As filed with the Securities and Exchange Commission on March 17, 1999
Registration No. 333-70843
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 1 [ ] Post-Effective Amendment No.___
INVESCO EMERGING OPPORTUNITY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
7800 E. Union Avenue
Denver, Colorado 80237
(Address of Principal Executive Offices)
P.O. Box 173706, Denver, Colorado 80217-3706
(Mailing Address)
(303) 930-6300
(Registrant's Area Code and Telephone Number)
Glen A. Payne, Esq.
7800 E. Union Avenue
Denver, Colorado 80237
(Name and Address of Agent for Service)
Copies to:
Clifford J. Alexander, Esq.
Susan M. Casey, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9036
Approximate Date of Proposed Public Offering: as soon as practicable after
this Registration Statement becomes effective under the Securities Act of 1933.
Title of securities being registered: Common stock, par value $0.01 per
share.
<PAGE>
No filing fee is required because of reliance on Section 24(f) under the
Investment Company Act of 1940, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
INVESCO EMERGING OPPORTUNITY FUNDS, INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheets
Letter to Shareholders
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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INVESCO EMERGING OPPORTUNITY FUNDS, INC.
FORM N-14 CROSS REFERENCE SHEET
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
- ----------- -----------------
1. Beginning of Registration Statement Cover Page
and Outside Front Cover Page of
Prospectus
2. Beginning and Outside Back Cover Page Table of Contents
of Prospectus
3. Synopsis Information and Risk Factors Synopsis; Comparison of Principal
Risk Factors
4. Information About the Transaction Synopsis; The Proposed Transaction
5. Information About the Registrant Synopsis; Comparison of Principal
Risk Factors; Additional
Information About Small Company
Growth Fund; Miscellaneous; See
also, the Prospectus for INVESCO
Small Company Growth Fund, dated
October 1, 1998, previously filed
on EDGAR, Accession Number
0000870781-98-000010
6. Information About the Company Being Synopsis; Comparison of Principal
Acquired Risk Factors; Miscellaneous; See
also, the Prospectus for INVESCO
Small Company Value Fund, dated
December 1, 1998, previously filed
on EDGAR, Accession Number
0000911411-98-000016
7. Voting Information Voting Information
8. Interest of Certain Persons and Experts Not Applicable
9. Additional Information Required for Not Applicable
Re-offering by Persons Deemed to be
Underwriters
<PAGE>
INVESCO EMERGING OPPORTUNITY FUNDS, INC.
FORM N-14 CROSS REFERENCE SHEET
Part B Item No. Statement of Additional
and Caption Information Caption
- ----------- -------------------
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information About the Statement of Additional
Registrant Information of INVESCO Small
Company Growth Fund, dated October
1, 1998, previously filed on
EDGAR, Accession Number
0000870781-98-000010
13. Additional Information About the Statement of Additional
Company Being Acquired Information of INVESCO Small
Company Value Fund, dated December
1, 1998, previously filed on
EDGAR, Accession Number
0000911411-98-000016
14. Financial Statements Annual Report of INVESCO Small
Company Growth Fund for Fiscal
Year Ended May 31, 1998,
previously filed on EDGAR,
Accession Number
0000870781-98-000006; Annual
Report of INVESCO Small Company
Value Fund for Fiscal Year Ended
July 31, 1998, previously filed on
EDGAR, Accession Number
0000911411-98-000012. Semi-Annual
Report of INVESCO Small Company
Growth Fund for Six Months Ended
November 30, 1998, previously
filed on EDGAR, Accession Number
0000870781-99-000002
<PAGE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
INVESCO EMERGING OPPORTUNITY FUNDS, INC.
PART A
<PAGE>
INVESCO SMALL COMPANY VALUE FUND
(A SERIES OF INVESCO DIVERSIFIED FUNDS, INC.)
March 23, 1999
Dear INVESCO Small Company Value Fund Shareholder:
The attached proxy materials describe a proposal that INVESCO Small
Company Value Fund ("Value Fund"), reorganize and become part of INVESCO Small
Company Growth Fund ("Growth Fund"), a series of INVESCO Emerging Opportunity
Funds, Inc. ("Emerging Opportunity Funds") If the proposal is approved and
implemented, each shareholder of Value Fund will automatically become a
shareholder of Growth Fund.
The attached proxy materials also seek your approval to convert Value Fund
to a series of INVESCO Stock Funds, Inc. ("Stock Funds") and to make certain
changes in the fundamental investment restrictions of Value Fund (if the
reorganization is not approved or cannot be completed for some other reason), to
elect directors, and to ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants of Value Fund.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS. The board
believes that combining the two Funds will benefit Value Fund's shareholders by
providing them with a portfolio that has an investment objective that is
substantially identical to that of Value Fund and that has a similar investment
strategy. If, however, the reorganization is not approved or cannot be completed
for some other reason, you are being asked to approve the conversion of Value
Fund to a series of Stock Funds. You are also being asked to approve certain
changes to the fundamental investment restrictions of Value Fund that will
update and streamline the Fund's policies. The attached proxy materials provide
more information about the proposed reorganization and the two Funds, the
proposed conversion, and the proposed changes in fundamental investment
restrictions, as well as the other matters you are being asked to vote upon.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
shares early will permit Value Fund to avoid costly follow-up mail and telephone
solicitation. After reviewing the attached materials, please complete, date and
sign your proxy card and mail it in the enclosed return envelope today. As an
alternative to using the paper proxy card to vote, you may vote by telephone, by
facsimile, through the Internet or in person.
Very truly yours,
Mark H. Williamson
President
<PAGE>
INVESCO Small Company Value Fund
[HEADLINE] WHAT YOU SHOULD KNOW ABOUT
THIS PROPOSED FUND MERGER
March 23, 1999
INVESCO AND THE FUND'S BOARD OF DIRECTORS ENCOURAGE YOU TO READ THE ENCLOSED
PROXY STATEMENT CAREFULLY. THE FOLLOWING IS A BRIEF OVERVIEW OF THE KEY ISSUE.
WHY IS MY FUND HOLDING A SPECIAL SHAREHOLDERS MEETING?
The main reason for the meeting is so that shareholders of INVESCO Small Company
Value Fund can decide whether or not to reorganize their fund. If shareholders
decide in favor of the proposal, SMALL COMPANY VALUE FUND WILL MERGE with
another, similar mutual fund managed by INVESCO, and you will become a
shareholder of INVESCO SMALL COMPANY GROWTH FUND.
Whether or not shareholders decide they wish to merge the Funds, there are other
matters of business to be considered. So, no matter how you choose to vote on
the proposed merger, please do review all of the other proposals and vote on
them as well.
WHAT ARE THE ADVANTAGES OF MERGING THE FUNDS? There are three key potential
advantages:
. Small Company Growth Fund is managed by INVESCO's EXPERIENCED GROWTH TEAM,
headed by Senior Vice President Timothy J. Miller. The team's highly disciplined
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investment strategy, combined with their expertise in bottom-up stock analysis,
may result in stronger fund performance over the long-term (although of course
this cannot be guaranteed).
. By combining the Funds, SHAREHOLDERS MAY ENJOY LOWER EXPENSE RATIOS over time.
Larger funds tend to enjoy economies of scale not available to funds with
smaller assets under management.
. These LOWER COSTS MAY LEAD TO STRONGER PERFORMANCE, since total return to a
fund's shareholders is net of fund expenses. The potential benefits and possible
disadvantages are explained in more detail in the enclosed proxy statement.
HOW ARE THESE TWO FUNDS ALIKE?
Both Funds seek long-term capital growth primarily through investments in
companies of $1 billion or less in market capitalization. However, there are
significant differences in their investment strategies:
. SMALL COMPANY VALUE FUND uses a value orientation in analyzing stocks, with a
computer optimization model to assist in selecting potential holdings based on
historical and anticipated rates of return. The focus is on stocks "out of
favor" with the broad market.
. SMALL COMPANY GROWTH FUND, on the other hand, highlights companies: in the
developing stages of life cycles; 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. Because it focuses on
these characteristics, Small Company Growth Fund is more aggressive in strategy,
and its price per share may be somewhat more volatile than Small Company Value
Fund. Because of its investment approach, Small Company Growth Fund may offer
greater opportunities for strong returns over the longer-term.
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WHAT HAPPENS IF SHAREHOLDERS DECIDE IN FAVOR OF A MERGER?
A Closing Date will be set for the reorganization. Shareholders will receive
full and fractional shares of Small Company Growth Fund equal in value to the
shares of Small Company Value Fund that they owned on the Closing Date. The net
asset value per share of Small Company Growth Fund will not be affected by the
transaction. So the reorganization will not result in a dilution of any
shareholder's interest.
IF THE FUNDS MERGE, WILL THERE BE TAX CONSEQUENCES FOR ME?
Unlike a transaction where you direct INVESCO to sell shares of one fund in
order to buy shares of another, the reorganization WILL NOT BE CONSIDERED A
TAXABLE EVENT. The Funds themselves will recognize no gains or losses on assets
as a result of a reorganization. So you will not have reportable capital gains
or losses due to the reorganization.
However, you should consult your own tax advisor regarding any possible effect a
reorganization might have on you, given your personal circumstances --
particularly regarding state and local taxes.
WHO WILL PAY FOR THIS REORGANIZATION?
The expenses of the reorganization, including legal expenses, printing,
packaging and postage, plus the costs of any supplementary solicitation, will be
borne partly by INVESCO and partly by the two Funds.
WHAT DOES THE FUND'S BOARD OF DIRECTORS RECOMMEND?
The Board believes you should vote in favor of the reorganization. More
important, though, the directors recommend that you study the issues involved,
call us with any questions, and vote promptly to ensure that a quorum of Small
Company Value Fund shares are represented at this Fund's special shareholders
meeting.
<PAGE>
WHERE DO I GET MORE INFORMATION ABOUT INVESCO SMALL COMPANY GROWTH FUND?
. Please visit our Web site at WWW.INVESCO.COM
. Or call Investor Services toll-free at 1-800-646-8372
<PAGE>
[BACK COVER] YOU SHOULD KNOW WHAT INVESCO KNOWS
At INVESCO, we've built a global reputation on professional investment
management. Some of the world's largest institutions and more than a million
individuals rely on our knowledgeable investment specialists for effective
management of their portfolios. INVESCO provides investors the perspective
gained from more than 65 years of helping clients seek their financial goals.
The heart of INVESCO's business is to provide strong core mutual fund portfolios
designed as solid foundations for our clients' investments. We draw on the
resources of affiliates worldwide, so we have seasoned experts in the investment
strategies you want to pursue -- both for your core investments as well as to
meet special needs. And we offer award-winning service to help you better take
advantage of our investment expertise. Call us to learn more about your choices
at INVESCO.
<PAGE>
INVESCO SMALL COMPANY VALUE FUND
(A SERIES OF INVESCO DIVERSIFIED FUNDS, INC.)
--------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
MAY 20, 1999
--------
To The Shareholders:
A special meeting of shareholders of the INVESCO Small Company Value Fund
("Value Fund"), the sole series of INVESCO Diversified Funds, Inc. ("Diversified
Funds"), will be held on May 20, 1999, at 10:00 a.m., Mountain Time, at the
office of INVESCO Funds Group Inc., 7800 E. Union Avenue, Denver, Colorado, for
the following purposes:
(1) To approve an Agreement and Plan of Reorganization and Termination
under which the INVESCO Small Company Growth Fund ("Growth Fund"), a series of
INVESCO Emerging Opportunity Funds, Inc., would acquire all of the assets of
Value Fund in exchange solely for shares of Growth Fund and the assumption by
Growth Fund of all of Value Fund's liabilities, followed by the distribution of
those shares to the shareholders of Value Fund, all as described in the
accompanying Prospectus/Proxy Statement;
(2) To approve an Agreement and Plan of Conversion and Termination
providing for the conversion of Value Fund from Diversified Funds to a separate
series of INVESCO Stock Funds, Inc.;
(3) To approve certain changes to the fundamental investment restrictions
of Value Fund;
(4) To elect a board of directors of Diversified Funds;
(5) To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of Value Fund; and
(6) To transact such other business as may properly come before the
meeting or any adjournment thereof.
<PAGE>
You are entitled to vote at the meeting and any adjournment thereof if you
owned shares of Value Fund at the close of business on March 12, 1999. IF YOU
ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF YOU DO NOT EXPECT TO
ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
By order of the board of directors,
Glen A. Payne
Secretary
March 23, 1999
Denver, Colorado
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card, sign
and date the card, and return it in the envelope provided. IF YOU SIGN, DATE AND
RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
"FOR" THE PROPOSALS DESCRIBED ABOVE. In order to avoid the additional expense of
further solicitation, we ask your cooperation in mailing your proxy card
promptly. As an alternative to using the paper proxy card to vote, you may vote
by mail, telephone, through the Internet, by facsimile machine, or in person.
Shares that are registered in your name, as well as shares held in "street name"
through a broker, may be voted via the Internet or by telephone. To vote in this
manner, you will need the 12-digit "control" number(s) that appear on your proxy
card(s). To vote via the Internet, please access http://www.proxyvote.com on the
World Wide Web. In addition, shares that are registered in your name may be
voted by faxing your completed proxy cards to 1-800-733-1885. You may also
call 1-800-690-6903 and vote by phone. If we do not receive your completed proxy
card(s) after several weeks, you may be contacted by our proxy solicitor,
Shareholder Communications Corporation. Our proxy solicitor will remind you to
vote your shares or will record your vote over the phone if you choose to vote
in that manner.
Unless proxy cards submitted by corporations and partnerships are signed by the
appropriate persons as indicated in the voting instructions on the proxy card,
they will not be voted.
- -------------------------------------------------------------------------------
2
<PAGE>
INVESCO SMALL COMPANY GROWTH FUND
(A SERIES OF INVESCO EMERGING OPPORTUNITY FUNDS, INC.)
INVESCO SMALL COMPANY VALUE FUND
(A SERIES OF INVESCO DIVERSIFIED FUNDS, INC.)
7800 EAST UNION AVENUE
DENVER, COLORADO 80237
(TOLL FREE) 1-800-646-8372
PROSPECTUS/PROXY STATEMENT
MARCH 23, 1999
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of INVESCO Small Company Value Fund ("Value Fund"), the sole series
of INVESCO Diversified Funds, Inc. ("Diversified Funds"), in connection with the
solicitation of proxies by its board of directors for use at a special meeting
of its shareholders to be held on May 20, 1999, at 10:00 a.m., Mountain Time,
and at any adjournment of the meeting, if the meeting is adjourned for any
reason.
As more fully described in this Proxy Statement, one of the main purposes
of the meeting is to vote on a proposed reorganization. In the reorganization,
the INVESCO Small Company Growth Fund ("Growth Fund"), the sole series of
INVESCO Emerging Opportunity Funds, Inc. ("Emerging Opportunity Funds"), would
acquire all of the assets of Value Fund, in exchange solely for shares of Growth
Fund and the assumption by Growth Fund of all of the liabilities of Value Fund.
Those shares of Growth Fund would then be distributed to the shareholders of
Value Fund, so that each shareholder would receive a number of full and
fractional shares of Growth Fund having an aggregate value that, on the
effective date of the reorganization, is equal to the aggregate net asset value
of the shareholder's shares of Value Fund. As soon as practicable following the
distribution of shares, Value Fund will be terminated.
Growth Fund is a diversified series of Emerging Opportunity Funds, which is an
open-end management investment company. Growth Fund's investment objective is
long-term capital growth.
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about the reorganization and Growth Fund that a
shareholder should know before voting on the reorganization. A Statement of
Additional Information, dated March 23, 1999, relating to the reorganization and
including historical financial statements, has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated herein by reference (that
is, the Statement of Additional Information is legally a part of this Proxy
Statement). A Prospectus and a Statement of Additional Information for Growth
Fund, each dated October 1, 1998, Growth Fund's Annual Report to Shareholders
<PAGE>
for the fiscal year ended May 31, 1998, and Growth Fund's Semi-Annual Report to
Shareholders for the six months ended November 30, 1998, have been filed with
the SEC and are incorporated herein by this reference. A Prospectus and a
Statement of Additional Information for Value Fund, each dated December 1, 1998,
have been filed with the SEC and also are incorporated herein by this reference.
A copy of Growth Fund's Prospectus and Annual Report accompany this Proxy
Statement. Copies of the other referenced documents, as well as Value Fund's
Annual Report to Shareholders for the fiscal year ended July 31, 1998, may be
obtained without charge, and further inquiries may be made, by writing to
INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado 80217-3706, or by
calling toll-free 1-800-646-8372.
The SEC maintains a website (http://www.sec.gov) that contains the
Statement of Additional Information and other material incorporated by
reference, together with other information regarding Growth Fund and Value Fund.
