the 1940 Act, of the outstanding shares of
the Fund. Each such continuance also must be approved by a majority of the
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 INVESCO shall manage the investment portfolio
of the Fund in conformity with the Fund's investment policies (either directly
or by delegation to a sub-adviser which may be a company affiliated with
INVESCO). Further, INVESCO shall perform all administrative, internal accounting
(including computation of net asset value), clerical, statistical, secretarial,
and all other services necessary or incidental to the administration of the
affairs of the Fund excluding, however, those services that are the subject of
separate agreement between the Company and INVESCO or any affiliate thereof,
including the distribution and sale of Fund shares and provision of transfer
agency, dividend disbursing agency, and registrar services, and services
furnished under an Administrative Services Agreement dated as of April 30, 1991,
with INVESCO. Services provided under the Agreement include, but are not limited
to: supplying the Company with officers, clerical staff and other employees, if
any, who are necessary in connection with the 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 INVESCO'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
<PAGE>
maintaining certain of the books and records required to be prepared and
maintained by the Fund under the 1940 Act. Expenses not assumed by INVESCO are
borne by the Fund.
As full compensation for its advisory services provided to the Company
under the Agreement, INVESCO receives a monthly fee. The fee is based upon a
percentage of the Fund's average net assets, determined daily. With respect to
the Fund, the fee is calculated at an annual rate of 0.75% on the first $350
million of the Fund's average net assets, 0.65% on the next $350 million of the
Fund's average net assets, and 0.55% on the Fund's average net assets over $700
million. For the fiscal years ended May 31, 1996, 1995 and 1994, the Fund paid
INVESCO advisory fees of $1,572,230, $1,370,549 (prior to the voluntary
absorption of certain Fund expenses by INVESCO), and $1,359,701, respectively.
Certain states in which the shares of the Fund are qualified for sale
currently impose limitations on the expenses of the Fund. At the date of this
Statement of Additional Information, the most restrictive state-imposed annual
expense limitation requires that INVESCO absorb any amount necessary to prevent
the Fund's aggregate ordinary operating expenses (excluding interest, taxes,
Rule 12b-1 fees, brokerage fees and commissions, and extraordinary charges such
as litigation costs) from exceeding in any fiscal year 2.5% on the Fund's first
$30 million of average net assets, 2.0% on the next $70 million of average net
assets and 1.5% on the remaining average net assets. No payment of the
investment advisory fee will be made to INVESCO which would result in the Fund's
expenses exceeding on a cumulative annualized basis this state limitation.
During the past fiscal year, INVESCO did not absorb any amounts under this
provision.
Sub-Advisory Agreement. INVESCO Trust serves as sub-adviser to the Fund
pursuant to a sub-advisory agreement (the "Sub-Agreement") with INVESCO which
was approved on April 24, 1991, by a vote cast in person by all of the directors
of the Company, including all of the directors who are not "interested persons"
of the Company, INVESCO, or INVESCO Trust at a meeting called for such purpose.
The Sub-Agreement was approved on December 31, 1991, by INVESCO as the then sole
shareholder of the Fund, and by the Fund's public shareholders on May 24, 1993.
The Sub-Agreement was for an initial term of two years expiring December 31,
1993, and has been continued by action of the board of directors until April 30,
1997. Thereafter, the Sub-Agreement may be continued from year to year as long
as each such continuance is specifically approved by the board of directors of
the Company, or by a vote of the holders of a majority, as defined in the 1940
Act, of the outstanding shares of the Fund. Each such continuance also must be
approved by a majority of the directors who are not parties to the Sub-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
Sub-Agreement may be terminated at any time without penalty by either party or
the Company 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.
<PAGE>
The Sub-Agreement provides that INVESCO Trust, subject to the supervision
of INVESCO and the Company's board of directors, shall manage the investment
portfolio of the Fund in conformity with the Fund's investment policies. These
management services include: (a) managing the investment and reinvestment of all
the assets, now or hereafter acquired, of the Fund, and executing all purchases
and sales of portfolio securities; (b) maintaining a continuous investment
program for the Fund, consistent with (i) the Fund's investment policies as set
forth in the Company's Articles of Incorporation, Bylaws, and Registration
Statement, as from time to time amended, under the 1940 Act, and in any
prospectus and/or statement of additional information of the Company, as from
time to time amended and in use under the 1933 Act, and (ii) the Company's
status as a regulated investment company under the Internal Revenue Code of
1986, as amended; (c) determining what securities are to be purchased or sold
for the Fund, unless otherwise directed by the directors of the Company or
INVESCO, and executing transactions accordingly; (d) providing the Fund the
benefit of all of the investment analysis and research, the reviews of current
economic conditions and trends, and the consideration of long-range investment
policy now or hereafter generally available to investment advisory customers of
INVESCO Trust; (e) determining what portion of the Fund should be invested in
the various types of securities authorized for purchase by the Fund; and (f)
making recommendations as to the manner in which voting rights, rights to
consent to Company action and any other rights pertaining to the portfolio
securities of the Fund shall be exercised.
The Sub-Agreement provides that as compensation for its services, INVESCO
Trust shall receive from INVESCO, at the end of each month, a fee based upon the
average daily value of the Fund's net assets at the following annual rate: 0.25%
on the first $200 million of the average net assets of the Fund, and 0.20% on
the Fund's average net assets over $200 million. The Sub-Advisory fees are paid
by INVESCO, NOT the Fund.
Administrative Services Agreement. INVESCO, either directly or through
affiliated companies, provides certain administrative, sub-accounting, and
recordkeeping services to the Fund pursuant to an Administrative Services
Agreement dated December 31, 1991 (the "Administrative Agreement"). The
Administrative Agreement was approved on April 24, 1991, by a vote cast in
person by all of the directors of the Company, including all of the directors
who are not "interested persons" of the Company or INVESCO at a meeting called
for such purpose. The Administrative Agreement was for an initial term of one
year expiring December 31, 1992, and has been continued by action of the board
of directors until April 30, 1997. The Administrative Agreement may be continued
from year to year thereafter as long as each such continuance is specifically
approved by the board of directors of the Company, including a majority of the
directors who are not parties to the Administrative Agreement or interested
persons (as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such continuance. The Administrative
<PAGE>
Agreement may be terminated at any time without penalty by INVESCO on sixty (60)
days' written notice, or by the Company upon thirty (30) days' written notice,
and terminates automatically in the event of an assignment unless the Company's
board of directors approves such assignment.
The Administrative Agreement provides that INVESCO shall provide the
following services to the 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, which may be provided by affiliates of INVESCO, 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 monthly fee to INVESCO consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
monthly at an annual rate of 0.015% per year of the average net assets of the
Fund. For the fiscal years ended May 31, 1996, 1995 and 1994, the Fund paid
INVESCO administrative services fees in the amount of $41,467, $37,411 (prior to
the voluntary absorption of certain Fund expenses by INVESCO), and $37,194,
respectively.
Transfer Agency Agreement. INVESCO also performs transfer agent, dividend
disbursing agent, and registrar services for the Fund pursuant to a Transfer
Agency Agreement dated December 31, 1991, which was approved by the board of
directors of the Company, including a majority of the Company's directors who
are not parties to the Transfer Agency Agreement or "interested persons" of any
such party, in April 1992, for a term of one year. The Transfer Agency Agreement
has been continued by action of the board of directors until April 30, 1997, and
thereafter may be continued from year to year as long as such continuance is
specifically approved at least annually by the board of directors of the
Company. Any such continuance also must be approved by a majority of the
Company's directors who are not parties to the Transfer Agency Agreement or
interested persons (as defined by the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such continuance. The
Transfer Agency Agreement may be terminated at any time without penalty by
either party upon sixty (60) days' written notice and terminates automatically
in the event of assignment.
The Transfer Agency Agreement provides that the Fund shall pay to INVESCO
an annual fee of $20.00 per shareholder account or omnibus account participant.
This fee is paid monthly at 1/12 of the annual fee and is based upon the number
of shareholder accounts and omnibus account participants in existence at any
time during each month. For the fiscal years ended May 31, 1996, 1995 and 1994,
<PAGE>
the Fund paid INVESCO transfer agency fees of $668,624, $635,770 (prior to the
voluntary absorption of certain Fund expenses by INVESCO), and $362,259,
respectively.
Officers and Directors of the Company. The overall direction and
supervision of the Company is the responsibility of the board of directors,
which has the primary duty of seeing that the general investment policies and
programs of the Fund are carried out and that the Fund is properly administered.
The officers of the Company, all of whom are officers and employees of, and are
paid by, INVESCO, are responsible for the day-to-day administration of the
Company and the Fund. The investment adviser for the Fund has the primary
responsibility for making investment decisions on behalf of the Fund. These
investment decisions are reviewed by the investment committee of INVESCO.
All of the officers and directors of the Company hold comparable positions
with INVESCO Diversified Funds, Inc., INVESCO Dynamics Fund, 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
Strategic Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc., and INVESCO
Variable Investment Funds, Inc. All of the directors of the Company also serve
as trustees of INVESCO Value Trust. In addition, all of the directors of the
Company also are directors of INVESCO Advisor Funds, Inc. (formerly known as The
EBI Funds, Inc.); and, with the exception of Mr. Hesser, trustees of INVESCO
Treasurer's Series Trust. All of the officers of the Company also hold
comparable positions with INVESCO Value Trust. Set forth below is information
with respect to each of the Company's officers and directors. Unless otherwise
indicated, the address of the directors and officers is Post Office Box 173706,
Denver, Colorado 80217-3706. Their affiliations represent their principal
occupations during the past five years.
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive Officer and
Director of INVESCO PLC, London, England, and of various subsidiaries thereof.
Chairman of the Board of INVESCO Advisor Funds, Inc., INVESCO Treasurer's Series
Trust and The Global Health Sciences Fund. Address: 1315 Peachtree Street, NE,
Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. Vice Chairman of INVESCO
Advisor Funds, Inc., and INVESCO Treasurer's Series Trust. Trustee of The 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 and Director. Chairman of the Board, President,
and Chief Executive Officer of INVESCO Funds Group, Inc.; Director of INVESCO
<PAGE>
Trust Company. Trustee of The Global Health Sciences Fund. Born: December 27,
1939.
VICTOR L. ANDREWS,** Director. Professor Emeritus, Chairman Emeritus and
Chairman of the CFO Roundtable of the Department of Finance of Georgia State
University, Atlanta, Georgia; President, Andrews Financial Associates, Inc.