THE SEC HAS NOT APPROVED OR DISAPPROVED THE SHARES OF THE INVESCO SMALL
COMPANY GROWTH FUND, OR DETERMINED WHETHER THIS PROXY STATEMENT IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
<PAGE>
TABLE OF CONTENTS
VOTING INFORMATION............................................................
PART I: THE REORGANIZATION
PROPOSAL 1: To approve an Agreement and Plan of Reorganization and
Termination under which Growth Fund would acquire all of the assets of
Value Fund in exchange solely for shares of Growth Fund and the
assumption by Growth Fund of all of Value Fund's liabilities, followed
by the distribution of those shares to the shareholders of Value Fund.
Synopsis......................................................................
Comparison of Principal Risk Factors..........................................
The Proposed Transaction......................................................
Miscellaneous.................................................................
PART II: PROPOSED ORGANIZATIONAL MATTER
PROPOSAL 2: To approve an Agreement and Plan of Conversion and
Termination providing for the conversion of Value Fund from
Diversified Funds to a separate series of INVESCO Stock Funds, Inc............
PART III: PROPOSED MODIFICATIONS TO FUNDAMENTAL INVESTMENT
RESTRICTIONS AND ROUTINE CORPORATE GOVERNANCE MATTERS
PROPOSAL 3: To approve amendments to the fundamental investment
restrictions of Value Fund....................................................
a. Modification of fundamental restriction on issuer diversification to
permit increased investment in the securities of a single
issuer.....................................................................
b. Modification of fundamental restriction on borrowing and adoption of
non-fundamental policy on borrowing........................................
c. Modification of fundamental restriction on industry concentration..........
d. Modification of fundamental restriction on real estate investment..........
e. Modification of fundamental restriction on investing in commodities........
f. Modification of fundamental restriction on loans...........................
g. Modification of fundamental restriction on underwriting....................
h. Adoption of fundamental restriction on the issuance of senior securities...
i. Modification of fundamental policy on investing in another investment
company....................................................................
iii
<PAGE>
PROPOSAL 4: To elect a Board of Directors....................................
PROPOSAL 5: To ratify the selection of PricewaterhouseCoopers LLP as
Independent Accountants of Value Fund............................
OTHER BUSINESS................................................................
INFORMATION CONCERNING ADVISER, SUB-ADVISER, DISTRIBUTOR, AND AFFILIATED
COMPANIES.....................................................................
MISCELLANEOUS.................................................................
Available Information.........................................................
Legal Matters.................................................................
Experts.......................................................................
APPENDIX A: PRINCIPAL SHAREHOLDERS........................................A-1
APPENDIX B: AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION..........B-1
APPENDIX C: AGREEMENT AND PLAN OF CONVERSION AND TERMINATION..............C-1
iv
<PAGE>
INVESCO SMALL COMPANY VALUE FUND
(a series of INVESCO Diversified Funds, Inc.)
-----------
PROSPECTUS/PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
MAY 20, 1999
-----------
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished
to shareholders of INVESCO Small Company Value Fund ("Value Fund"), the sole
series of INVESCO Diversified Funds, Inc. ("Diversified Funds"), in connection
with the solicitation of proxies from Value Fund shareholders by the board of
directors ("Board") of Diversified Funds for use at a special meeting of
shareholders to be held on May 20, 1999 ("Meeting"), and at any adjournment of
the Meeting. This Proxy Statement will first be mailed to shareholders on or
about March 23, 1999.
One-third of Value Fund's shares outstanding on March 12, 1999,
represented in person or by proxy, shall constitute a quorum and must be present
for the transaction of business at the Meeting. If a quorum is not present at
the Meeting or a quorum is present but sufficient votes to approve one or more
of the proposals are not received, the persons named as proxies may propose one
or more adjournments of the Meeting to permit further solicitation of proxies.
Any such adjournment will require the affirmative vote of a majority of those
shares represented at the Meeting in person or by proxy. The persons named as
proxies will vote those proxies that they are entitled to vote FOR any proposal
in favor of such an adjournment and will vote those proxies required to be voted
AGAINST a proposal against such adjournment. A shareholder vote may be taken on
one or more of the proposals in this Proxy Statement prior to any such
adjournment if sufficient votes have been received and it is otherwise
appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and for which the broker does not have
discretionary voting authority. Abstentions and broker non-votes will be counted
as shares present for purposes of determining whether a quorum is present but
will not be voted for or against any adjournment or proposal. Accordingly,
abstentions and broker non-votes effectively will be a vote against adjournment
or against any proposal where the required vote is a percentage of the shares
present or outstanding. Abstentions and broker non-votes will not be counted,
however, as votes cast for purposes of determining whether sufficient votes have
been received to approve a proposal.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your directions as indicated on the proxy card, if your proxy
<PAGE>
card is received properly executed by you or by your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval of each of
the proposals. In addition, if you sign, date and return the proxy card, but
give no voting instructions, the duly appointed proxies may, in their
discretion, vote upon such other matters as may come before the Meeting. The
proxy card may be revoked by giving another proxy or by letter or telegram
revoking the initial proxy. To be effective, revocation must be received by
Diversified Funds prior to the Meeting and must indicate your name and account
number. If you attend the Meeting in person you may, if you wish, vote by ballot
at the Meeting, thereby canceling any proxy previously given.
In order to reduce costs, the notices to a shareholder having more than
one account in Value Fund listed under the same Social Security number at a
single address have been combined. The proxy cards have been coded so that a
shareholder's votes will be counted for each such account.
As of March 12, 1999 ("Record Date"), Value Fund had 5,388,879.263
shares of common stock outstanding. The solicitation of proxies, the cost of
which will be borne half by INVESCO Funds Group, Inc., the investment adviser
and transfer agent of Value Fund ("INVESCO"), and half by INVESCO Small Company
Growth Fund ("Growth Fund"), the sole series of INVESCO Emerging Opportunity
Funds, Inc. ("Emerging Opportunity Funds"), and Value Fund, will be made
primarily by mail but also may be made by telephone or oral communications by
representatives of INVESCO and INVESCO Distributors, Inc. ("IDI"), the
distributor of the INVESCO group of investment companies ("INVESCO Funds"), who
will not receive any compensation for these activities from either Value Fund or
Growth Fund, or by Shareholder Communications Corporation, professional proxy
solicitors, who will be paid fees and expenses of up to approximately $3,722 for
soliciting services. If votes are recorded by telephone, Shareholder
Communications Corporation will use procedures designed to authenticate
shareholders' identities, to allow shareholders to authorize the voting of their
shares in accordance with their instructions, and to confirm that a
shareholder's instructions have been properly recorded. You may also vote by
mail, by facsimile or through a secure Internet site. Proxies voted by
telephone, facsimile or Internet may be revoked at any time before they are
voted in the same manner that proxies voted by mail may be revoked.
Except as set forth in Appendix A, INVESCO does not know of any person
who owns beneficially 5% or more of the shares of Value Fund or Growth Fund
(each a "Fund"). Directors and officers of Diversified Funds own in the
aggregate less than 1% of the shares of Value Fund.
Vote Required. Approval of Proposals 1 and 2 requires the affirmative
vote of a majority of the outstanding voting securities of Value Fund. Approval
of Proposal 3 requires the affirmative vote of a "majority of the outstanding
voting securities" of Value Fund, as defined in the Investment Company Act of
1940, as amended ("1940 Act"). This means that Proposal 3 must be approved by
the lesser of (1) 67% of Value Fund's shares present at a meeting of
shareholders if the owners of more than 50% of Value Fund's shares then
outstanding are present in person or by proxy or (2) more than 50% of Value
Fund's outstanding shares. A plurality of the votes cast at the Meeting is
sufficient to approve Proposal 4. Approval of Proposal 5 requires the
2
<PAGE>
affirmative vote of a majority of the votes present at the Meeting, provided a
quorum is present. Each outstanding full share of Value Fund is entitled to one
vote, and each outstanding fractional share thereof is entitled to a
proportionate fractional share of one vote. If any Proposal is not approved by
the requisite vote of shareholders of Value Fund, the persons named as proxies
may propose one or more adjournments of the Meeting to permit further
solicitation of proxies.
PART I. THE REORGANIZATION
PROPOSAL 1. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION AND
TERMINATION ("REORGANIZATION PLAN") UNDER WHICH GROWTH FUND WOULD
ACQUIRE ALL OF THE ASSETS OF VALUE FUND IN EXCHANGE SOLELY FOR SHARES OF
GROWTH FUND AND THE ASSUMPTION BY GROWTH FUND OF ALL OF VALUE FUND'S
LIABILITIES, FOLLOWED BY THE DISTRIBUTION OF THOSE SHARES TO THE
SHAREHOLDERS OF VALUE FUND ("REORGANIZATION")
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement, the Prospectus and Statement of Additional Information of
Growth Fund (which are incorporated herein by reference), the Prospectus and
Statement of Additional Information of Value Fund (which are incorporated herein
by reference), and the Reorganization Plan (which is attached as Appendix B to
this Proxy Statement). As discussed more fully below, Diversified Funds' Board
believes that the Reorganization will benefit Value Fund's shareholders. Growth
Fund has an investment objective that is substantially similar to the investment
objective of Value Fund and has a similar investment strategy.
THE PROPOSED REORGANIZATION
Diversified Funds' Board considered and approved the Reorganization Plan
at a meeting held on February 3, 1999. The Reorganization Plan provides for the
acquisition of all the assets of Value Fund by Growth Fund, in exchange solely
for shares of common stock of Growth Fund and the assumption by Growth Fund of
all the liabilities of Value Fund. Value Fund then will distribute those shares
of Growth Fund to its shareholders, so that each Value Fund shareholder will
receive the number of full and fractional shares that is equal in aggregate
value to the value of the shareholder's holdings in Value Fund as of the day the
Reorganization is completed. Value Fund will be terminated as soon as
practicable thereafter.
The Reorganization will occur as of the close of business on June 4,
1999, or at a later date when the Reorganization is approved and all
contingencies have been met ("Closing Date").
3
<PAGE>
For the reasons set forth below under "The Proposed Transaction -
Reasons for the Reorganization," Diversified Funds' Board, including its
directors who are not "interested persons," as that term is defined in the 1940
Act, of Diversified Funds, Emerging Opportunity Funds, INVESCO, or INVESCO
Management and Research, Inc. ("IMR") ("Independent Directors"), has determined
that the Reorganization is in the best interests of Value Fund, that the terms
of the Reorganization are fair and reasonable and that the interests of Value
Fund's shareholders will not be diluted as a result of the Reorganization.
Accordingly, Diversified Funds' Board recommends approval of the transaction. In
addition, the Board of Emerging Opportunity Funds, including its Independent
Directors, has determined that the Reorganization is in the best interests of
Growth Fund, that the terms of the Reorganization are fair and reasonable and
that the interests of Growth Fund's shareholders will not be diluted as a result
of the Reorganization.
COMPARATIVE FEE TABLE
Certain fees and expenses that Value Fund's shareholders pay directly or
indirectly, are slightly different from those incurred by Growth Fund's
shareholders, although neither Fund's shares are subject to any shareholder
transaction expenses, I.E., there are no sales charges on shares purchased or
deferred sales charges for shares redeemed. The following tables show (1) fees
currently incurred by shareholders of each Fund and fees that each shareholder
will incur after giving effect to the Reorganization, and (2) the current fees
and expenses incurred for the fiscal year ended May 31, 1998 by Growth Fund and
the fiscal year ended July 31, 1998 by Value Fund and PRO FORMA fees for Growth
Fund after the Reorganization are shown below.
SHAREHOLDER FEES (fees paid directly from your investment)
<TABLE>
<CAPTION>
GROWTH FUND VALUE FUND COMBINED FUND
----------- ---------- -------------
<S> <C> <C> <C>
Sales charge (load) on purchases of shares None None None
Sales charge (load) on reinvested dividends None None None
Redemption fee or deferred sales charge None None None
(load)
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
COMBINED FUND
GROWTH FUND VALUE FUND (PRO FORMA)
----------- ---------- -------------
Management Fees 0.75% 0.75% 0.75%
Distribution (12b-1) Fees* 0.25% 0.25%(1) 0.25%
4
<PAGE>
Other Expenses 0.50%(2)(3) 0.48%(2)(4) 0.48%
Total Fund Operating Expenses 1.50%(2)(3) 1.48%(2)(4) 1.48%(5)
</TABLE>
* Because each Fund pays distribution fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(1) Effective June 1, 1998, Value Fund was authorized to pay a distribution
(12b-1) fee of up to one quarter of one percent of new assets (new sales of
shares, exchanges into the Fund and reinvestments of dividends and other
distributions made on or after June 1, 1998). For the fiscal year ended July
31, 1998, actual distribution (12b-1) fees were 0.01% of average net assets.
Currently, because of the increase in new assets, actual distribution
(12b-1) fees are 0.25% of average net assets.
(2) Each Fund's actual Total Fund Operating Expenses were lower than the figures
shown, because their transfer agent fees and/or custodian fees were reduced
under expense offset arrangements. Because of an SEC requirement, the
figures shown above do not reflect these reductions.
(3) INVESCO has voluntarily agreed to reimburse Growth Fund for expenses in
excess of 1.50% of the Fund's average net assets (excluding the expense
offset arrangements described above).
(4) Certain expenses of Growth Fund are being absorbed voluntarily by INVESCO,
the Fund's investment adviser. Accordingly, the Other Expenses and Total
Fund Operating Expenses paid by Growth Fund were 0.48% and 1.48%,
respectively.
(5) INVESCO has voluntarily agreed to continue to reimburse Growth Fund for
expenses in excess of 1.50% of the Fund's average net assets (excluding any
applicable expense offset arrangements) for a period of at least one year
after the Reorganization.
EXAMPLE OF EFFECT ON FUND EXPENSES
This Example is intended to help you compare the cost of investing in
Value Fund with the cost of investing in Growth Fund and the cost of investing
in Growth Fund assuming the Reorganization has been completed.
The Example assumes that you invest $10,000 in the specified Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year, that all dividends and other distributions are reinvested and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
Growth Fund $153 $474 $818 $1791
Value Fund $151 $468 $808 $1768
Combined Fund $153 $474 $818 $1791
5
<PAGE>
FORM OF ORGANIZATION
Growth Fund is the sole series of Emerging Opportunity Funds, an
open-end, diversified investment management company that was organized as a
Maryland corporation on December 6, 1990. Value Fund is the sole series of
Diversified Funds, an open-end, diversified investment management company that
was organized as a Maryland corporation on April 2, 1993. Neither Emerging
Opportunity Funds nor Diversified Funds is required to (nor does it) hold annual
shareholder meetings. Neither Fund issues share certificates.
INVESTMENT ADVISER
INVESCO is the investment adviser of each Fund. In this capacity,
INVESCO supervises all aspects of each Fund's operations and makes and
implements all investment decisions for Growth Fund. IMR is the sub-adviser of
Value Fund and is primarily responsible for managing Value Fund's investments.
INVESCO is currently paid (1) by Value Fund a monthly management fee
computed at the annual rate of 0.75% of the Fund's average net assets, and (2)
by Growth Fund a monthly management fee 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 such assets, and 0.55% on such assets over $700 million. For the
fiscal years ended May 31, 1998 with respect to Growth Fund and July 31, 1998
with respect to Value Fund, each Fund paid an investment management fee of 0.75%
of its average daily net assets. Following the Reorganization, the initial
management fee for the combined Fund is expected to be 0.75% of average net
assets, although this fee will decrease in accordance with the fee schedule for
Growth Fund described above if the assets of the combined Fund increase. With
respect to Value Fund, INVESCO (not the Fund) pays IMR a fee for its
sub-advisory services in an amount equal to 0.30% of the Fund's average net
assets.
Following the Reorganization, INVESCO, in its capacity as investment
adviser to Growth Fund, will have sole responsibility for managing the Funds'
combined assets.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are set forth below.
Growth Fund has an investment objective generally similar to that of Value Fund
in that each Fund seeks long-term capital growth through investment in equity
securities of small companies. Both Funds seek to achieve this objective by
investing primarily in companies with market capitalizations of $1 billion or
less at the time of purchase ("small cap companies") that INVESCO believes are
6
<PAGE>
undervalued in the marketplace. While each Fund also may invest in debt
securities, Value Fund historically has not done so, and Growth Fund's portfolio
currently does not contain any debt securities. In addition, Growth Fund may
purchase and write options on securities and indices for any purpose, while
Value Fund may enter into options on futures contracts and securities solely for
hedging or other nonspeculative purposes. There can be no assurance that either
Fund will achieve its investment objective.