(consulting firm); 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: 15
Sterling Road, Armonk, New York. Born: August 1, 1923.
A.D. FRAZIER, JR.*,** Director. Chief Operating Officer of the Atlanta
Committee for the Olympic Games. From 1982 to 1991, Mr. Frazier was employed in
various capacities by First Chicago Bank, most recently as Executive Vice
President of the North American Banking Group. Trustee of The Global Health
Sciences Fund. Director of Magellan Health Services, Inc. and of Charter Medical
Corp. Address: 250 Williams Street, Suite 6000, Atlanta, Georgia. Born: June 23,
1944.
HUBERT L. HARRIS, JR.*, Director. Chairman (since May 1996) and President
(January 1990 to April 1996) of INVESCO Services, Inc. Director of INVESCO PLC
and Chief Financial Officer of INVESCO Individual Services Group. Member of the
Executive Committee of the Alumni Board of Trustees of Georgia Institute of
Technology. Address: 1315 Peachtree Street, N.E., Atlanta, Georgia. Born: July
15, 1943.
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
<PAGE>
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 Corp. and
Citizens and Southern National Bank. Director of Golden Poultry Co., Inc.
Trustee of The Global Health Sciences Fund and Gables Residential Trust.
Address: 7 Piedmont Center, Suite 100, Atlanta, Georgia. Born: September 14,
1930.
GLEN A. PAYNE, Secretary. Senior Vice President, General Counsel and
Secretary of INVESCO Funds Group, Inc. and INVESCO Trust Company. 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 January 1988. Born: October 1,
1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior 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. and Trust Officer of INVESCO Trust Company. Born: September 14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO Funds Group,
Inc. and Trust Officer of INVESCO Trust Company. Born: February 3, 1948.
#Member of the audit committee of the Company.
+Member of the executive committee of the Company. On occasion, the
executive committee acts upon the current and ordinary business of the Company
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
*These directors are "interested persons" of the Company as defined in the
1940 Act.
**Member of the management liaison committee of the Company.
<PAGE>
As of June 30, 1996, the officers and directors of the Company, as a
group, beneficially owned less than 1% of the Company's outstanding shares and
less than 1% of the Fund's outstanding shares.
Director Compensation
The following table sets forth, for the fiscal year ended May 31, 1996:
the compensation paid by the Company to its eight independent directors for
services rendered in their capacities as directors of the Company; the benefits
accrued as Company expenses with respect to the Defined Benefit Deferred
Compensation Plan discussed below; and the estimated annual benefits to be
received by these directors upon retirement as a result of their service to the
Company. In addition, the table sets forth the total compensation paid by all of
the mutual funds distributed by INVESCO Funds Group, Inc. (including the
Company), INVESCO Advisor Funds, Inc., INVESCO Treasurer's Series Trust and The
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, 1995. As of December 31, 1995, there were 48
funds in the INVESCO Complex.
<PAGE>
Total
Retirement Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
tion From Company Upon Paid To
Company1 Expenses2 Retirement3 Directors1
------------------------------------------------------
Fred A.Deering, $1,535 $352 $293 $87,350
Vice Chairman of
the Board
Victor L. Andrews 1,447 310 323 68,000
Bob R. Baker 1,478 319 433 73,000
Lawrence H. Budner 1,418 332 323 68,350
Daniel D. Chabris 1,484 379 229 73,350
A. D. Frazier, Jr.4,5 1,351 0 0 63,500
Kenneth T. King 1,447 365 266 70,000
John W. McIntyre4 1,402 0 0 67,850
Total $11,562 $2,057 $1,867 $571,400
% of Net Assets 0.0031%6 0.0006%6 0.0043%7
1The 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.
2Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the election
of the directors.
3These figures represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding the 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 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.
<PAGE>
With the exception of Messrs. Frazier and McIntyre, 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.
4Messrs. Frazier and McIntyre began serving as directors of the Company on
April 19, 1995.
5Because of the possibility that A.D. Frazier, Jr. may become employed by
a company affiliated with INVESCO at some point in the future, he was deemed to
be an "interested person" of the Company and of the other funds in the INVESCO
Complex effective May 1, 1996. Until such time as Mr. Frazier actually becomes
employed by an INVESCO-affiliated company, however, he will continue to receive
the same director's fees and other compensation as the Company's independent
directors.
6Totals as a percentage of the Company's net assets as of May 31, 1995.
7Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1995.
Messrs. Brady, Harris and Hesser, as "interested persons" of the Company
and other funds in the INVESCO Complex, receive compensation as officers or
employees of INVESCO or its affiliated companies, and do not receive any
director's fees or other compensation from the Company or other funds in the
INVESCO Complex for their services as directors.
The boards of directors/trustees of the mutual funds managed by INVESCO,
INVESCO Advisor Funds, Inc. 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 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 payment 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 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 25% 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
<PAGE>
retainer payments will be made to him or to his beneficiary or estate. If a
qualified director becomes disabled or dies either prior to age 72 or during
his/her 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 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, INVESCO Advisor and Treasurer's Series funds in
a manner determined to be fair and equitable by the committee. The Company is
not making any payments to directors under the plan as of the date of this
Statement of Additional Information. The Company has no stock options or other
pension or retirement plans for management or other personnel and pays no salary
or compensation to any of its officers.
The Company has an audit committee comprised of four of the directors who
are not interested persons of the Company. The committee meets periodically with
the Company's independent accountants and officers to review accounting
principles used by the Company, the adequacy of internal controls, the
responsibilities and fees of the independent accountants, and other matters.
The Company also has a management liaison committee which meets quarterly
with various management personnel of INVESCO in order (a) to facilitate better
understanding of management and operations of the Company, and (b) to review
legal and operational matters which have been assigned to the committee by the
board of directors, in furtherance of the board of directors' overall duty of
supervision.
HOW SHARES CAN BE PURCHASED
Shares of the Fund are sold on a continuous basis at the net asset value
per share of the Fund next calculated after receipt of a purchase order in good
form. The net asset value per share is computed 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." INVESCO acts
as the Fund's Distributor under a distribution agreement with the Company under
which it receives no compensation and bears all expenses, including the costs of
printing and distributing prospectuses, incident to marketing of the Fund's
shares, except for such distribution expenses which are paid out of Fund assets
under the Company's Plan of Distribution which has been adopted by the Company
in accordance with Rule 12b-1 under the 1940 Act.
Distribution Plan. As discussed under "How Shares Can Be Purchased" in the
Prospectus, the Company has adopted a Plan and Agreement of Distribution (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. The Plan provides that the
Fund may make monthly payments to INVESCO of amounts computed at an annual rate
<PAGE>
no greater than 0.25% on the Fund's average net assets to reimburse it for
expenses incurred by it in connection with the distribution of the Fund's shares
to investors. Payment amounts by the Fund under the Plan, for any month, may
only be made to reimburse or pay expenditures incurred during the rolling
12-month period in which that month falls, although this period is expanded to
24 months for expenses incurred during the first 24 months of a new fund's
operations. For the fiscal year ended May 31, 1996, the Fund made payments to
INVESCO under the Plan in the amount of $486,112. In addition, as of May 31,
1996, $72,783 of additional distribution expenses had been incurred for the Fund
and were subject to payment upon approval of the Company's directors, which
approval was obtained on August 14, 1996. As noted in the Prospectuses, one type
of reimbursable expenditure is the payment of compensation to securities
companies and other financial institutions and organizations, which may include
INVESCO-affiliated companies, in order to obtain various distribution-related
and/or administrative services for the Fund. The Fund is authorized by the Plan
to use its assets to finance the payments made to obtain those services.
Payments may be made by INVESCO to broker-dealers, who sell shares of the Fund
and may be made to banks, savings and loan associations and other depository
institutions. Although the Glass-Steagall Act limits the ability of certain
banks to act as underwriters of mutual fund shares, the Company does not believe
that these limitations affect the ability of such banks to enter into
arrangements with INVESCO, 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 the Fund
possibly could decrease to the extent that the banks would no longer invest
customer assets in the Fund. Neither the Company nor its investment adviser will
give any preference to banks or other depository institutions which enter into
such arrangements when selecting investments to be made by the Fund.
For the 12 months ended May 31, 1996, allocation of 12b-1 amounts paid by
the Fund for the following categories of expenses were: advertising--$30,009;
sales literature, printing, and postage--$108,516; direct mail--$21,604; public
relations/promotion--$37,934 compensation to securities dealers and other
organizations--$150,432; and marketing personnel--$137,617.
The nature and scope of services which are provided by securities dealers
and other organizations may vary by dealer but include, among other things,
processing new stockholder account applications, preparing and transmitting to
the Company's Transfer Agent computer-processable tapes of the Fund's
transactions by customers, serving as the primary source of information to
customers in answering questions concerning the Fund, and assisting in other
customer transactions with the Fund.
The Plan was approved on April 24, 1991, at a meeting called for such
purpose by a majority of the directors of the Company, including a majority of
the directors who neither are "interested persons" of the Company nor have any
<PAGE>
financial interest in the operation of the Plan ("12b-1 directors"). The Plan
was approved by INVESCO on December 31, 1991, as the then sole shareholder of
the Fund, and by the public shareholders of the Fund on May 24, 1993.
Continuation of the Plan for another year was approved by the board of directors
of the Company, including a majority of the 12b-1 directors, on April 30, 1996.
The Plan provides that it shall continue in effect for so long as such
continuance is approved at least annually by the vote of the board of directors,
including a majority of the 12b-1 directors of the Company cast in person at a
meeting called for the purpose of voting on such continuance. The Plan can be
terminated at any time with respect to the Fund, without penalty, if a majority
of the 12b-1 directors, or shareholders of the Fund, vote to terminate the Plan.
The Company may, in its absolute discretion, suspend, discontinue or limit the
offering of the shares of the Fund at any time. In determining whether any such
action should be taken, the board of directors intends to consider all relevant
factors including, without limitation, the size of the Fund, the investment
climate for the Fund, general market conditions, and the volume of sales and
redemptions of Fund 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 the Fund's shares; however, the Company is not contractually
obligated to continue the Plan for any particular period of time. Suspension of
the offering of the Fund's shares would not, of course, affect a shareholder's
ability to redeem his shares. So long as the Plan is in effect, the selection
and nomination of persons to serve as independent directors of the Company shall
be committed to the independent directors then in office at the time of such
selection or nomination. The Plan may not be amended to increase materially the
amount of the Fund's payments thereunder without approval of the shareholders of
the Fund, and all material amendments to the Plan must be approved by the board
of directors of the Company, including a majority of the 12b-1 directors. Under
the agreement implementing the Plan, INVESCO or the Fund, the latter by vote of
a majority of the 12b-1 directors or of the holders of a majority of the Fund's
outstanding voting securities, may terminate such agreement without penalty upon
30 days' written notice to the other party. No further payments will be made by
the Fund under the Plan in the event of its termination as to the Fund.