GROWTH FUND. The investment objective of Growth Fund is long-term
capital growth. The Fund seeks to achieve its objective through the investment
of 65% or more of its assets in equity securities of 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, INVESCO
primarily looks for companies in the developing stages of their life cycle that
are currently undervalued in the marketplace, have earnings that 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. The Fund also has the
flexibility to invest in other U.S. and foreign securities, including debt
securities. The Fund's investments in debt securities include U.S. government
and corporate debt securities. In addition, the Fund may purchase and write
options on securities and indices.
VALUE FUND. The investment objective of Value Fund is long-term capital
growth. The Fund seeks to achieve this objective through the investment of 65%
or more of its assets in equity securities of U.S. companies with market
capitalizations below those of the 1,000 largest U.S. companies as measured by
market capitalization, but not in excess of $1 billion, at the time of initial
purchase.1 The balance of the Fund's assets may be invested in equity securities
of foreign companies and companies whose capitalizations exceed that of small
cap companies, U.S. government securities, short-term investments and
nonconvertible long-term debt securities. In addition, the Fund may enter into
futures contracts and options on futures contracts and securities solely for
hedging or other nonspeculative purposes. In selecting investments, INVESCO
primarily seeks to identify stocks of small cap companies that will produce an
annual total return higher than the annual return of the Russell 2000 Small
Stock Index (an unmanaged index comprised of the common stocks of 2,000 U.S.
companies having market capitalizations that are smaller than those of the
largest 1,000 U.S. companies) over a full market cycle. INVESCO employs a
value-oriented approach using both quantitative and traditional stock analysis
to uncover the best possible values from a broad universe of small companies.
Among other factors, INVESCO reviews earnings-to-price and book value-to-price
ratios, earnings estimate revision momentum, relative market strength compared
to competitors, inventory/sales trends, and financial leverage.
OTHER POLICIES OF BOTH FUNDS. Each Fund may invest up to 25% of its
total assets in foreign securities. Each Fund also may commit up to 10% of its
total assets to the purchase or sale of securities on a when-issued or
- --------
1 The 1,000 U.S. companies having the highest market capitalization are included
in the Russell 1000 Large Cap Stock Index. On its annual rebalancing date of May
31, 1998, the smallest stock in the Index had a market capitalization of
approximately $1.4 billion.
7
<PAGE>
delayed-delivery basis - that is, with settlement taking place in the future.
Both Funds may invest in illiquid securities, including securities that are
subject to restrictions on resale and securities that are not readily
marketable; the Funds may also invest in restricted securities that may be
resold to institutional investors. Both Funds also may enter into repurchase
agreements with member banks of the Federal Reserve System, registered
broker-dealers, and registered U.S. government securities dealers. In addition,
each Fund may seek to earn additional income by lending its portfolio securities
to qualified brokers, dealers, banks, or other financial institutions, on a
fully collateralized basis.
Each Fund's investment portfolio is actively traded -- securities may be
bought and sold relatively quickly during certain market or economic conditions.
At times Value Fund's portfolio turnover rate may exceed 100%, while that of
Growth Fund may exceed 200%, resulting in greater brokerage commissions and
acceleration of capital gains, which are taxable when distributed to
shareholders.
When market or economic conditions are unfavorable, each 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.
OPERATIONS OF GROWTH FUND FOLLOWING THE REORGANIZATION
As indicated above, the investment objectives and policies of the two
Funds are substantially similar. Based on its review of the investment
portfolios of each Fund, INVESCO believes that all of the assets held by Value
Fund will be consistent with the investment policies of Growth Fund and thus can
be transferred to and held by Growth Fund if the Reorganization Plan is
approved. If, however, Value Fund has any assets that may not be held by Growth
Fund, those assets will be sold prior to the Reorganization. The proceeds of
such sales will be held in temporary investments or reinvested in assets that
qualify to be held by Growth Fund. The possible need for Value Fund to dispose
of assets prior to the Reorganization could result in selling securities at a
disadvantageous time and could result in Value Fund's realizing losses that
would not otherwise have been realized. Alternatively, these sales could result
in Value Fund's realizing gains that would not otherwise have been realized, the
net proceeds of which would be included in a distribution to its shareholders
prior to the Reorganization.
As discussed above, INVESCO serves as investment adviser to both Funds,
and IMR serves as sub-adviser to Value Fund. After the Reorganization, INVESCO,
in its capacity as investment adviser to Growth Fund, will have sole
responsibility for managing the Funds' combined assets. In addition, the
directors and officers of Growth Fund, its distributor and other outside agents
will continue to serve the Fund in their current capacities.
PURCHASES AND REDEMPTIONS
PURCHASES. Shares of each Fund may be purchased by wire, telephone, mail
or direct payroll purchase. The shares of each Fund are sold on a continuous
8
<PAGE>
basis at the net asset value ("NAV") per share next calculated after receipt of
a purchase order in good form. The NAV per share for each Fund is computed
separately and is determined once each day that the New York Stock Exchange is
open ("Business Day") as of the close of regular trading on the Exchange, but
may also be computed at other times. For a more complete discussion of share
purchases, see "How to Buy Shares" in either the Growth Fund Prospectus or the
Value Fund Prospectus.
REDEMPTIONS. Shares of each Fund may be redeemed by telephone or by
mail. Redemptions are made at the NAV per share of each Fund next determined
after a request in proper form is received at the Fund's office. Normally,
payments for shares redeemed will be mailed within seven days following receipt
of the required documents. For a more complete discussion of share redemption
procedures, see "How to Sell Shares" in either the Growth Fund Prospectus or the
Value Fund Prospectus.
Value Fund shares will no longer be available for purchase on the
Business Day following the Closing Date. Redemptions of Value Fund's shares may
be effected through the Closing Date.
EXCHANGES
Shares of each Fund may be exchanged for shares of another INVESCO Fund
on the basis of their respective NAVs at the time of the exchange. After the
Reorganization, shares of Growth Fund will continue to be exchangeable for
shares of another INVESCO Fund. For a more complete discussion of the Funds'
exchange policies, see "How to Buy Shares" in either Fund's Prospectus.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund earns investment income in the form of interest and dividends
on investments. Dividends paid by each Fund are based solely on its investment
income. Each Fund's policy is to distribute substantially all of its investment
income, less expenses, to shareholders on an annual or semiannual basis, at the
discretion of the Board of that Fund. Dividends are automatically reinvested in
additional shares of a Fund at the net asset value on the payable date unless
otherwise requested.
Each Fund also realizes capital gains and losses when it sells
securities or derivatives for more or less than it paid. If total gains on these
sales exceed total losses (including losses carried forward from previous
years), the Fund has capital gain net income. Net realized capital gains, if
any, together with net gains realized on foreign currency transactions, if any,
are distributed to each Fund's shareholders at least annually, usually in
December. Capital gains distributions are automatically reinvested in additional
shares of a Fund on the payable date unless otherwise requested.
On or before the Closing Date, Value Fund will declare as a distribution
substantially all of its net investment income and realized net capital gain, if
9
<PAGE>
any, and distribute that amount plus any previously declared but unpaid
dividends, in order to continue to maintain its tax status as a regulated
investment company.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
The Funds will receive an opinion of their counsel, Kirkpatrick &
Lockhart LLP, to the effect that the Reorganization will constitute a tax-free
reorganization within the meaning of section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended ("Code"). Accordingly, neither Fund will
recognize any gain or loss as a result of the Reorganization. See "The Proposed
Transaction - Federal Income Tax Considerations," below. To the extent Value
Fund sells securities prior to the Closing Date, there may be net recognized
gains or losses to the Fund. Any net recognized gains would increase the amount
of any distribution made to shareholders of Value Fund prior to the Closing
Date.
COMPARISON OF PRINCIPAL RISK FACTORS
An investment in Growth Fund is subject to specific risks arising from
the types of securities in which the Fund invests and general risks arising from
investing in any mutual fund. The principal specific risks associated with
investing in Growth Fund include:
SMALL CAP COMPANIES. 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 expose
these companies to more intense competitive pressures, greater volatility in
earnings, and relative illiquidity or erratic price movements for the companies'
securities, compared to larger, more established companies or the market
averages in general.
DEBT SECURITIES. 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 outstanding
debt securities, whereas a decline in interest rates will tend to increase their
values.
FOREIGN SECURITIES. The Fund may invest up to 25% of its assets in
foreign securities. Investments in foreign securities are influenced not only by
the returns on the foreign investments themselves, but also by currency
fluctuations. In addition, 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,
auditing and financial reporting standards, practices and requirements as
compared to those applicable to U.S. issuers. The Fund's adviser normally
purchases foreign securities in over-the-counter markets or on foreign
exchanges, which are generally not as developed or efficient as those in the
United States and are subject to less government supervision and regulation.
Moreover, 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 a
Fund, political or social instability, or diplomatic developments that could
affect U.S. investments in those countries. Investments in American Depository
10
<PAGE>
Receipts ("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.
ILLIQUID AND RULE 144A SECURITIES. The Fund may invest in illiquid
securities, including restricted securities and other investments that are not
readily marketable. Restricted securities are securities that are subject to
restrictions on their resale because they have not been registered under the
Securities Act of 1933 ("1933 Act") or because, based upon their nature or the
market for such securities, they are not readily marketable. 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 registering the security. The
Fund may also invest in restricted securities that can be resold to
institutional investors in accordance with Rule 144A under the 1933 Act ("Rule
144A Securities"). However, an insufficient number of qualified institutional
buyers interested in purchasing a Rule 144A Security held by the Fund could
adversely affect the marketability of such security, and the Fund might be
unable to dispose of the security promptly or at a reasonable price.
DELAYED DELIVERY OR WHEN-ISSUED SECURITIES. The Fund may invest in
when-issued or delayed delivery securities, that is, with settlement taking
place in the future. 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.
OPTIONS ON SECURITIES AND INDICES. Options on securities and indices are
traded on the Chicago Board Options Exchange and other securities exchanges that
are regulated by the Securities and Exchange Commission ("SEC"). An option
position in an exchange-traded option may be closed out on an options exchange
only when a secondary market for an option of the same series exists. 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, as a covered
call option writer, the Fund 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. In addition, with respect to
options on securities and indices that are traded over-the-counter, 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. For a more detailed discussion of the
Fund's use of options on securities and indices and the risks of these
investment practices, see "Investment Policies and Restrictions" in Growth
Fund's Statement of Additional Information.
11
<PAGE>
TURNOVER RATE. The Fund's investment portfolio is actively traded.
Because the Fund's 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 that of many other mutual funds, sometimes exceeding 200%. This
turnover may result in greater brokerage commissions and acceleration of capital
gains, which are taxable when distributed to shareholders.
YEAR 2000. Many computer systems in use today may not be able to
recognize any date after December 31, 1999. If these systems are not fixed by
that date, it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own major computer systems will continue to function on and after
January 1, 2000. In addition, the markets for, or value of, securities in which
the Funds invest may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000. For example,
improperly functioning systems could result in securities trade settlement
problems and liquidity issues, production issues for individual companies and
overall economic uncertainties. Individual issuers may incur increased costs in
making their own systems Year 2000 complaint. The combination of market
uncertainty and increased costs means that there is a possibility that Year 2000
computer issues may adversely affect the Fund's investments.
Because Value Fund's investment objective and policies are substantially
similar to those of Growth Fund, an investment in Value Fund is subject to many
of the same specific risks as an investment in Growth Fund. Although Value
Fund's investment portfolio is also actively traded, its portfolio turnover rate
(which at times exceeds 100%) is generally lower than that of Growth Fund. As a
result, Value Fund may be expected to have lower brokerage fees and be less
likely to experience accelerated capital gains.
THE PROPOSED TRANSACTION
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction will be
consummated are set forth in the Reorganization Plan. Significant provisions of
the Reorganization Plan are summarized below; however, this summary is qualified
in its entirety by reference to the Reorganization Plan, which is attached as
Appendix B to this Proxy Statement.
The Reorganization Plan provides for (a) the acquisition by Growth Fund
on the Closing Date of all of the assets of Value Fund in exchange solely for
Growth Fund shares and the assumption by Growth Fund of all of Value Fund's
liabilities and (b) the distribution of those Growth Fund shares to the
shareholders of Value Fund.
The assets of Value Fund to be acquired by Growth Fund include all cash,
cash equivalents, securities, receivables, claims and rights of action, rights
to register shares under applicable securities laws, books and records, deferred
12
<PAGE>
and prepaid expenses shown as assets on Value Fund's books, and all other
property owned by Value Fund. Growth Fund will assume from Value Fund all
liabilities, debts, obligations and duties of Value Fund of whatever kind or
nature; provided, however, that Value Fund will use its best efforts to
discharge all of its known liabilities before the Closing Date. Growth Fund will
deliver its shares to Value Fund, which will distribute the shares to Value
Fund's shareholders.
The value of Value Fund's assets to be acquired by Growth Fund and the
NAV per share of the Growth Fund shares to be exchanged for those assets will be
determined as of the close of regular trading on the New York Stock Exchange on
the Closing Date ("Valuation Time"), using the valuation procedures described in
each Fund's then-current Prospectus and Statement of Additional Information.
Value Fund's net value shall be the value of its assets to be acquired by Growth
Fund, less the amount of Value Fund's liabilities, as of the Valuation Time.
On, or as soon as practicable after, the Closing Date, Value Fund will
distribute the Growth Fund shares it receives PRO RATA to its shareholders of
record as of the effective time of the Reorganization, so that each Value Fund
shareholder will receive a number of full and fractional Growth Fund shares
equal in aggregate value to the shareholder's holdings in Value Fund. Value Fund
will be terminated as soon as practicable after the share distribution. The
shares will be distributed by opening accounts on the books of Growth Fund in
the names of Value Fund shareholders and by transferring to those accounts the
shares previously credited to the account of Value Fund on those books.
Fractional shares in Growth Fund will be rounded to the third decimal place.
Because Growth Fund shares will be issued at NAV in exchange for the net
assets of Value Fund, the aggregate value of Growth Fund shares issued to Value
Fund shareholders will equal the aggregate value of Value Fund shares. The NAV
per share of Growth Fund will be unchanged by the transaction. Thus, the
Reorganization will not result in a dilution of any shareholder's interest.
Any transfer taxes payable upon the issuance of Growth Fund shares in a
name other than that of the registered Value Fund shareholder will be paid by
the person to whom those shares are to be issued as a condition of the transfer.
Any reporting responsibility of Value Fund to a public authority will continue
to be its responsibility until it is dissolved.
Half of the cost of the Reorganization, including professional fees and
the cost of soliciting proxies for the Meeting, consisting principally of
printing and mailing expenses, together with the cost of any supplementary
solicitation, will be borne by INVESCO, the investment adviser to each Fund, and
half by Growth Fund and Value Fund. The Boards of Diversified Funds and Emerging
Opportunity Funds each considered the fact that INVESCO will pay half of these
expenses in approving the Reorganization and finding that the Reorganization is
in the best interests of its Fund.
The consummation of the Reorganization is subject to a number of
conditions set forth in the Reorganization Plan, some of which may be waived by
13
<PAGE>
either Fund. In addition, the Reorganization Plan may be amended in any mutually
agreeable manner, except that no amendment may be made subsequent to the Meeting
that has a material adverse effect on the interests of Value Fund's
shareholders.
REASONS FOR THE REORGANIZATION
The Board of Diversified Funds, including a majority of its Independent
Directors, has determined that the Reorganization is in the best interests of
Value Fund, that the terms of the Reorganization are fair and reasonable and
that the interests of Value Fund's shareholders will not be diluted as a result
of the Reorganization. The Board of Emerging Opportunity Funds, including a
majority of its Independent Directors, has determined that the Reorganization is
in the best interests of Growth Fund, that the terms of the Reorganization are
fair and reasonable and that the interests of Growth Fund's shareholders will
not be diluted as a result of the Reorganization.
In approving the Reorganization, each Board, including a majority of its
Independent Directors, considered a number of factors, including the following:
(1) the compatibility of the Funds' investment objectives, policies and
restrictions;
(2) the effect of the Reorganization on the Funds' expected investment
performance;
(3) the effect of the Reorganization on the expense ratio of each Fund
relative to its current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including whether
Value Fund could continue to operate on a stand-alone basis or
should be liquidated; and
(7) the potential benefits of the Reorganization to INVESCO and to
other persons.
The Reorganization was recommended to the Board of each Fund by INVESCO
at meetings of the Boards held on February 3, 1999. In recommending the
Reorganization, INVESCO advised the Boards that the investment advisory and
administration fee schedule applicable to Growth Fund would be equal to that
currently in effect for Value Fund and that it is likely INVESCO would cease to
absorb expenses of Value Fund. The Board considered the fact that Growth Fund
has a better performance record and that Value Fund has had more difficulty in
attracting assets than Growth Fund. The Board also considered the similarity in
investment objective and portfolio composition between the two Funds. Further,
the Boards were advised by INVESCO that, because Growth Fund has greater net
assets than Value Fund, combining the two Funds could reduce the expenses borne
by Value Fund as a percentage of net assets. In addition, INVESCO advised the
Board that any reduction in the expense ratios of the Funds as a reuslt of the
Reorganization could benefit INVESCO by reducing or eliminating any
reimbursements or waivers of expenses resulting from INVESCO's obligation to
limit the expenses of each Fund. The Boards were also advised that following the
Reorganization, the expense ratio for Growth Fund may decrease because the
investment advisory and administration fee paid by that Fund decreases as its
size increases.