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it shall remain in effect as such, so
as to authorize the use of the Fund's assets in the amounts and for the purposes
set forth therein, notwithstanding the occurrence of an assignment, as defined
by the 1940 Act, and rules thereunder. To the extent it constitutes an agreement
pursuant to a plan, the Fund's obligation to make payments to INVESCO under the
Plan shall terminate automatically, in the event of an "assignment," in which
event the Fund may continue to make payments, pursuant to the Plan, to INVESCO
or another organization only upon the approval of new arrangements, which may or
<PAGE>
may not be with INVESCO, 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 Fund are provided to, and reviewed by, the directors on a
quarterly basis. In the quarterly review, the directors determine whether, and
to what extent, INVESCO will be reimbursed for expenditures which it has made
that are reimbursable under the Company's Rule 12b-1 Plan. On an annual basis,
the directors consider the continued appropriateness of the Plan and the level
of compensation provided therein.
The only directors or interested persons, as that term is defined in
Section 2(a)(19) of the 1940 Act, of the Company who have a direct or indirect
financial interest in the operation of the Plan are the officers and directors
of the Company listed under "Officers and Directors of the Company" who are also
officers either of INVESCO or companies affiliated with INVESCO. The benefits
which the Company believes will be reasonably likely to flow to the Fund and its
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 Fund;
(2) The sale of additional shares reduces the likelihood that redemption
of shares will require the liquidation of securities of the Fund in
amounts and at times that are disadvantageous for investment
purposes;
(3) The positive effect which increased Fund assets will have on its
revenues could allow INVESCO:
(a) To have greater resources to make the financial commitments
necessary to improve the quality and level of the Fund's
shareholder services (in both systems and personnel),
(b) To increase the number and type of mutual funds available to
investors from INVESCO (and support them in their infancy),
and thereby expand the investment choices available to all
shareholders, and
(c) To acquire and retain talented employees who desire
to be associated with a growing organization; and
(4) Increased Fund assets may result in reducing each investor's share
of certain expenses through economies of scale (e.g. exceeding
established breakpoints in the advisory fee schedule and allocating
fixed expenses over
<PAGE>
a larger asset base) thereby partially offsetting the costs of the
Plan.
HOW SHARES ARE VALUED
As described in the section of the Fund's Prospectus entitled "How Shares
Can Be Purchased," the net asset value of shares of 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 (usually 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 the Fund that the current net asset value per
share of the Fund 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. 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, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas.
The net asset value per share of the Fund is calculated by dividing the
value of all securities held by the Fund and its other assets (including
dividends and interest accrued but not collected), less the Fund's liabilities
(including accrued expenses), by the number of outstanding shares of the Fund.
Securities traded on national securities exchanges, the NASDAQ National Market
System, the NASDAQ Small Cap Market and foreign markets are valued at their last
sale prices on the exchanges or markets where such securities are primarily
traded. Securities traded in the over-the-counter market for which last sale
prices are not available, and listed securities for which no sales were 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 board of directors or pursuant to procedures adopted by the board
of directors. The above procedures may include the use of valuations furnished
by a pricing service which employs a matrix to determine valuations for normal
institutional- size trading units of debt securities. Prior to utilizing a
pricing service, the Company's board of directors reviews the methods used by
such service to assure itself that securities will be valued at their fair
values. The Company's board of directors also periodically monitors 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 Fund, 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. Since regular
trading in most foreign securities markets is completed simultaneously with, or
<PAGE>
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 Fund's net asset value. However, in the event that the closing price of a
foreign security is not available in time to calculate the Fund's net asset
value on a particular day, the Company's board of directors has authorized the
use of the market price for the security obtained from an approved pricing
service at an established time during the day which may be prior to the close of
regular trading in the security. The value of all assets and liabilities
initially 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 Fund's Prospectus, the Company advertises the total
return performance of the Fund. Average annual total return performance for the
Fund for the one-year period ended May 31, 1996 and the period December 27, 1991
(commencement of operations of the Fund) to May 31, 1996 (life of the Fund), was
55.78% and 22.45%, respectively.
Average annual total return performance is 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)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 total return performance figures shown are determined by solving the
above formula for "T" for a particular time period.
In conjunction with performance reports, comparative data between the
Fund's performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
From time to time, evaluations of performance made by independent sources
may also be used in advertisements, sales literature or shareholder reports,
including reprints of, or selections from, editorials or articles about the
Fund. Sources for Fund performance information and articles about the Fund
include, but are not limited to, the following:
American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
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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
The Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
SERVICES PROVIDED BY THE FUND
Periodic Withdrawal Plan. As described in the section of the Fund's
Prospectus entitled "Services Provided by the Fund," 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. Since 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.
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.
A Periodic Withdrawal Plan may be terminated at any time by sending a
written request to INVESCO. Upon termination, all future dividends and capital
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gain distributions will be reinvested in additional shares unless a shareholder
requests otherwise.
Exchange Privilege. As discussed in the section of the Fund's Prospectus
entitled "Services Provided by the Fund," the Fund offers shareholders the
privilege of exchanging shares of the Fund for shares of certain other no-load
mutual funds advised by INVESCO. Exchange requests may be made either by
telephone or by written request to INVESCO Funds Group, Inc. 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 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 Fund's Prospectus entitled "Services
Provided by the Fund," shares of a Fund may be purchased as the investment
medium for various tax-deferred retirement plans. Persons who request
information regarding these plans from INVESCO will be provided with prototype
documents and other supporting information regarding the type of plan requested.
Each of these plans involves a long-term commitment of assets and is subject to
possible regulatory penalties for excess contributions, premature distributions
or for insufficient distributions after age 70-1/2. The legal and tax
implications may vary according to the circumstances of the individual investor.
Therefore, the investor is urged to consult with an attorney or tax adviser
prior to the establishment of such a plan.
HOW TO REDEEM SHARES
Normally, payments for shares redeemed will be mailed within seven (7)
days following receipt of the required documents as described in the section of
the Fund's Prospectus entitled "How to Redeem 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
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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 by order so permits.
It is possible that in the future conditions may exist which would, in the
opinion of the Company's investment adviser, make it undesirable for the Fund to
pay for redeemed shares in cash. In such cases, the investment adviser may
authorize payment to be made in portfolio securities or other property of the
Fund. However, the Company is obligated under the 1940 Act to redeem for cash
all shares of the Fund presented for redemption by any one shareholder having a
value up to $250,000 (or 1% of the Fund's net assets if that is less) in any
90-day period. Securities delivered in payment of redemptions are selected
entirely by the investment adviser based on what is in the best interests of the
Fund and its shareholders, and are valued at the value assigned to them in
computing the Fund's net asset value per share. Shareholders receiving such
securities are likely to incur brokerage costs on their subsequent sales of the
securities.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, AND TAXES
The Fund intends 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 Fund so qualified in the fiscal year ended May 31, 1996,
and intends to qualify during the current fiscal 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, including the dividends eligible for the
dividends-received deduction for corporations. Such amounts will be limited to
the aggregate amount of qualifying dividends which the Fund derives from its
portfolio investments.
Distributions by the Fund of net capital gain (the excess of long-term
capital gain over net short-term capital loss) are, for federal income tax
purposes, taxable to the shareholder as long-term capital gains regardless of
how long a shareholder has held shares of the Fund. Such distributions are
identified as such and are not eligible for the dividends-received deduction.
All dividends and other distributions are regarded as taxable to the
investor, whether or not such dividends and distributions are reinvested in
additional shares. If the net asset value of the shares of the Fund should be
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
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effect, a return of invested capital. The net asset value of shares of the Fund
reflects accrued net investment income and undistributed realized capital and
foreign currency gain; therefore, when a distribution is made, the net asset
value is reduced by the amount of the distribution. 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.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax treaties between certain
countries and the United States may reduce or eliminate such taxes.
INVESCO 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 INVESCO will be computed using the
single-category average cost method, although neither INVESCO nor the Company
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 the Fund in past years, the shareholder must continue to use the
method previously used, unless the shareholder applies to the IRS for permission
to change methods.
If the Fund's shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
The Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
Dividends and interest received by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of
the Fund'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 Internal Revenue Service that will enable its shareholders, in effect,
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to receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions income taxes paid by it. The Fund will report to its
shareholders shortly after each taxable year their respective shares of the
Fund's income from sources within, and taxes paid to, foreign countries and U.S.
possessions if it makes this election.
The Fund may invest in the stock of "passive foreign investment companies"
(PFICs"). A PFIC is a 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, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain on disposition of the stock (collectively "PFIC
income"), plus interest thereon, even if the Fund distributes the PFIC income as
a taxable dividend to its shareholders. The balance of the PFIC income will be
included in the Fund's investment company taxable income and, accordingly, will
not be taxable to it to the extent that income is distributed to its
shareholders.
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
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
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 Fund's investment company taxable income to be
distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and 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 the portfolio
turnover of the Fund. The rate of portfolio turnover can fluctuate under
constantly changing economic conditions and market circumstances. Securities
initially satisfying the basic policies and objectives of the Fund may be
disposed of when they are no longer suitable. Brokerage costs to the Fund are
commensurate with the rate of portfolio activity. The portfolio turnover rates
for the Fund for the fiscal years ended May 31, 1996 and 1995, were 221% and
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228%, respectively. 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 Fund during the fiscal year.
Placement of Portfolio Brokerage. Either INVESCO, as the Company's
investment adviser, or INVESCO Trust, as the Company's sub-adviser, places
orders for the purchase and sale of securities with brokers and dealers based
upon INVESCO's or INVESCO Trust's evaluation of their financial responsibility,
subject to their ability to effect transactions at the best available prices.