14
<PAGE>
DESCRIPTION OF SECURITIES TO BE ISSUED
Emerging Opportunity Funds is registered with the SEC as an open-end
management investment company. It has an authorized capitalization of 600
million shares of common stock (par value $0.01 per share). Shares of Growth
Fund entitle their holders to one vote per full share and fractional votes for
fractional shares held.
Growth Fund does not hold annual meetings of shareholders. There
normally will be no meetings of shareholders for the purpose of electing
directors unless fewer than a majority of the directors holding office have been
elected by shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. The directors will call
annual or special meetings of shareholders for action by shareholder vote as may
be required by the 1940 Act or the Fund's Articles of Incorporation, or at their
discretion.
At a meeting to be held concurrently with the Meeting, shareholders of
Growth Fund are being asked to approve a proposal that would convert Growth Fund
to a series of INVESCO Stock Funds, Inc. (formerly, INVESCO Capital Appreciation
Funds, Inc.) ("Stock Funds"). If approved, that conversion would have no
material effect on the shareholders, operations, directors and officers,
operations or management of Growth Fund. The sole purpose of the change is to
combine all of the INVESCO Funds that invest in equity securities of U.S.
issuers into a single overall corporate entity.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of Value Fund, which
prohibit it from acquiring more than a stated percentage of ownership of another
company, might be construed as restricting its ability to carry out the
Reorganization. By approving the Reorganization Plan, Value Fund shareholders
will be agreeing to waive, only for the purpose of the Reorganization, those
fundamental investment restrictions that could prohibit or otherwise impede the
transaction.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Value Fund's assets for Growth Fund shares and Growth
Fund's assumption of Value Fund's liabilities is intended to qualify for federal
income tax purposes as a tax-free reorganization under section 368(a)(1)(C) of
the Code. The Funds will receive an opinion of their counsel, Kirkpatrick &
Lockhart LLP, substantially to the effect that--
(1) Growth Fund's acquisition of Value Fund's assets in exchange
solely for Growth Fund shares and Growth Fund's assumption of Value
Fund's liabilities, followed by Value Fund's distribution of those
shares PRO RATA to its shareholders constructively in exchange for their
Value Fund shares, will constitute a "reorganization" within the meaning
of section 368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
15
<PAGE>
(2) Value Fund will recognize no gain or loss on the transfer to
Growth Fund of its assets in exchange solely for Growth Fund shares and
Growth Fund's assumption of Value Fund's liabilities or on the
subsequent distribution of those shares to Value Fund's shareholders in
constructive exchange for their Value Fund shares:
(3) Growth Fund will recognize no gain or loss on its receipt of
the transferred assets in exchange solely for Growth Fund shares and its
assumption of Value Fund's liabilities;
(4) Growth Fund's basis for the transferred assets will be the
same as the basis thereof in Value Fund's hands immediately before the
Reorganization, and Growth Fund's holding period for those assets will
include Value Fund's holding period therefor;
(5) A Value Fund shareholder will recognize no gain or loss on
the constructive exchange of all its Value Fund shares solely for Growth
Fund shares pursuant to the Reorganization; and
(6) A Value Fund shareholder's aggregate basis for the Growth
Fund shares to be received by it in the Reorganization will be the same
as the aggregate basis for its Value Fund shares to be constructively
surrendered in exchange for those Growth Fund shares, and its holding
period for those Growth Fund shares will include its holding period for
those Value Fund shares, provided they are held as capital assets by the
shareholder on the Closing Date.
The tax opinion may state that no opinion is expressed as to the effect
of the Reorganization on the Funds or any shareholder with respect to any asset
as to which any unrealized gain or loss is required to be recognized for federal
income tax purposes at the end of a taxable year (or on the termination or
transfer thereof) under a mark-to-market system of accounting.
Shareholders of Value Fund should consult their tax advisers regarding
the effect, if any, of the Reorganization in light of their individual
circumstances. Because the foregoing discussion only relates to the federal
income tax consequences of the Reorganization, those shareholders also should
consult their tax advisers about state and local tax consequences, if any, of
the Reorganization.
CAPITALIZATION
The following table shows the capitalization of each Fund as of November
30, 1998 (unaudited), and on a pro forma combined basis (unaudited) as of
November 30, 1998, giving effect to the Reorganization:
16
<PAGE>
COMBINED FUND
GROWTH FUND VALUE FUND (PRO FORMA)
Net Assets........................ $273,395,598 $59,429,597 $332,825,195
Net Asset Value Per Share......... $11.56 $10.33 $11.56
Shares Outstanding................ 23,648,672 5,754,669 28,789,641
ADDITIONAL INFORMATION ABOUT GROWTH FUND
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one
share of Growth Fund for each of the periods shown. This information is
supplemented by the financial statements and accompanying notes in Growth Fund's
Annual Report to Shareholders for the fiscal year ended May 31, 1998, and the
unaudited financial statements and accompanying notes in Growth Fund's
Semi-Annual Report to Shareholders for the six-month period ended November 30,
1998, which are incorporated by reference into the Statement of Additional
Information. The financial statements and notes for the fiscal years ended May
31, 1998 and earlier shown below have been audited by PricewaterhouseCoopers
LLP, independent accountants, whose report is included in the Annual Report to
Shareholders.
17
<PAGE>
<TABLE>
<CAPTION>
Six months
Ended Year Ended
November May 31
30
----------- --------------------------------------------
1998 1998 1997 1996 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $11.90 $12.82 $14.38 $9.37 $11.40 $9.89
----------- -------- -------- -------- -------- ---------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.03) (0.06) (0.07) (0.06) 0.04 (0.01)
Net Gains or (Losses) on
Securities (Both Realized
and Unrealized) (0.31) 2.56 0.96 5.25 0.46 1.53
----------- ---------------------------------------------
Total from Investment
Operations (0.34) 2.50 (1.03) 5.19 0.50 1.52
----------- ---------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment
Income 0.00 0.00 0.00 0.00 0.04 0.00
Distribution from Capital
Gains 0.00 3.42 0.53 0.18 2.49 0.01
----------- ---------------------------------------------
Total Distributions 0.00 3.42 0.53 0.18 2.53 0.01
----------- ---------------------------------------------
Net Asset Value - End of Period $11.56 $11.90 $12.82 $14.38 $9.37 $11.40
----------- ---------------------------------------------
Total Return (2.86%)(a) 22.65% (7.08%) 55.78% 4.98% 15.34%
===== ======
RATIOS
Net Assets - End of Period
($000 Omitted) $273,396 $272,619 $294,259 $370,029 $153,727 $176,510
Ratio of Expenses to Average
Net Assets (b) 0.76%(a)(c) 1.48%(c) 1.52%(c) 1.48%(c) 1.49% 1.37%
Ratio of Net Investment
Income (Loss) to Average
Net Assets (b) (0.26%)(a) (0.42%) (0.55%) (0.78%) 0.41% (0.26%)
Portfolio Turnover Rate 91% 158% 216% 221% 228% 196%
(a) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(b) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
six months ended November 30, 1998 and the years ended May 31, 1997 and 1995. If
such expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 0.79%, 1.54% and 1.52%, respectively, and ratio of
net investment income to average net assets would have been (0.29%), (0.57%) and
0.38%, respectively.
(c) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements.
</TABLE>
18
<PAGE>
REQUIRED VOTE. Approval of the Reorganization Plan requires the
affirmative vote of a majority of the outstanding voting securities of Value
Fund.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL 1
PART II. PROPOSED ORGANIZATIONAL MATTER
PROPOSAL 1 SEEKS SHAREHOLDER APPROVAL TO REORGANIZE VALUE FUND INTO
GROWTH FUND. IF PROPOSAL 1 IS APPROVED, SHAREHOLDERS WILL RECEIVE FULL AND
FRACTIONAL SHARES OF GROWTH FUND EQUIVALENT IN AGGREGATE VALUE TO THE SHARES OF
VALUE FUND THAT THEY OWNED ON THE CLOSING DATE AND PROPOSAL 2 WILL HAVE NO
EFFECT. HOWEVER, WHETHER OR NOT SHAREHOLDERS VOTE TO APPROVE THE REORGANIZATION
PLAN AS SET FORTH IN PROPOSAL 1, THE BOARD RECOMMENDS THAT SHAREHOLDERS APPROVE
PROPOSAL 2, SET FORTH BELOW. THIS PROPOSAL IS INTENDED TO RATIONALIZE THE
OPERATIONS OF VALUE FUND BY RESTRUCTURING VALUE FUND AS A SERIES OF STOCK FUNDS,
RATHER THAN A SERIES OF DIVERSIFIED FUNDS.
PROPOSAL 2. TO APPROVE AN AGREEMENT AND PLAN OF CONVERSION AND
TERMINATION ("CONVERSION PLAN") PROVIDING FOR THE CONVERSION OF
VALUE FUND FROM DIVERSIFIED FUNDS TO A SEPARATE SERIES OF STOCK
FUNDS ("CONVERSION")
Value Fund is presently organized as the only series of Diversified
Funds. The Board, including a majority of its Independent Directors, has
approved the Conversion Plan attached to this Proxy Statement as Appendix C. The
Conversion Plan provides for the conversion of Value Fund from Diversified
Funds, a Maryland corporation, to a newly established separate series (the "New
Series") of Stock Funds, also a Maryland corporation. THE PROPOSED CHANGE WILL
HAVE NO MATERIAL EFFECT ON THE SHAREHOLDERS, OFFICERS, OPERATIONS, OR MANAGEMENT
OF VALUE FUND.
The New Series, which has not yet commenced business operations and was
established for the purpose of effecting the Conversion, will carry on the
business of Value Fund following the Conversion and will have investment
objectives, policies, and limitations identical to those of Value Fund. The
investment objectives, policies, and limitations of Value Fund will not change
except as approved by shareholders and as described in Proposal 3 of this Proxy
Statement. Since both Diversified Funds and Stock Funds are Maryland
corporations organized under substantially similar Articles of Incorporation,
the rights of the security holders of Value Fund under state law and its
governing documents are expected to remain unchanged after the Conversion.
Shareholder voting rights under both Diversified Funds and Stock Funds are
19
<PAGE>
currently based on the number of shares owned. The same individuals serve as
Directors of both Diversified Funds and Stock Funds
INVESCO, Value Fund's investment adviser, will be responsible for
providing the New Series with various administrative services and supervising
the New Series' daily business affairs, subject to the supervision of Stock
Funds' Board, under a management contract substantially identical to the
contract in effect between INVESCO and Diversified Funds immediately prior to
the Closing Date. IMR, Value Fund's sub-adviser, will have primary
responsibility for providing investment advice and research services to the New
Series under a Sub-Advisory Agreement substantially identical to the agreement
in effect between IMR and INVESCO immediately prior to the Closing Date. Value
Fund's distribution agent, IDI, will distribute shares of the New Series under a
General Distribution Agreement substantially identical to the contract in effect
between IDI and Diversified Funds immediately prior to the Closing Date.
REASON FOR THE PROPOSED CONVERSION
Diversified Funds' Board unanimously recommends conversion of Value Fund
to a separate series of Stock Funds (I.E., the New Series). The proposed
conversion is part of an overall plan that involves the conversion of other
INVESCO Funds as well. The goal of the conversions is to combine similar types
of funds into a single corporate entity. Ultimately, if all of the conversions
are approved, the INVESCO Funds will be organized into a group of core
companies, with one core company for each major fund type - for example, all
INVESCO Funds that invest internationally will be series of one core company,
all INVESCO Funds that invest solely in debt securities will be a series of one
core company, and all INVESCO Funds that invest in equity securities of domestic
issuers will be series of one core company. Moving Value Fund from Diversified
Funds to Stock Funds will also consolidate and streamline the production and
mailing of certain financial reports and legal documents, reducing expense to
Value Fund. THE PROPOSED CHANGE WILL HAVE NO MATERIAL EFFECT ON THE
SHAREHOLDERS, OFFICERS, OPERATIONS, OR MANAGEMENT OF VALUE FUND.
The proposal to present the Conversion Plan to shareholders was approved
by Diversified Funds' Board, including all of its Independent Directors, on
February 3, 1999. The Board recommends that Value Fund shareholders vote FOR the
approval of the Conversion Plan. Such a vote encompasses approval of both: (i)
the conversion of Value Fund to a separate series of Stock Funds; and (ii) a
temporary waiver of certain investment limitations of Value Fund to permit the
Conversion (see "Temporary Waiver of Investment Restrictions" below). If
shareholders of Value Fund do not approve the Reorganization Plan set forth in
Proposal 1, which provides for combining Value Fund with Growth Fund and do not
approve the alternative Conversion Plan set forth herein, Value Fund will
continue to operate as the sole series of Diversified Funds.
20
<PAGE>
SUMMARY OF THE CONVERSION PLAN
The following discussion summarizes the important terms of the
Conversion Plan. This summary is qualified in its entirety by reference to the
Conversion Plan itself, which is attached as Appendix C to this Proxy Statement.
If this Proposal is approved by shareholders, then on the Closing Date
Value Fund will transfer all of its assets to the New Series in exchange solely
for shares of the New Series ("New Series Shares") equal to the number of Value
Fund shares outstanding on the Closing Date ("Value Fund Shares") and the
assumption by the New Series of all of the liabilities of Value Fund.
Immediately thereafter, Value Fund will constructively distribute to each Value
Fund shareholder one New Series Share for each Value Fund Share held by the
shareholder on the Closing Date, in liquidation of such Value Fund Shares. As
soon as is practicable after this distribution of New Series Shares, Value Fund
will be terminated and will be wound up and liquidated. UPON COMPLETION OF THE
CONVERSION, EACH VALUE FUND SHAREHOLDER WILL OWN FULL AND FRACTIONAL NEW SERIES
SHARES EQUAL IN NUMBER AND AGGREGATE NAV TO HIS OR HER VALUE FUND SHARES.
The Conversion Plan obligates Stock Funds, on behalf of the New Series,
to enter into: (i) a Management Contract with INVESCO with respect to the New
Series (the "New Management Contract"); (ii) a Sub-Advisory Agreement between
INVESCO and IMR with respect to the New Series (the "New Sub-Advisory
Agreement") and (iii) a Distribution and Service Plan under Rule 12b-1
promulgated under the 1940 Act (the "New 12b-1 Plan") with respect to the New
Series (collectively, the "New Agreements"). Approval of the Conversion Plan
will authorize Diversified Funds (which will be issued a single share of the New
Series on a temporary basis) to approve the New Agreements as sole initial
shareholder of the New Series. Each New Agreement will be identical to the
corresponding contract, agreement, or plan in effect with respect to Diversified
Funds immediately prior to the Closing Date.
The New Agreements will take effect on the Closing Date, and each will
continue in effect through June 1, 2000. Thereafter, the New Management Contract
and New Sub-Advisory Agreement will continue in effect only if their respective
continuances are approved at least annually: (i) by the vote of a majority of
Stock Funds' Independent Directors cast in person at a Meeting called for the
purpose of voting on such approval; and (ii) by the vote of a majority of Stock
Funds' directors or a majority of the outstanding voting shares of the New
Series. The New 12b-1 Plan will continue in effect only if approved annually by
a vote of Stock Funds' Independent Directors, cast in person at a meeting called
for that purpose. The New Management Contract and New Sub-Advisory Agreement
will be terminable without penalty on sixty days' written notice either by Stock
Funds, INVESCO, or IMR, as the case may be, and each will terminate
automatically in the event of its assignment. The New 12b-1 Plan will be
terminable at any time without penalty by a vote of a majority of Stock Funds'
Independent Directors or a majority of the outstanding voting shares of the New
Series.
21
<PAGE>
Stock Funds' Board will hold office without limit in time except that:
(i) any director may resign; and (ii) any director may be removed at a special
meeting of Stock Funds' shareholders at which a quorum is present by the
affirmative vote of a majority of the outstanding voting shares of Stock Funds.
In case a vacancy shall for any reason exist, a majority of the remaining
directors, though less than a quorum, will vote to fill such vacancy by
appointing another director, so long as, immediately after such appointment, at
least two-thirds of the directors then holding office have been elected by
shareholders. If, at any time, less than a majority of the directors holding
office have been elected by shareholders, the directors then in office will
promptly call a shareholders' meeting for the purpose of electing directors.