INVESCO or INVESCO Trust evaluates the overall reasonableness of brokerage
commissions paid by reviewing the quality of executions obtained on portfolio
transactions of the Fund, viewed in terms of the size of transactions,
prevailing market conditions in the security purchased or sold, and general
economic and market conditions. In seeking to ensure that the commissions
charged the Fund are consistent with prevailing and reasonable commissions,
INVESCO and INVESCO Trust also endeavor to monitor brokerage industry practices
with regard to the commissions charged by brokers and dealers on transactions
effected for other comparable institutional investors. While INVESCO and INVESCO
Trust seek reasonably competitive rates, the Fund does not necessarily pay the
lowest commission or spread available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, INVESCO or INVESCO Trust may select brokers that provide
research services to effect such transactions. Research services consist of
statistical and analytical reports relating to issuers, industries, securities
and economic factors and trends, which may be of assistance or value to INVESCO
or INVESCO Trust in making informed investment decisions. Research services
prepared and furnished by brokers through which the Fund effects securities
transactions may be used by INVESCO or INVESCO Trust in servicing all of their
accounts and not all such services may be used by INVESCO or INVESCO Trust in
connection with the Fund.
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, INVESCO or INVESCO Trust, 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 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 Fund to their clients, or who act as agent in the purchase of
the Fund's shares for their clients. When a number of brokers and dealers can
provide comparable best price and execution on a particular transaction, the
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Company's adviser or sub-adviser may consider the sale of Fund shares by a
broker or dealer in selecting among qualified broker/dealers.
Certain financial institutions (including brokers who may sell shares of
the Funds, or affiliates of such brokers) are paid a fee (the "Services Fee")
for recordkeeping, shareholder communications and other services provided by the
brokers to investors purchasing shares of the Funds through no transaction fee
programs ("NTF Programs") offered by the financial institution or its affiliated
broker (an "NTF Program Sponsor"). The Services Fee is based on the average
daily value of the investments in each Fund made in the name of such NTF Program
Sponsor and held in omnibus accounts maintained on behalf of investors
participating in the NTF Program. With respect to certain NTF Programs, the
directors of the Company have authorized the Funds to apply dollars generated
from the Company's Plan and Agreement of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan") to pay the entire Services Fee, subject to the
maximum Rule 12b-1 fee permitted by the Plan. With respect to other NTF
Programs, the Company's directors have authorized each Fund to pay transfer
agency fees to INVESCO based on the number of investors who have beneficial
interests in the NTF Program Sponsor's omnibus accounts in that Fund. INVESCO,
in turn, pays these transfer agency fees to the NTF Program Sponsor as a
sub-transfer agency or recordkeeping fee in payment of all or a portion of the
Services Fee. In the event that the sub-transfer agency or recordkeeping fee is
insufficient to pay all of the Services Fee with respect to these NTF Programs,
the directors of the Company have authorized the Funds to apply dollars
generated from the Plan to pay the remainder of the Services Fee, subject to the
maximum Rule 12b-1 fee permitted by the Plan. INVESCO itself pays the portion of
a Fund's Services Fee, if any, that exceeds the sum of the sub-transfer agency
or recordkeeping fee and Rule 12b-1 fee. The Company's directors have further
authorized INVESCO to place a portion of each Fund's brokerage transactions with
certain NTF Program Sponsors or their affiliated brokers, if INVESCO 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 a specific Fund may be credited by the NTF
Program Sponsor against its Services Fee. Such credit shall be applied first
against any sub-transfer agency or recordkeeping fee payable with respect to
that Fund, and second against any Rule 12b-1 fees used to pay a portion of the
Services Fee, on a basis which has resulted from negotiations between INVESCO
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 a Fund to INVESCO with respect to
investors who have beneficial interests in a particular NTF Program Sponsor's
omnibus accounts in that Fund exceeds the Services Fee applicable to that Fund,
after application of credits, INVESCO may carry forward the excess and apply it
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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 INVESCO prior to each fiscal year-end of the Company.
The Company's board of directors has also authorized the Company to pay to
INVESCO the full Rule 12b-1 fees contemplated by the Plan in reimbursement of
expenses incurred by INVESCO in engaging in the activities and providing the
services on behalf of the respective Funds contemplated by the Plan, subject to
the maximum Rule 12b-1 fee permitted by the Plan, notwithstanding that credits
have been applied to reduce the portion of the 12b-1 fee that would have been
used to reimburse INVESCO for payments to such NTF Program Sponsor absent such
credits.
The aggregate dollar amounts of brokerage commissions paid by the Fund for
the fiscal years ended May 31, 1996, 1995 and 1994 were $3,987,784, $1,223,859,
and $2,276,525, respectively. For the fiscal year ended May 31, 1996, brokers
providing research services received $312,901 in commissions on portfolio
transactions effected for the Fund. The aggregate dollar amount of such
portfolio transactions was $122,271,718. Commissions of $0 were allocated to
certain brokers in recognition of their sales of shares of the Fund on portfolio
transactions of the Fund effected during the fiscal year ended May 31, 1996.
At May 31, 1996, the Fund held securities of its regular brokers or
dealers, or their parents, as follows:
Value of Securities
Broker or Dealer at 5/31/96
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Associates Corporation of North America 10,625,000.00
Neither INVESCO nor INVESCO Trust receives any brokerage commissions on
portfolio transactions effected on behalf of the Fund, and there is no
affiliation between INVESCO or INVESCO Trust, or any person affiliated with
INVESCO or INVESCO Trust, or the Fund and any broker or dealer that executes
transactions for the Fund.
ADDITIONAL INFORMATION
Common Stock. The Company was incorporated with 600,000,000 authorized
shares of common stock, with a par value of $0.01 per share. Of the Company's
authorized shares, 200,000,000 shares have been allocated to the Fund. As of May
31, 1996, 25,724,952 shares of the Fund were outstanding. The board of directors
has the authority to designate additional series of common stock without seeking
the approval of shareholders, and may reclassify any authorized but unissued
shares.
Shares of each series represent the interests of the shareholders of such
series in a particular portfolio of investments of the Company. Each series of
the Company's shares is preferred over all other series in respect of the assets
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specifically allocated to that series, and all income, earnings, profits and
proceeds from such assets, subject only to the rights of creditors, are
allocated to shares of that series. The assets of each series are segregated on
the books of account and are charged with the liabilities of that series and
with a share of the Company's general liabilities. The board of directors
determines those assets and liabilities deemed to be general assets or
liabilities of the Company, and these items are allocated among series in a
manner deemed by the board of directors to be fair and equitable. Generally,
such allocation will be made based upon the relative total net assets of each
series. In the unlikely event that a liability allocable to one series exceeds
the assets belonging to the series, all or a portion of such liability may have
to be borne by the holders of shares of the Company's other series.
All shares, regardless of series, have equal voting rights. Voting with
respect to certain matters, such as ratification of independent accountants or
election of directors, will be by all series of the Company. When not all series
are affected by a matter to be voted upon, such as approval of an investment
advisory contract or changes in a fund's investment policies, only shareholders
of the series affected by the matter may be entitled to vote. Company shares
have noncumulative voting rights, which means that the holders of a majority of
the shares voting for the election of directors can elect 100% of the directors
if they choose to do so. In such event, the holders of the remaining shares
voting for the election of directors will not be able to elect any person or
persons to the board of directors. After they have been elected by shareholders,
the directors will continue to serve until their successors are elected and have
qualified or they are removed from office, in either case by a shareholder vote,
or until death, resignation, or retirement. They may appoint their own
successors, provided that always at least a majority of the directors have been
elected the Company's shareholders. It is the intention of the Company not to
hold annual meetings of shareholders. The directors will call annual or special
meetings of shareholders for action by shareholder vote as may be required by
the 1940 Act or the Company's Articles of Incorporation, or at their discretion.
Principal Shareholders. As of June 30, 1996, the following entities held
more than 5% of the Fund's outstanding equity securities.
Class and
Amount and Nature Percent
Name and Address of Ownership of Class
- ---------------- ----------------- ----------
Charles Schwab & Co. Inc. 4,296,113.5 19.6%
101 Montgomery St. Record
San Francisco, CA 94104
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Connecticut General Life Ins. 2,347,579.7 10.7%
P.O. Box 2975 Record and
Hartford, CT 06104 Beneficial
Independent Accountants. Price Waterhouse LLP, 950 Seventeenth Street,
Denver, Colorado, has been selected as the independent accountants of the
Company. The independent accountants are responsible for auditing the financial
statements of the Company.
Custodian. State Street Bank and Trust Company, P.O. Box 351, Boston,
Massachusetts, has been designated as custodian of the cash and investment
securities of the Company. The bank is also responsible for, among other things,
receipt and delivery of the Fund's investment securities in accordance with
procedures and conditions specified in the custody agreement.
Transfer Agent. The Company is provided with transfer agent, registrar,
and dividend disbursing agent services by INVESCO Funds Group, Inc., 7800 E.
Union Avenue, Denver, Colorado 80237, 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 Company's fiscal year ends on May 31. The
Company distributes reports at least semiannually to its shareholders. Financial
statements regarding the Company, audited by the independent accountants, are
sent to shareholders annually.
Legal Counsel. The firm of Kirkpatrick & Lockhart LLP, Washington, D.C., is
legal counsel for the Company. The firm of Moye, Giles, O'Keefe, Vermeire &
Gorrell, Denver, Colorado, acts as special counsel to the Company.
Financial Statements. The following audited financial statements of the
Fund and the notes thereto for the fiscal year ended May 31, 1996, and the
report of Price Waterhouse LLP with respect to such financial statements, are
incorporated herein by reference from the Company's Annual Report to
Shareholders for the fiscal year ended May 31, 1996: Statement of Investment
Securities as of May 31, 1996; Statement of Assets and Liabilities as of May 31,
1996; Statement of Operations for the year ended May 31, 1996; Statement of
Changes in Net Assets for each of the two years in the period ended May 31,
1996; Financial Highlights for each of the four years ended May 31, 1996 and the
period from commencement of the Fund's operations (December 27, 1991) until May
31, 1992.
Prospectus. The Company will furnish, without charge, a copy of the Fund's
Prospectus upon request. Such requests should be made to the Company at the
mailing address or telephone number set forth on the first page of this
Statement of Additional Information.
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Registration Statement. This Statement of Additional Information and the
related Prospectus do not contain all of the information set forth in the
Registration Statement the Company has filed with the Securities and Exchange
Commission. The 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.
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APPENDIX A
BOND RATINGS
The following is a description of Standard & Poor's Ratings Group
("Standard & Poor's") and Moody's Investors Service, Inc.
("Moody's") bond rating categories:
Moody's Investors Service, Inc. Corporate Bond Ratings
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any longer period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
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Standard & Poor's Ratings Group Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to
default and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal.