Otherwise, there need normally be no meetings of shareholders for the purpose of
electing directors.
Assuming the Conversion Plan is approved and the Reorganization Plan set
forth in proposal 1 is not approved, it is currently contemplated that the
Conversion will become effective on the Closing Date. However, the Conversion
may become effective at such other date as to which Diversified Funds and Stock
Funds may agree in writing.
The obligations of Diversified Funds and Stock Funds under the
Conversion Plan are subject to various conditions as stated therein.
Notwithstanding the approval of the Conversion Plan by Value Fund shareholders,
it may be terminated or amended at any time prior to the Conversion by action of
either Board to provide against unforeseen events, if: (i) there is a material
breach by the other party of any representation, warranty, or agreement
contained in the Conversion Plan to be performed at or prior to the Closing
Date; or (ii) it reasonably appears that the other party will not or cannot meet
a condition of the Conversion Plan. Either Diversified Funds or Stock Funds may
at any time waive compliance with any of the covenants and conditions contained
in, or may amend, the Conversion Plan, provided that the waiver or amendment
does not materially adversely affect the interests of Value Fund shareholders.
CONTINUATION OF VALUE FUND SHAREHOLDER ACCOUNTS
Stock Funds' transfer agent will establish accounts for the New Series
shareholders containing the appropriate number of New Series Shares to be
received by each holder of Value Fund Shares under the Conversion Plan. Such
accounts will be identical in all material respects to the accounts currently
maintained by Value Fund's transfer agent for its shareholders.
EXPENSES
Half of the cost of the Conversion will be borne by INVESCO, Value
Fund's investment adviser, and the remaining half by Value Fund and the New
Series.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of Value Fund, which
prohibit it from acquiring more than a stated percentage of ownership of another
22
<PAGE>
company, might be construed as restricting Value Fund's ability to carry out the
Conversion. By approving the Conversion Plan, Value Fund shareholders will be
agreeing to waive, only for the purpose of the Conversion, those fundamental
investment restrictions that could prohibit or otherwise impede the transaction.
TAX CONSEQUENCES OF THE CONVERSION
Both Diversified Funds and Stock Funds will receive an opinion from
their counsel, Kirkpatrick & Lockhart LLP, that the Conversion will constitute a
tax-free reorganization within the meaning of section 368(a)(1)(F) of the Code.
Accordingly, Value Fund, Growth Fund, and Value Fund's shareholders will
recognize no gain or loss for federal income tax purposes upon (i) the transfer
of Value Fund's assets in exchange solely for New Series Shares and the
assumption by the New Series of Value Fund's liabilities or (ii) the
distribution of the New Series Shares to Value Fund's shareholders in
liquidation of their Value Fund Shares. The opinion will further provide, among
other things, that (a) a Value Fund shareholder's aggregate basis for federal
income tax purposes of the New Series Shares to be received by the shareholder
in the Conversion will be the same as the aggregate basis of his or her Value
Fund Shares to be constructively surrendered in exchange for those New Series
Shares, and (b) a Value Fund shareholder's holding period for his or her New
Series Shares will include the shareholder's holding period for his or her Value
Fund Shares, provided that those Value Fund Shares were held as capital assets
at the time of the Conversion.
CONCLUSION
The Board has concluded that the proposed Conversion Plan is in the best
interests of Value Fund's shareholders, provided the Reorganization Plan set
forth in Proposal 1 is not approved. A vote in favor of the Conversion Plan
encompasses: (i) approval of the conversion of Value Fund to the New Series;
(ii) approval of the temporary waiver of certain investment limitations of Value
Fund to permit the Conversion (see "Temporary Waiver of Investment Restrictions"
above); and (iii) authorization of Diversified Funds, as sole initial
shareholder of the New Series, to approve: (a) a Management Contract with
respect to the New Series between Stock Funds and INVESCO; (b) a Sub-Advisory
Agreement with respect to the new Series between INVESCO and IMR; and (c) a
Distribution and Service Plan under Rule 12b-1 with respect to the New Series.
Each of these New Agreements will be identical to the corresponding contract,
agreement or plan in effect with Value Fund immediately prior to the Closing
Date. If approved, the Conversion Plan will take effect on the Closing Date. If
neither the Conversion Plan nor the Reorganization of Value Fund under Proposal
1 is approved, Value Fund will continue to operate as the sole series of
Diversified Funds
REQUIRED VOTE. Approval of the Conversion Plan requires the affirmative
vote of a majority of the outstanding voting securities of Value Fund.
23
<PAGE>
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" PROPOSAL 2
PART III. PROPOSED MODIFICATIONS TO FUNDAMENTAL INVESTMENT RESTRICTIONS AND
ROUTINE CORPORATE GOVERNANCE MATTERS
THESE PROPOSALS MAKE CERTAIN ROUTINE CHANGES TO MODERNIZE SOME OF VALUE
FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS AND SEEK SHAREHOLDER APPROVAL OF
CERTAIN ROUTINE CORPORATE GOVERNANCE MATTERS. IF THE REORGANIZATION DESCRIBED IN
PROPOSAL 1 IS APPROVED BY SHAREHOLDERS AT THE MEETING, THE PROPOSED FUNDAMENTAL
RESTRICTION CHANGES WILL NOT BE IMPLEMENTED BECAUSE VALUE FUND SHAREHOLDERS WILL
BECOME SHAREHOLDERS OF GROWTH FUND. WHETHER OR NOT SHAREHOLDERS VOTE TO APPROVE
THE REORGANIZATION DESCRIBED IN PROPOSAL 1, THE BOARD RECOMMENDS THAT
SHAREHOLDERS APPROVE THE PROPOSALS SET FORTH BELOW.
PROPOSAL 3. TO APPROVE AMENDMENTS TO THE FUNDAMENTAL INVESTMENT
RESTRICTIONS OF VALUE FUND
As required by the 1940 Act, Value Fund has adopted certain fundamental
investment restrictions and policies ("fundamental restrictions"), which are set
forth in the Fund's Statement of Additional Information. These fundamental
restrictions may be changed only with shareholder approval. Restrictions and
policies that the Fund has not specifically designated as fundamental are
considered to be "non-fundamental" and may be changed by the Board of
Diversified Funds without shareholder approval.
Some of Value Fund's fundamental restrictions reflect past regulatory,
business or industry conditions, practices or requirements that are no longer in
effect. Also, as other INVESCO Funds have been created over the years, these
Funds have adopted substantially similar fundamental restrictions that often
have been phrased in slightly different ways, resulting in minor but unintended
differences in effect or potentially giving rise to unintended differences in
interpretation. Accordingly, the Board of Diversified Funds has approved
revisions to Value Fund's fundamental restrictions in order to simplify,
modernize and make the Fund's fundamental restrictions more uniform with those
of the other INVESCO Funds.
The Board believes that eliminating the disparities among the INVESCO
Funds' fundamental restrictions will enhance management's ability to manage the
funds' assets efficiently and effectively in changing regulatory and investment
environments and permit directors to review and monitor investment policies more
easily. In addition, standardizing the fundamental restrictions of the INVESCO
Funds will assist the INVESCO Funds in making required regulatory filings in a
more efficient and cost-effective way. Although the proposed changes in
fundamental restrictions will allow Value Fund greater investment flexibility to
respond to future investment opportunities, the Board does not anticipate that
the changes, individually or in the aggregate, will result at this time in a
material change in the level of investment risk associated with an investment in
the Fund.
24
<PAGE>
The text and a summary description of each proposed change to Value
Fund's fundamental restrictions are set forth below, together with the text of
each current corresponding fundamental restriction. The text below also
describes any non-fundamental restrictions that would be adopted by the Board in
conjunction with the revision of certain fundamental restrictions. Any
non-fundamental restriction may be modified or eliminated by the Board at any
future date without further shareholder approval.
If approved by Value Fund shareholders at the Meeting, the proposed
changes in Value Fund's fundamental restrictions will be adopted by the Fund
only if the Reorganization is not approved by Value Fund shareholders. In that
event, Value Fund's Statement of Additional Information will be revised to
reflect those changes as soon as practicable following the Meeting. If the
Reorganization is approved, the proposed changes in the Fund's fundamental
restrictions will not be implemented. Instead, as described in Proposal 1, Value
Fund shareholders will become shareholders of Growth Fund, whose shareholders
are being asked to approve substantially similar changes in Growth Fund's
fundamental restrictions, and Value Fund will be terminated.
A. MODIFICATION OF FUNDAMENTAL RESTRICTION ON ISSUER DIVERSIFICATION
Value Fund's current fundamental restriction on issuer diversification
is as follows:
The Fund may not, with respect to seventy-five percent (75%)
of the value of its total assets, purchase the securities of
any one issuer (except cash items and "Government securities"
as defined under the 1940 Act, as amended, (the "1940 Act")),
if the purchase would cause the Fund to have more than 5% of
the value of its total assets invested in the securities of
such issuer or to own more than 10% of the outstanding voting
securities of such issuer.
The Board recommends that this restriction be replaced with the
following fundamental restriction:
The Fund may not, with respect to 75% of the Fund's total
assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities, or securities of other
investment companies) if, as a result, (i) more than 5% of the
Fund's total assets would be invested in the securities of
that issuer, or (ii) the Fund would hold more than 10% of the
outstanding voting securities of that issuer.
The primary purpose of the proposal is to revise the Fund's fundamental
restriction on issuer diversification to conform to a restriction that is
expected to become standard for all INVESCO Funds. If the proposed revision is
approved, Value Fund could invest without limit in other investment companies to
the extent permitted by the 1940 Act. The proposed change would standardize the
language of the Fund's fundamental restriction on issuer diversification and
provide the Fund's managers with greater investment flexibility.
25
<PAGE>
B. MODIFICATION OF FUNDAMENTAL RESTRICTION ON BORROWING AND ADOPTION
OF NON-FUNDAMENTAL POLICY ON BORROWING
Value Fund's current fundamental restriction on borrowing is as follows:
The Fund may not borrow money, except that the Fund may borrow
money for temporary or emergency purposes (not for leveraging
or investment) and may enter into reverse repurchase
agreements in an aggregate amount not exceeding 331/3% of the
value of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come
to exceed 331/3% of the value of the Fund's total assets by
reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the
331/3% limitation. This restriction shall not prohibit
deposits of assets to margin or guarantee positions in
futures, options, swaps, or forward contracts, or the
segregation of assets in connection with such contracts.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund will not borrow money, except that the Fund may
borrow money in an amount not exceeding 331/3% of its total
assets (including the amount borrowed) less liabilities (other
than borrowings).
The primary purpose of the proposal is to eliminate minor differences in
the wording of the INVESCO Funds' current restrictions on borrowing for greater
uniformity and to conform to the 1940 Act requirements for borrowing. Currently,
the Fund's fundamental restriction is significantly more limiting than the
restrictions imposed by the 1940 Act in that it limits the purposes for which
Value Fund may borrow money. The proposed revision would eliminate the
restrictions on the purposes for which the Fund may borrow money and the
explicit requirement that any borrowings that come to exceed 331/3% of the
Fund's net assets by reason of a decline in net assets be reduced within three
business days.
If the proposal is approved, the Board will adopt a non-fundamental
policy with respect to borrowing as follows:
The Fund may borrow money only from a bank or from an open-end
management investment company managed by INVESCO Funds Group,
Inc. or an affiliate or a successor thereof for temporary or
emergency purposes (not for leveraging or investing) or by
engaging in reverse repurchase agreements with any party
(reverse repurchase agreements will be treated as borrowings
for purposes of fundamental limitation (__)).
The non-fundamental limitation reflects the Fund's current policy that
borrowing by the Fund may only be done for temporary or emergency purposes. In
addition to borrowing from banks, as permitted in the Fund's current policy, the
non-fundamental policy would permit the Fund to borrow from open-end funds
managed by INVESCO or an affiliate or successor thereof. The Fund would not be
26
<PAGE>
able to do so, however, unless it obtains permission for such borrowings from
the SEC. The non-fundamental policy also clarifies that reverse repurchase
agreements will be treated as borrowings.
The Board believes that this approach, making the Fund's fundamental
restriction on borrowing no more limiting than is required under the 1940 Act,
while incorporating more strict limits on borrowing in a non-fundamental
restriction, will maximize the Fund's flexibility for future contingencies.
C. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INDUSTRY CONCENTRATION
Value Fund's current fundamental restriction on industry concentration
is as follows:
The Fund may not invest more than 25% of the value of its
assets in any particular industry (other than Government
securities).
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not purchase the securities of any issuer (other
than securities issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities or municipal
securities) if, as a result, more than 25% of the Fund's total
assets would be invested in the securities of companies whose
principal business activities are in the same industry.
The purpose of the modification is to eliminate minor differences in the
wording of the INVESCO Funds' current restrictions on concentration for greater
uniformity and to avoid unintended limitations. The proposed changes to Value
Fund's fundamental concentration policy clarifies that the concentration
limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or to municipal securities. This
clarification is important because a failure to except government securities of
all types from the concentration policy could hinder the Fund's ability to
purchase such securities in conjunction with taking temporary defensive
positions. In total, the proposed changes will enhance the ability of Value
Fund's management to adapt to changing market conditions.
D. MODIFICATION OF FUNDAMENTAL RESTRICTION ON REAL ESTATE INVESTMENT
Value Fund's current fundamental restriction on real estate investment
is as follows:
The Fund may not invest directly in real estate or interests
in real estate; however, the Fund may own debt or equity
securities issued by companies engaged in those businesses.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
27
<PAGE>
The Fund may not purchase or sell real estate unless acquired
as a result of ownership of securities or other instruments
(but this shall not prevent the Fund from investing in
securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
In addition to conforming Value Fund's fundamental restriction to that
of the other INVESCO Funds, the proposed amendment of the Fund's fundamental
restriction on investment in real estate would more completely describe the
types of real estate-related securities investments that are permissible for the
Fund. The Board believes that this clarification will make it easier for
decisions to be made concerning the Fund's investments in real estate-related
securities.
E. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN COMMODITIES
Value Fund's current fundamental restriction on the purchase of
commodities is as follows:
The Fund may not purchase or sell physical commodities other
than foreign currencies unless acquired as a result of
ownership of securities (but this shall not prevent the Fund
from purchasing or selling options, futures, and forward
contracts or from investing in securities or other instruments
backed by physical commodities).
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund will not purchase or sell physical commodities;
however, this policy shall not prevent the Fund from
purchasing and selling foreign currency, futures contracts,
options, forward contracts, swaps, caps, floors, collars and
other financial instruments.
The proposed changes to this investment restriction are intended to
conform the restriction to those of the other INVESCO Funds and ensure that
Value Fund will have the maximum flexibility to enter into hedging or other
transactions utilizing financial instruments and derivative products when doing
so is permitted by operating policies established for the Fund by the Board. Due
to the rapid and continuing development of derivative products and the
possibility of changes in the definition of "commodities," particularly in the
context of the jurisdiction of the Commodities Futures Trading Commission, it is
important for the Fund's policy to be flexible enough to allow it to enter into
hedging and other transactions using these products when doing so is deemed
appropriate by INVESCO and is within the investment parameters established by
the Board. To maximize that flexibility, the Board recommends that the Fund's
fundamental restriction on commodities investments be clear in permitting the
use of derivative products, even if the current non-fundamental investment
policies of the Fund would not permit investment in one or more of the permitted
transactions.
28
<PAGE>
F. MODIFICATION OF FUNDAMENTAL RESTRICTION ON LOANS
Value Fund's current fundamental restriction on loans is as follows:
The Fund may not lend any security or make any other loan if,
as a result, more than 331/3% of its total assets would be
lent to other parties (but this limitation does not apply to
purchases of commercial paper, debt securities or to
repurchase agreements.)
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not lend any security or make any loan if, as a
result, more than 331/3 % of its total assets would be lent to
other parties, but this limitation does not apply to the
purchase of debt securities or to repurchase agreements.
The primary purpose of the proposal is to eliminate minor differences in
the wording of the INVESCO Funds' current restrictions on loans for greater
uniformity. The proposed changes to this fundamental restriction are relatively
minor and would have no substantive effect on Value Fund's lending activities or
other investments.
G. MODIFICATION OF FUNDAMENTAL RESTRICTION ON UNDERWRITING
Value Fund's current fundamental restriction on underwriting is as
follows:
The Fund may not act as an underwriter of securities issued by
others, except to the extent that it may be deemed an
underwriter in connection with the disposition of portfolio
securities of the Fund.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not underwrite securities of other issuers,
except insofar as it may be deemed to be an underwriter under
the Securities Act of 1933, as amended, in connection with the
disposition of the Fund's portfolio securities.
The primary purpose of the proposal is to eliminate minor differences in
the wording of the Fund's current fundamental restriction on underwriting for
greater uniformity with the fundamental restrictions of the other INVESCO Funds.
H. ADOPTION OF FUNDAMENTAL RESTRICTION ON THE ISSUANCE OF SENIOR SECURITIES
Currently, Value Fund has no fundamental restriction on the issuance of
senior securities. The Board recommends that shareholders vote to adopt the
following fundamental restriction:
29
<PAGE>
The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940.
The 1940 Act requires Value Fund to adopt a fundamental restriction
indicating the extent to which the Fund may issue "senior securities," a term
that is generally defined to refer to fund obligations that have a priority over
a fund's shares with respect to the distribution of fund assets or the payment
of dividends. The Board believes that the adoption of the proposed fundamental
restriction, which does not specify the manner in which senior securities may be
issued and is no more limiting than is required under the 1940 Act, would
maximize the Fund's borrowing flexibility for future contingencies and would
conform to the fundamental restrictions of the other INVESCO Funds on the
issuance of senior securities.
I. MODIFICATION OF FUNDAMENTAL POLICY ON INVESTING IN ANOTHER INVESTMENT COMPANY
Value Fund's current fundamental policy regarding investment in another
investment company is as follows:
The Fund may, notwithstanding any other investment policy or
limitation (whether or not fundamental), invest all of its
assets in the securities of a single open-end management
investment company with substantially the same fundamental
investment objectives, policies and limitations as the Fund.
The Board recommends that shareholders vote to replace this policy with
the following fundamental policy:
The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the
securities of a single open-end management investment company
managed by INVESCO Funds Group, Inc. or an affiliate or a
successor thereof, with substantially the same fundamental
investment objective, policies and limitations as the Fund.
The proposed revision to Value Fund's current fundamental policy would
ensure that the INVESCO Funds have uniform policies permitting each Fund to
adopt a "master/feeder" structure whereby one or more Funds invest all of their
assets in another Fund. The master/feeder structure has the potential, under
certain circumstances, to minimize administration costs and maximize the
possibility of gaining a broader investor base. Currently, none of the INVESCO
Funds intend to establish a master/feeder structure; however, the Board
recommends that Value Fund shareholders adopt a policy that would permit this
structure in the event that the Board determines to recommend the adoption of a
master/feeder structure by the Fund. The proposed revision, unlike the current
policy, would require that any fund in which the Fund may invest under a
master/feeder structure be advised by INVESCO or an affiliate.
REQUIRED VOTE. Approval of Proposal 3 requires the affirmative vote of a
"majority of the outstanding voting securities" of Value Fund, which for this
purpose means the affirmative vote of the lesser of (1) 67% or more of the
shares of the Fund present at the Meeting or represented by proxy if more than
30
<PAGE>
50% of the outstanding shares of the Fund are so present or represented, or (2)
more than 50% of the outstanding shares of the Fund. SHAREHOLDERS WHO VOTE "FOR"
PROPOSAL 3 WILL VOTE "FOR" EACH PROPOSED CHANGE DESCRIBED ABOVE. THOSE
SHAREHOLDERS WHO WISH TO VOTE AGAINST ANY OF THE SPECIFIC PROPOSED CHANGES
DESCRIBED ABOVE MAY DO SO ON THE PROXY PROVIDED.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 3
PROPOSAL 4. TO ELECT THE DIRECTORS OF DIVERSIFIED FUNDS
The Board of Diversified Funds has nominated the individuals identified
below for election to the Board at the Meeting. Diversified Funds currently has
ten directors. Vacancies on the Board are generally filled by appointment by the
remaining directors. However, the 1940 Act provides that vacancies may not be
filled by directors unless thereafter at least two-thirds of the directors shall
have been elected by shareholders. To ensure continued compliance with this rule
without incurring the expense of calling additional shareholder meetings,
shareholders are being asked at this meeting to elect the current ten directors
to hold office until the next meeting of shareholders. Consistent with the
provisions of Diversified Funds' by-laws, and as permitted by Maryland law,
Diversified Funds does not anticipate holding annual shareholder meetings. Thus,
the directors will be elected for indefinite terms, subject to termination or
resignation. Each nominee has indicated a willingness to serve if elected. If
any of the nominees should not be available for election, the persons named as
proxies (or their substitutes) may vote for other persons in their discretion.
Management has no reason to believe that any nominee will be unavailable for
election.
All of the Independent Directors now being proposed for election were
nominated, and selected by Independent Directors. Eight of the ten current
directors are Independent Directors.
The persons named as attorneys-in-fact in the enclosed proxy have
advised Diversified Funds that unless a proxy instructs them to withhold
authority to vote for all listed nominees or for any individual nominee, they
will vote all validly executed proxies for the election of the nominees named
below.
The nominees for director, their ages, a description of their principal
occupations, the number of Value Fund shares owned by each, and their respective
memberships on Board committees are listed in the table below.
<TABLE>
<CAPTION>
NAME, POSITION WITH PRINCIPAL OCCUPATION AND DIRECTOR OR NUMBER OF MEMBER OF
DIVERSIFIED FUNDS, BUSINESS EXPERIENCE (DURING EXECUTIVE VALUE FUND COMMITTEE
AND AGE THE PAST FIVE YEARS) OFFICER OF SHARES ---------
- ------- -------------------- DIVERSIFIED BENEFICIALLY
FUNDS SINCE OWNED DIRECTLY
----------- OR INDIRECTLY
ON DEC. 31,
1998 (1)
-------------
<S> <C> <C> <C> <C>
CHARLES W. BRADY, Chief Executive Officer and 1993 0 (3), (5), (6)
CHAIRMAN OF THE Director of AMVESCAP, PLC,
BOARD, AGE 63* London, England, and of
various subsidiaries
thereof. Chairman of the
Board of INVESCO Global
Health Sciences Fund
31
<PAGE>
FRED A. DEERING, Trustee of INVESCO Global 1993 10.533 (2), (3), (5)
VICE CHAIRMAN OF Health Sciences Fund.
THE BOARD, AGE 71 Formerly, Chairman of the
Executive Committee and
Chairman of the Board of
Security Life of Denver
Insurance Company, Denver,
Colorado; Director of ING
American Holdings Company
and First ING Life Insurance
Company of New York.
MARK H. WILLIAMSON, President, Chief Executive 1998 0 (3), (5)
PRESIDENT, CHIEF Officer, and Director,
EXECUTIVE OFFICER, INVESCO Distributors Inc.;
AND DIRECTOR, AGE President, Chief Executive
47* Officer, and Director,
INVESCO; President, Chief
Operating Officer, and
Trustee, INVESCO Global
Health Sciences Fund.
Formerly, Chairman of the
Board and Chief Executive
Officer, NationsBanc
Advisors, Inc. (1995-1997);
Chairman of the Board,
NationsBanc Investments,
Inc. (1997-1998).
DR. VICTOR L. Professor Emeritus, Chairman 1993 10.533 (4), (6), (8)
ANDREWS, Emeritus and Chairman of the
DIRECTOR, AGE 68 CFO Roundtable of the
Department of Finance of
Georgia State University,
Atlanta, Georgia; and
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 Sheffield
Funds, Inc.
BOB R. BAKER, President and Chief 1993 10.533 (3), (4), (5)
DIRECTOR, AGE 62 Executive Officer of AMC
Cancer Research Center,
Denver, Colorado, since
January 1989; until December
1988, Vice Chairman of the
Board, First Columbia Financial
Corporation, Englewood, Colorado.
Formerly, Chairman of the
Board and Chief Executive
Officer of First Columbia
Financial Corporation.
LAWRENCE H. BUDNER, Trust Consultant. Prior to 1993 10.533 (2), (6), (7)
DIRECTOR, AGE 68 June 1987, Senior Vice
President and Senior Trust
Officer, InterFirst Bank,
Dallas, Texas.
<PAGE>
DR. WENDY LEE Self-employed (since 1993). 1997 10.533 (4), (8)
GRAMM, DIRECTOR, Professor of Economics and
AGE 53 Public Administration,
University of Texas at
Arlington. Formerly,
Chairman, Commodities
Futures Trading Commission
(1988-1993); Administrator
for Information and
Regulatory Affairs, Office
of Management and Budget
(1985-1988); Executive
Director, Presidential
Task Force on Regulatory
Relief; Director, Federal
Trade Commission's Bureau of
Economics. Director of the
Chicago Mercantile
Exchange; Enron
Corporation; IBP, Inc.;
State Farm Insurance
Company; Independent
Women's Forum;
International Republic
Institute; and the
Republican Women's Federal
Forum.
KENNETH T. KING, Presently retired. 1993 10.533 (2), (3), (5), (6), (7)
DIRECTOR, AGE 73 Formerly, Chairman of the
Board, The Capitol Life
Insurance Company,
Providence Washington
Insurance Company, and
Director of numerous U.S.
subsidiaries. Formerly,
Chairman of the Board, The
Providence Capitol Companies
in the United Kingdom and
Guernsey. Until 1987,
Chairman of the Board,
Symbion Corporation.
32
<PAGE>
JOHN W. MCINTYRE, Presently retired. 1995 10.533 (2), (3),
DIRECTOR, AGE 68 Formerly, Vice Chairman of (5), (7)
the Board, The Citizens and
Southern Corporation; Chairman
of the Board and Chief
Executive Officer of The
Citizens and Southern Georgia
Corporation; Chairman of the
Board and Chief Executive
Officer, The Citizens and
Southern National Bank.
Trustee of INVESCO Global
Health Sciences Fund and Gables
Residential Trust, Employee's
Retirement System of Georgia,
Emory University, and J.M.
Tull Charitable Foundation;
Director of Kaiser Foundation
Health Plans of Georgia, Inc.
DR. LARRY SOLL, Presently retired. 1997 10.533 (4), (8)
DIRECTOR, AGE 56 Formerly, Chairman of the
Board (1987-1994), Chief
Executive Officer (1982-1989
and 1993-1994) and President
(1982-1989) of Synergen
Inc. Director of Synergen
Inc. since incorporation in
1982. Director of Isis
Pharmaceuticals, Inc.
Trustee of INVESCO Global
Health Sciences Fund.
*Because of his affiliation with INVESCO, Value Fund's investment adviser, or with companies
affiliated with INVESCO, this individual is deemed to be an "interested person" of Diversified
Funds as that term is defined in the 1940 Act.
(1) = As interpreted by the SEC, a security is beneficially owned by a person if that person
has or shares voting power or investment power with respect to that security. The persons
listed have partial or complete voting and investment power with respect to their respective
Fund shares.
(2) = Member of the Audit Committee
(3) = Member of the Executive Committee
(4) = Member of the Management Liaison Committee
(5) = Member of the Valuation Committee
(6) = Member of the Compensation Committee
(7) = Member of the Soft Dollar Brokerage Committee
(8) = Member of the Derivatives Committee
</TABLE>
The Board has audit, management liaison, soft dollar brokerage and
derivatives committees, consisting of Independent Directors, and compensation,
executive, management liaison and valuation committees, consisting of
Independent Directors and non-independent directors. The Board does not have a
nominating committee. The audit committee, consisting of four Independent
Directors, meets quarterly with Diversified Funds' independent accountants and
executive officers of Diversified Funds. This committee reviews the accounting
principles being applied by Diversified Funds in financial reporting, the scope
and adequacy of internal controls, the responsibilities and fees of the
independent accountants, and other matters. All of the recommendations of the
audit committee are reported to the full Board. During the intervals between the
meetings of the Board, the executive committee may exercise all powers and
authority of the Board in the management of Diversified Funds' business, except
for certain powers which, under applicable law and/or Diversified Funds'
by-laws, may only be exercised by the full Board. All decisions are subsequently
submitted for ratification by the Board. The management liaison committee meets
quarterly with various management personnel of INVESCO in order to facilitate
better understanding of management and operations of Diversified Funds, and to
review legal and operational matters that have been assigned to the committee by
the Board, in furtherance of the Board's overall duty of supervision. The soft
dollar brokerage committee meets periodically to review soft dollar transactions
33
<PAGE>
by Value Fund, and to review policies and procedures of Value Fund's adviser
with respect to soft dollar brokerage transactions. The committee then reports
on these matters to the Board. The derivatives committee meets periodically to
review derivatives investments made by Value Fund. The committee monitors
derivatives usage by Value Fund and the procedures utilized by Value Fund's
adviser to ensure that the use of such instruments follows the policies on such
instruments adopted by the Board. The committee then reports on these matters to
the Board.
Each independent director receives an annual retainer of $56,000 for
their service to the INVESCO Funds. Additionally, each independent director
receives $3,000 for in-person attendance at each board meeting and $1,000 for
in-person attendance at each committee meeting. The chairmen of the audit and
management liaison committees receive an annual fee of $4,000 for serving in
such capacity.
During the past fiscal year, the Board met four times, the audit
committee met three times, the compensation committee met once, the management
liaison committee met three times, the soft dollar brokerage committee met once,
and the derivatives committee met twice. The executive committee did not meet.
During Diversified Funds' last fiscal year, each director attended 75% or more
of the Board meetings and meetings of the committees of the Board on which he or
she served.
The Independent Directors nominate individuals to serve as Independent
Directors, without any specific nominating committee. The Board ordinarily will
not consider unsolicited director nominations recommended by Value Fund
shareholders. The Board, including its Independent Directors, unanimously
approved the nomination of the foregoing persons to serve as directors and
directed that the election of these nominees be submitted to Value Fund's
shareholders.
The following table sets forth information relating to the compensation
paid to directors during the last fiscal year:
34
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
AMOUNTS PAID DURING THE MOST RECENT
FISCAL YEAR BY DIVERSIFIED FUNDS TO DIRECTORS
PENSION OR RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED AS ESTIMATED ANNUAL FROM DIVERSIFIED FUNDS
NAME OF PERSON, COMPENSATION FROM PART OF DIVERSIFIED BENEFITS UPON AND THE OTHER 14 INVESCO
POSITION DIVERSIFIED FUNDS(1) FUNDS EXPENSE(2) RETIREMENT(3) FUNDS PAID TO DIRECTORS(1)
- -------- -------------------- ---------------- ------------- --------------------------
<S> <C> <C> <C> <C>
FRED A DEERING, VICE $1,158 $192 $123 $103,700
CHAIRMAN OF THE
BOARD AND DIRECTOR
DR. VICTOR L. $1,149 $182 $143 $80,350
ANDREWS, DIRECTOR
BOB R. BAKER, $1,164 $162 $191 $84,000
DIRECTOR
LAWRENCE H. BUDNER, $1,140 $182 $143 $79,350
DIRECTOR
DANIEL D. CHABRIS4, $1,150 $196 $107 $70,000
DIRECTOR
KENNETH T. KING, $1,126 $200 $112 $77,050
DIRECTOR
JOHN W. MCINTYRE, $1,132 $ 0 $0 $98,500
DIRECTOR
DR. WENDY L. GRAMM, $1,123 $ 0 $0 $79,000
DIRECTOR
DR. LARRY SOLL, 1,132 $ 0 $0 $96,000
DIRECTOR
------------------- ----------------- --------------- -------------
TOTAL $10,274 $1,114 $819 $767,950
- -----
AS A PERCENTAGE OF 0.0191%)(5) 0.0021% 0.0046%(6)
- -------------------
NET ASSETS
(1) The Vice Chairman of the Board, the chairmen of the audit, management liaison, derivatives, soft
dollar brokerage and compensation committees, and Independent Director members of the committees of
each Fund receive compensation for serving in such capacities in addition to the compensation paid
to all Independent Directors.
(2) Represents benefits accrued with respect to the Defined Benefit Deferred Compensation Plan
discussed below, and not compensation deferred at the election of the directors.
(3) These figures represent the Fund's share of the estimated annual benefits payable by the INVESCO
Complex (excluding INVESCO Global Health Sciences Fund which does not participate in this retirement
plan) upon the directors' retirement, calculated using the current method of allocating director
compensation among the INVESCO Funds. 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 farther from retirement. With the exception of Drs. Soll and Gramm, each of these
directors has served as director of one or more of the INVESCO Funds for the minimum five-year
period required to be eligible to participate in the Defined Benefit Deferred Compensation Plan.
(4) Mr. Chabris retired as a director effective September 30, 1998.
(5) Total as a percentage of the Fund's net assets as of July 31, 1998.
(6) Total as a percentage of the net assets of the 15 INVESCO Funds in the INVESCO Complex as of
December 31, 1998.
</TABLE>
35
<PAGE>
Diversified Funds pays its Independent Directors, Board vice chairman, and
committee chairmen and members the fees described above. Diversified Funds also
reimburses its Independent Directors for travel expenses incurred in attending
meetings. Charles W. Brady, Chairman of the Board, and Mark H. Williamson,
President, Chief Executive Officer, and Director, as "interested persons" of
Diversified Funds and of other INVESCO Funds, receive compensation and are
reimbursed for travel expenses incurred in attending meetings as officers or
employees of INVESCO or its affiliated companies, but do not receive any
director's fees or other compensation from Diversified Funds or other INVESCO
Funds for their services as directors.
The overall direction and supervision of Diversified Funds is the
responsibility of the Board, which has the primary duty of ensuring that
Diversified Funds' general investment policies and programs are adhered to and
that Diversified Funds is properly administered. The officers of Diversified
Funds, all of whom are officers and employees of and paid by INVESCO, are
responsible for the day-to-day administration of Diversified Funds. The
investment adviser for Diversified Funds has the primary responsibility for
making investment decisions on behalf of Diversified Funds. These investment
decisions are reviewed by the investment committee of INVESCO.
All of the officers and directors of Diversified Funds hold comparable
positions with the following INVESCO Funds: INVESCO Bond Funds, Inc. (formerly,
INVESCO Income Funds, Inc.), INVESCO Growth Funds, Inc. (formerly INVESCO Growth
36
<PAGE>
Fund, Inc.), INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO
Flexible Funds, Inc. and INVESCO Multiple Asset Funds, Inc.), INVESCO Emerging
Opportunity Funds, Inc., INVESCO Industrial Income Fund, Inc., INVESCO
International Funds, Inc., INVESCO Money Market Funds, Inc., INVESCO Sector
Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.), INVESCO Specialty
Funds, Inc., INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc. and
INVESCO Capital Appreciation Funds, Inc.), INVESCO Tax-Free Income Funds, Inc.,
and INVESCO Variable Investment Funds, Inc. All of the directors of Diversified
Funds also serve as trustees of INVESCO Value Trust and INVESCO Treasurer's
Series Trust.
The Boards of the Funds managed by INVESCO have adopted a Defined
Benefit Deferred Compensation Plan (the "Plan") for the non-interested directors
and trustees of the Funds. Under the Plan, each director or trustee who is not
an interested person of the Funds (as defined in Section 2(a)(19) of the 1940
Act) and who has served for at least five years (a "Qualified Director") is
entitled to receive, upon termination of service as director (normally at
retirement age 72 or the retirement age of 73 or 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 and annualized board meeting fees payable by the Funds
to the Qualified Director at the time of his or her retirement (the "Basic
Benefit"). Commencing with any such director's second year of retirement, and
commencing with the first year of retirement of any director whose retirement
has been extended by the Board for three years, a Qualified Director shall
receive quarterly payments at an annual rate equal to 50% of the Basic Benefit
and annualized board meeting fees. These payments will continue for the
remainder of the Qualified Director's life or ten years, whichever is longer
(the "Reduced Benefit 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 Reduced Benefit Payments will be made to him
or her or to his or her beneficiary or estate. If a Qualified Director becomes
disabled or dies either prior to age 72 or during his or 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 Benefit Payments will be
made to his or her beneficiary or estate. The Plan is administered by a
committee of three directors who are also participants in the Plan and one
director who is not a Plan participant. The cost of the Plan will be allocated
among the INVESCO Funds in a manner determined to be fair and equitable by the
committee. The Fund began making payments to Mr. Chabris as of October 1, 1998
under the Plan. The Fund has no stock options or other pension or retirement
plans for management or other personnel and pays no salary or compensation to
any of its officers.
The Independent Directors have contributed to a deferred compensation
plan, pursuant to which they have deferred receipt of a portion of the
compensation which they would otherwise have been paid as directors of certain
of the INVESCO Funds. The deferred amounts have been invested in shares of
certain of the INVESCO Funds. Each Independent Director may, therefore, bee
deemed to have an indirect interest in shares of each such INVESCO Fund, in
addition to any Fund shares the Independent Director may own directly or
beneficially.
37
<PAGE>
REQUIRED VOTE. Election of each nominee as a director of Diversified Funds
requires the vote of a plurality of all the outstanding shares of Value Fund
present at the Meeting in person or by proxy.
THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" EACH OF THE NOMINEES IN PROPOSAL 4
PROPOSAL 5. RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT
ACCOUNTANTS
The Board of Diversified Funds, including all of its Independent
Directors, has selected PricewaterhouseCoopers LLP to continue to serve as
independent accountants of Value Fund, subject to ratification by Value Fund's
shareholders. PricewaterhouseCoopers LLP has no direct financial interest or
material indirect financial interest in Value Fund. Representatives of
PricewaterhouseCoopers LLP are not expected to attend the Meeting, but have been
given the opportunity to make a statement if they so desire, and will be
available should any matter arise requiring their presence.
The independent accountants examine annual financial statements for
Value Fund and provide other audit and tax-related services. In recommending the
selection of PricewaterhouseCoopers LLP, the directors reviewed the nature and
scope of the services to be provided (including non-audit services) and whether
the performance of such services would affect the accountants' independence.
REQUIRED VOTE. Approval of Proposal 5 requires the affirmative vote of a
majority of the votes present at the Meeting.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL 5
OTHER BUSINESS
The Board knows of no other business to be brought before the Meeting.
If, however, any other matters properly come before the Meeting, it is the
intention that proxies that do not contain specific instructions to the contrary
will be voted on such matters in accordance with the judgment of the persons
designated in the proxies.
38
<PAGE>
INFORMATION CONCERNING ADVISER, SUB-ADVISER, DISTRIBUTOR AND
AFFILIATED COMPANIES
INVESCO, a Delaware corporation, serves as Value Fund's investment
adviser, and provides other services to Value Fund and Diversified Funds. IDI, a
Delaware corporation that serves as Value Fund's distributor, is a wholly owned
subsidiary of INVESCO. IMR, a Massachusetts corporation, serves as Value Fund's
sub-adviser. INVESCO is a wholly owned subsidiary of INVESCO North American
Holdings, Inc. ("INAH"). INAH is an indirect wholly owned subsidiary of AMVESCAP
PLC.(7) The corporate headquarters of AMVESCAP PLC are located at 11 Devonshire
Square, London, EC2M 4YR, England. INVESCO's, INAH's and IDI's offices are
located at 7800 East Union Avenue, Denver, Colorado 80237. IMR's offices are
located at 101 Federal Street, Boston, Massachusetts 02110. INVESCO currently
serves as investment adviser of 14 open-end investment companies having
approximate aggregate net assets in excess of $21.1 billion as of December 31,
1998.
The principal executive officers and directors of INVESCO and their
principal occupations are:
Mark H. Williamson, Chairman of the Board, President, Chief Executive
Officer and Director, also, President and Chief Executive Officer of IDI;
Charles P. Mayer, Director and Senior Vice President, also, Senior Vice
President and Director of IDI; Ronald L. Grooms, Director, Senior Vice President
and Treasurer, also, Director, Senior Vice President and Treasurer of IDI;
Richard W. Healey, Director and Senior Vice President, also, Director and Senior
Vice President of IDI; Timothy J. Miller, Director and Senior Vice President,
also, Director and Senior Vice President of IDI; and Glen A. Payne, Senior Vice
President, Secretary and General Counsel, also, Senior Vice President, Secretary
and General Counsel of IDI
The address of each of the foregoing officers and directors is 7800 East
Union Avenue, Denver, Colorado 80237.
IMR serves as the sub-adviser to Value Fund. IMR is a wholly owned
subsidiary of INAH. INVESCO, as investment adviser, has contracted with IMR for
providing portfolio investment advisory services to Value Fund. IMR also acts as
sub-adviser to the INVESCO Multi-Asset Allocation Fund, a series of INVESCO
Combination Stock & Bond Funds, Inc.
The principal executive officers and directors of IMR and their
principal occupations are:
Frank J. Keeler, President and Chief Executive Officer, also, Corporate
Secretary of INAH; Frank A. Bisogano, Vice President, Treasurer, and Director
and Director of IT Group; Kathleen A. Greenberg, Secretary; A.D. Frazier,
Director, also, President and Chief Executive Officer of INVESCO, Inc. and
Director of INVESCO Capital Management, Inc., INVESCO Realty Advisors, Inc. and
PRIMCO Capital Management, Inc.; William M. McCarthy, Senior Vice President,
Director of Fixed Income and Director; and Robert S. Slotpole, Senior Vice
President, Director of Equities and Director.
- --------------
(7) The intermediary companies between INAH and AMVESCAP PLC are as follows:
INVESCO, Inc., AMVESCAP Group Services, Inc., AVZ, Inc. and INVESCO North
American Group, Ltd., each of which is wholly owned by its immediate parent.
38
<PAGE>
The address of each of the foregoing officers and directors is 101
Federal Street, Boston, Massachusetts 02110.
Pursuant to an Administrative Services Agreement between Diversified
Funds and INVESCO, INVESCO provides administrative services to Diversified
Funds, including sub-accounting and recordkeeping services and functions. During
the fiscal year ended July 31, 1998, Diversified Funds paid INVESCO, which also
serves as Diversified Funds' registrar, transfer agent and dividend disbursing
agent, total compensation of $228,193 for such services.
MISCELLANEOUS
AVAILABLE INFORMATION
Each Fund is subject to the information requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance with those requirements
files reports, proxy material and other information with the SEC. These reports,
proxy material and other information can be inspected and copied at the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, The Midwest Regional office of the SEC, Northwest Atrium Center, 500 West
Madison Street, Suite 400, Chicago, Illinois 60611, and the Northeast Regional
Office of the SEC, Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can also be obtained from the Public Reference
Branch, Office of Consumer Affairs and Information Services, Securities and
Exchange Commission, Washington, D.C. 20459 at prescribed rates.
LEGAL MATTERS
Certain legal matters in connection with the issuance of Growth Fund
shares as part of the Reorganization will be passed upon by Growth Fund's
counsel, Kirkpatrick & Lockhart LLP.
EXPERTS
The audited financial statements of Growth Fund and Value Fund,
incorporated herein by reference and incorporated by reference or included in
their respective Statements of Additional Information, have been audited by
PricewaterhouseCoopers LLP, independent auditors for the Funds, whose reports
thereon are included in the Funds' Annual Reports to Shareholders for the fiscal
year or period ended May 31, 1998 with respect to Growth Fund and July 31, 1998
with respect to Value Fund. The financial statements audited by
PricewaterhouseCoopers LLP have been incorporated herein by reference in
reliance on their reports given on their authority as experts in auditing and
accounting matters.
39
<PAGE>
APPENDIX A
----------
PRINCIPAL SHAREHOLDERS
----------------------
The following table sets forth the beneficial ownership of each Fund's
outstanding equity securities as of March 12, 1999 by each beneficial owner of
5% or more of a Fund's outstanding equity securities.
NAME AND ADDRESS AMOUNT AND NATURE OF OWNERSHIP PERCENTAGE
- ---------------- ------------------------------ ----------
GROWTH FUND
- -----------
Connecticut General Life Insurance 3,241,442.4320 14.31%
C/o Liz Peada M-110 Record
P. O. Box 2975 H 19 B
Hartford, CT 06104-2975
Charles Schwab & Co. Inc. 2,754,329.7950 12.16%
Special Custody Account for the Record
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
VALUE FUND
- ----------
Suffolk University Endowment 500,642.3330 9.30%
Attn: Francis X. Flannery Record
8 Ashburton Place
Boston, MA 02108-2770
Turtle & Co. 478,038.7360 8.88%
S1-RR Record
P. O. Box 9242
Boston, MA 02209-9242
MAC & Co. 381,079.9030 7.08%
Acct. #860-611 Record
Mellon Bank NA
Mutual Funds Dept.
P. O. Box 320
Pittsburgh, PA 15230-0320
Enele & Co. 347,369.9320 6.45%
Freightliner Corp. Record
Acct. # 007128
Copper Mountain Trust Corp.
1211 SW Fifth Avenue, Suite 1900
Portland, OR 97204-3719
Thaddeus Kushinski, Trustee 334,010.0230 6.21%
Holstein Friesian Assoc. of America Reserve Record
One Holstein Place
Brattleboro, VT 05301-3363
<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
----------------------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of March 21, 1999, between INVESCO Diversified Funds, Inc., a Maryland
corporation (operating through a single series, INVESCO Small Company Value
Fund) ("Target"), and INVESCO Emerging Opportunity Funds, Inc., a Maryland
corporation (operating through a single series, INVESCO Small Company Growth
Fund) ("Acquiring Fund"). (Acquiring Fund and Target are sometimes referred to
herein individually as a "Fund" and collectively as the "Funds.")
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended ("Code"). The reorganization will involve the transfer to
Acquiring Fund of Target's assets in exchange solely for voting shares of common
stock in Acquiring Fund, par value $0.01 per share ("Acquiring Fund Shares"),
and the assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of the Acquiring Fund Shares PRO RATA to the holders
of shares of common stock in Target ("Target Shares") in exchange therefor, all
on the terms and conditions set forth herein. The foregoing transactions are
referred to herein collectively as the "Reorganization."
Each Fund issues a single class of shares, which are substantially similar
to each other. Both Funds' shares (1) are offered at net asset value ("NAV"),
(2) are subject to a management fee of up to 0.75% of its net assets, (3) are
subject to a service fee at the annual rate of 0.25% of its net assets imposed
pursuant to a plan of distribution adopted in accordance with Rule 12b-1
promulgated under the Investment Company Act of 1940, as amended ("1940 Act")
(though Target Shares issued before June 1, 1998 are not subject to any such
fee), and (4) are subject to other expenses that are approximately equal to each
other.
In consideration of the mutual promises contained herein, the parties
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION
--------------------------------------
1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and
fractional (rounded to the third decimal place) Acquiring Fund
Shares, determined by dividing the net value of Target
(computed as set forth in paragraph 2.1) by the NAV of an
Acquiring Fund Share (computed as set forth in paragraph 2.2),
and
(b) to assume all of Target's liabilities described in paragraph
1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 3.1)
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
B-1
<PAGE>
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement.
Notwithstanding the foregoing, Target agrees to use its best efforts to
discharge all its known Liabilities before the Effective Time.
1.4. At or immediately before the Effective Time, Target shall declare
and pay to its shareholders a dividend and/or other distribution in an amount
large enough so that it will have distributed substantially all (and in any
event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and substantially all of its
realized net capital gain, if any, for the current taxable year through the
Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall distribute the Acquiring Fund Shares received by it
pursuant to paragraph 1.1 to Target's shareholders of record, determined as of
the Effective Time (each a "Shareholder" and collectively "Shareholders"), in
constructive exchange for their Target Shares. Such distribution shall be
accomplished by Acquiring Fund's transfer agent's opening accounts on Acquiring
Fund's share transfer books in the Shareholders' names and transferring such
Acquiring Fund Shares thereto. Each Shareholder's account shall be credited with
the respective PRO RATA number of full and fractional (rounded to the third
decimal place) Acquiring Fund Shares due that Shareholder. All outstanding
Target Shares, including any represented by certificates, shall simultaneously
be canceled on Target's share transfer books. Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares issued in connection with
the Reorganization.
1.6. As soon as reasonably practicable after distribution of the Acquiring
Fund Shares pursuant to paragraph 1.5, but in all events within twelve months
after the Effective Time, Target shall be terminated and any further actions
shall be taken in connection therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in
a name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
2. VALUATION
---------
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of the close of regular trading on the New York
Stock Exchange ("NYSE") on the date of the Closing ("Valuation Time"), using the
valuation procedures set forth in Target's then-current prospectus and statement
of additional information ("SAI") less (b) the amount of the Liabilities as of
the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund Share
shall be computed as of the Valuation Time, using the valuation procedures set
forth in Acquiring Fund's then-current prospectus and SAI.
B-2
<PAGE>
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of INVESCO Funds Group, Inc. ("INVESCO").
3. CLOSING AND EFFECTIVE TIME
--------------------------
3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office on
June 4, 1999, or at such other place and/or on such other date as to which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the close of business on the date thereof or at such
other time as to which the parties may agree ("Effective Time"). If, immediately
before the Valuation Time, (a) the NYSE is closed to trading or trading thereon
is restricted or (b) trading or the reporting of trading on the NYSE or
elsewhere is disrupted, so that accurate appraisal of the net value of Target
and the NAV of an Acquiring Fund Share is impracticable, the Effective Time
shall be postponed until the first business day after the day when such trading
shall have been fully resumed and such reporting shall have been restored.
3.2. Target's fund accounting and pricing agent shall deliver at the
Closing a certificate of an authorized officer verifying that the information
(including adjusted basis and holding period, by lot) concerning the Assets,
including all portfolio securities, transferred by Target to Acquiring Fund, as
reflected on Acquiring Fund's books immediately following the Closing, does or
will conform to such information on Target's books immediately before the
Closing. Target's custodian shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Assets held by the custodian will be
transferred to Acquiring Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3. Target shall deliver to Acquiring Fund at the Closing a list of the
names and addresses of the Shareholders and the number of outstanding Target
Shares owned by each Shareholder, all as of the Effective Time, certified by the
Secretary or Assistant Secretary of Target. Acquiring Fund's transfer agent
shall deliver at the Closing a certificate as to the opening on Acquiring Fund's
share transfer books of accounts in the Shareholders' names. Acquiring Fund
shall issue and deliver a confirmation to Target evidencing the Acquiring Fund
Shares to be credited to Target at the Effective Time or provide evidence
satisfactory to Target that such Acquiring Fund Shares have been credited to
Target's account on Acquiring Fund's books. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, stock
certificates, receipts, or other documents as the other party or its counsel may
reasonably request.
3.4. Each Fund shall deliver to the other at the Closing a certificate
executed in its name by its President or a Vice President in form and substance
satisfactory to the recipient and dated the Effective Time, to the effect that
the representations and warranties it made in this Agreement are true and
correct at the Effective Time except as they may be affected by the transactions
contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1. Target represents and warrants as follows:
4.1.1. Target is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland; and a copy of
its Articles of Incorporation is on file with the Secretary of the State
of Maryland;
B-3
<PAGE>
4.1.2. Target is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.1.3. At the Closing, Target will have good and marketable title
to the Assets and full right, power, and authority to sell, assign,
transfer, and deliver the Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, Acquiring Fund will acquire
good and marketable title thereto;
4.1.4. Target's current prospectus and SAI conform in all material
respects to the applicable requirements of the Securities Act of 1933, as
amended ("1933 Act") and the 1940 Act and the rules and regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
4.1.5. Target is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Maryland law or any provision of
Target's Articles of Incorporation or By-Laws or of any agreement,
instrument, lease, or other undertaking to which Target is a party or by
which it is bound or result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Target is a party or by which it is bound, except as previously
disclosed in writing to and accepted by Acquiring Fund;
4.1.6. Except as otherwise disclosed in writing to and accepted by
Acquiring Fund, all material contracts and other commitments of or
applicable to Target (other than this Agreement and investment contracts,
including options, futures, and forward contracts) will be terminated, or
provision for discharge of any liabilities of Target thereunder will be
made, at or prior to the Effective Time, without either Fund's incurring
any liability or penalty with respect thereto and without diminishing or
releasing any rights Target may have had with respect to actions taken or
omitted or to be taken by any other party thereto prior to the Closing;
4.1.7. Except as otherwise disclosed in writing to and accepted by
Acquiring Fund, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or (to
Target's knowledge) threatened against Target that, if adversely
determined, would materially and adversely affect its financial condition
or the conduct of its business; Target knows of no facts that might form
the basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.1.8. The execution, delivery, and performance of this Agreement
have been duly authorized as of the date hereof by all necessary action on
the part of Target's board of directors ("Target's Board"), which has made
the determinations required by Rule 17a-8(a) under the 1940 Act; and,
subject to approval by Target's shareholders, this Agreement constitutes a
valid and legally binding obligation of Target, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general principles
of equity;
B-4
<PAGE>
4.1.9. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934, as amended ("1934 Act"), or the 1940 Act for the execution or
performance of this Agreement by Target, except for (a) the filing with
the Securities and Exchange Commission ("SEC") of a registration statement
by Acquiring Fund on Form N-14 relating to the Acquiring Fund Shares
issuable hereunder, and any supplement or amendment thereto ("Registration
Statement"), including therein a prospectus/proxy statement ("Proxy
Statement"), and (b) such consents, approvals, authorizations, and filings
as have been made or received or as may be required subsequent to the
Effective Time;
4.1.11. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by Acquiring Fund for use therein;
4.1.12. The Liabilities were incurred by Target in the ordinary
course of its business; and there are no Liabilities other than
liabilities disclosed or provided for in Target's financial statements
referred to in paragraph 4.18 and liabilities incurred by Target in the
ordinary course of its business subsequent to July 31, 1998, or otherwise
previously disclosed to Acquiring Fund, none of which has been materially
adverse to the business, assets, or results of Target operations;
4.1.13. Target qualified for treatment as a regulated investment
company under Subchapter M of the Code ("RIC") for each past taxable year
since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; and it
has no earnings and profits accumulated in any taxable year in which the
provisions of Subchapter M did not apply to it. The Assets shall be
invested at all times through the Effective Time in a manner that ensures
compliance with the foregoing;
4.1.14. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
4.1.15. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock and securities of any one issuer, and not more than 50% of
the value of such assets is invested in the stock and securities of five
or fewer issuers;
4.1.16. Target will be terminated as soon as reasonably practicable
after the Effective Time, but in all events within twelve months
thereafter;
4.1.17. Target's federal income tax returns, and all applicable
state and local tax returns, for all taxable years to and including the
taxable year ended July 31, 1998, have been timely filed and all taxes
payable pursuant to such returns have been timely paid; and
B-5
<PAGE>
4.1.18. The financial statements of Target for the year ended July
31, 1998, to be delivered to Acquiring Fund, fairly represent the
financial position of Target as of that date and the results of its
operations and changes in its net assets for the year then ended.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. Acquiring Fund is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland;
and a copy of its Articles of Incorporation is on file with the Secretary
of the State of Maryland;
4.2.2. Acquiring Fund is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.2.3. Acquiring Fund has 600,000,000 authorized shares of common
stock, par value $0.01 per share, of which 23,648,672 shares were
outstanding, as of November 30, 1998. Because Acquiring Fund is an
open-end investment company engaged in the continuous offering and
redemption of its shares, the number of outstanding Acquiring Fund Shares
may change prior to the Effective Time;
4.2.4. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
4.2.5. The Acquiring Fund Shares to be issued and delivered to
Target hereunder will, at the Effective Time, have been duly authorized
and, when issued and delivered as provided herein, will be duly and
validly issued and outstanding shares of Acquiring Fund, fully paid and
non-assessable;
4.2.6. Acquiring Fund's current prospectus and SAI conform in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations thereunder and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Maryland law or any
provision of Acquiring Fund's Articles of Incorporation or By-Laws or of
any provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Acquiring Fund is a party or
by which it is bound, except as previously disclosed in writing to and
accepted by Target;
4.2.8. Except as otherwise disclosed in writing to and accepted by
Target, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to
Acquiring Fund's knowledge) threatened against Acquiring Fund that, if
adversely determined, would materially and adversely affect Acquiring
Fund's financial condition or the conduct of its business; Acquiring Fund
knows of no facts that might form the basis for the institution of any
such litigation, proceeding, or investigation and is not a party to or
subject to the provisions of any order, decree, or judgment of any court
B-6
<PAGE>
or governmental body that materially or adversely affects its business or
its ability to consummate the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this Agreement
have been duly authorized as of the date hereof by all necessary action on
the part of Acquiring Fund's board of directors ("Acquiring Fund's Board"
and, together with "Target's Board," the "Boards"), which has made the
determinations required by Rule 17a-8(a) under the 1940 Act; and this
Agreement constitutes a valid and legally binding obligation of Acquiring
Fund, enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights
and by general principles of equity;
4.2.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by Acquiring Fund, except
for (a) the filing with the SEC of the Registration Statement and a
post-effective amendment to Acquiring Fund's registration statement on
Form N1-A and (b) such consents, approvals, authorizations, and filings as
have been made or received or as may be required subsequent to the
Effective Time;
4.2.11. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by Target for use therein;
4.2.12. Acquiring Fund qualified for treatment as a RIC for each
past taxable year since it commenced operations and will continue to meet
all the requirements for such qualification for its current taxable year;
Acquiring Fund intends to continue to meet all such requirements for the
next taxable year; and it has no earnings and profits accumulated in any
taxable year in which the provisions of Subchapter M of the Code did not
apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as an open-end investment
company; nor does Acquiring Fund have any plan or intention to redeem or
otherwise reacquire any Acquiring Fund Shares issued to the Shareholders
pursuant to the Reorganization, except to the extent it is required by the
1940 Act to redeem any of its shares presented for redemption at net asset
value in the ordinary course of that business;
4.2.14. Following the Reorganization, Acquiring Fund (a) will
continue Target's "historic business" (within the meaning of section
1.368-1(d)(2) of the Income Tax Regulations under the Code), (b) use a
significant portion of Target's historic business assets (within the
meaning of section 1.368-1(d)(3) of the Income Tax Regulations under the
Code) in a business, (c) has no plan or intention to sell or otherwise
dispose of any of the Assets, except for dispositions made in the ordinary
course of that business and dispositions necessary to maintain its status
as a RIC, and (d) expects to retain substantially all the Assets in the
same form as it receives them in the Reorganization, unless and until
B-7
<PAGE>
subsequent investment circumstances suggest the desirability of change or
it becomes necessary to make dispositions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or a business trust or any
"fund" thereof (within the meaning of section 851(g)(2) of the Code)
following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock and
securities of any one issuer and (b) not more than 50% of the value of
such assets will be invested in the stock and securities of five or fewer
issuers;
4.2.17. Acquiring Fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target;
4.2.18. Acquiring Fund's federal income tax returns, and all
applicable state and local tax returns, for all taxable years to and
including the taxable year ended May 31, 1998, have been timely filed and
all taxes payable pursuant to such returns have been timely paid;
4.2.19. The financial statements of Acquiring Fund for the year
ended May 31, 1998, to be delivered to Target, fairly represent the
financial position of Acquiring Fund as of that date and the results of
its operations and changes in its net assets for the year then ended; and
4.2.20. If the Reorganization is consummated, Acquiring Fund will
treat each Shareholder that receives Acquiring Fund Shares in connection
with the Reorganization as having made a minimum initial purchase of
Acquiring Fund Shares for the purpose of making additional investments in
Acquiring Fund Shares, regardless of the value of the Acquiring Fund
Shares so received.
4.3. Each Fund represents and warrants as follows:
4.3.1.The aggregate fair market value of the Acquiring Fund Shares,
when received by the Shareholders, will be approximately equal to the
aggregate fair market value of their Target Shares constructively
surrendered in exchange therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of
their Target Shares before the Reorganization to any person related
(within the meaning of section 1.368-1(e)(3) of the Income Tax Regulations
under the Code) to either Fund or (ii) any portion of the Acquiring Fund
Shares to be received by them in the Reorganization to any person related
(as so defined) to Acquiring Fund, (b) does not anticipate dispositions of
those Acquiring Fund Shares at the time of or soon after the
Reorganization to exceed the usual rate and frequency of dispositions of
shares of Target as an open-end investment company, (c) expects that the
percentage of Shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be DE MINIMIS, and (d)
does not anticipate that there will be extraordinary redemptions of
Acquiring Fund Shares immediately following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
B-8
<PAGE>
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto (in addition to the assets and liabilities
Acquiring Fund then held or was subject to), plus any liabilities and
expenses of the parties incurred in connection with the Reorganization;
4.3.5. The fair market value of the Assets on a going concern basis
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
its Reorganization expenses and to make redemptions and distributions
immediately before the Reorganization (except (a) redemptions not made as
part of the Reorganization and (b) distributions made to conform to its
policy of distributing all or substantially all of its income and gains to
avoid the obligation to pay federal income tax and/or the excise tax under
section 4982 of the Code) will be included as assets held thereby
immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who is
an employee of or service provider to Target will be separate
consideration for, or allocable to, any of the Target Shares held by such
Shareholder; none of the Acquiring Fund Shares received by any such
Shareholder will be separate consideration for, or allocable to, any
employment agreement, investment advisory agreement, or other service
agreement; and the consideration paid to any such Shareholder will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services;
4.3.9. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the meaning
of section 304(c) of the Code; and
4.3.10. Neither Fund will be reimbursed for any expenses incurred by
it or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1
C.B. 187) ("Reorganization Expenses").
5. COVENANTS
---------
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being understood
that
(a) such ordinary course will include declaring and paying customary
dividends and other distributions and such changes in operations as
are contemplated by each Fund's normal business activities and
B-9
<PAGE>
(b) each Fund will retain exclusive control of the composition of its
portfolio until the Closing; provided that (1) Target shall not
dispose of more than an insignificant portion of its historic
business assets during such period without Acquiring Fund's prior
consent and (2) if Target's shareholders' approve this Agreement
(and the transactions contemplated hereby), then between the date of
such approval and the Closing, the Funds shall coordinate their
respective portfolios so that the transfer of the Assets to
Acquiring Fund will not cause it to fail to be in compliance with
all of its investment policies and restrictions immediately after
the Closing.
5.2. Target covenants to call a shareholders' meeting to consider and act
on this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist Acquiring Fund in obtaining such
information as Acquiring Fund reasonably requests concerning the beneficial
ownership of Target Shares.
5.5. Target covenants that its books and records (including all books and
records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to Acquiring Fund at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring Fund
Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
5.8. Acquiring Fund covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
--------------------
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all the obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
B-10
<PAGE>
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by the Boards and shall have been approved by
Target's shareholders in accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Fund to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except where
failure to obtain same would not involve a risk of a material adverse effect on
the assets or properties of either Fund, provided that either Fund may for
itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. Target shall have received an opinion of Kirkpatrick & Lockhart LLP
substantially to the effect that:
6.4.1. Acquiring Fund is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland
with power under its Articles of Incorporation to own all its properties
and assets and, to the knowledge of such counsel, to carry on its business
as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by Acquiring Fund and (b) assuming due authorization, execution,
and delivery of this Agreement by Target, is a valid and legally binding
obligation of Acquiring Fund, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable;
6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate Acquiring Fund's Articles of Incorporation or By-Laws or any
provision of any agreement (known to such counsel, without any independent
inquiry or investigation) to which Acquiring Fund is a party or by which
it is bound or (to the knowledge of such counsel, without any independent
inquiry or investigation) result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement, judgment, or decree to
which Acquiring Fund is a party or by which it is bound, except as set
forth in such opinion or as previously disclosed in writing to and
accepted by Target;
B-11
<PAGE>
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order
of any court or governmental authority is required for the consummation by
Acquiring Fund of the transactions contemplated herein, except such as
have been obtained under the 1933 Act, the 1934 Act, and the 1940 Act and
such as may be required under state securities laws;
6.4.6. Acquiring Fund is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding,
or investigation of or before any court or governmental body is pending or
threatened as to Acquiring Fund or any of its properties or assets and (b)
Acquiring Fund is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially and adversely affects its business, except as set forth in such
opinion or as otherwise disclosed in writing to and accepted by Target.
In rendering such opinion, such counsel may (1) rely, as to matters governed by
the laws of the State of Maryland, on an opinion of competent Maryland counsel,
(2) make assumptions regarding the authenticity, genuineness, and/or conformity
of documents and copies thereof without independent verification thereof, (3)
limit such opinion to applicable federal and state law, and (4) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
6.5. Acquiring Fund shall have received an opinion of Kirkpatrick &
Lockhart LLP substantially to the effect that:
6.5.1. Target is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland with power under
its Articles of Incorporation to own all its properties and assets and, to
the knowledge of such counsel, to carry on its business as presently
conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by Target and (b) assuming due authorization, execution, and
delivery of this Agreement by Acquiring Fund, is a valid and legally
binding obligation of Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate Target's Articles of Incorporation or By-Laws or any provision of
any agreement (known to such counsel, without any independent inquiry or
investigation) to which Target is a party or by which it is bound or (to
the knowledge of such counsel, without any independent inquiry or
investigation) result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Target is a party or by which it is bound, except as set forth in
such opinion or as previously disclosed in writing to and accepted by
Acquiring Fund;
B-12
<PAGE>
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order
of any court or governmental authority is required for the consummation by
Target of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act, and the 1940 Act and such as
may be required under state securities laws;
6.5.5. Target is registered with the SEC as an investment company,
and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding,
or investigation of or before any court or governmental body is pending or
threatened as to Target or any of its properties or assets and (b) Target
is not a party to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially and adversely
affects Target's business, except as set forth in such opinion or as
otherwise disclosed in writing to and accepted by Acquiring Fund.
In rendering such opinion, such counsel may (1) rely, as to matters governed by
the laws of the State of Maryland, on an opinion of competent Maryland counsel,
(2) make assumptions regarding the authenticity, genuineness, and/or conformity
of documents and copies thereof without independent verification thereof, (3)
limit such opinion to applicable federal and state law, and (4) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
6.6. Each Fund shall have received an opinion of Kirkpatrick & Lockhart
LLP, addressed to and in form and substance satisfactory to it, as to the
federal income tax consequences mentioned below ("Tax Opinion"). In rendering
the Tax Opinion, such counsel may rely as to factual matters, exclusively and
without independent verification, on the representations made in this Agreement
(or in separate letters addressed to such counsel) and the certificates
delivered pursuant to paragraph 3.4. The Tax Opinion shall be substantially to
the effect that, based on the facts and assumptions stated therein, for federal
income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely
for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares PRO RATA to
the Shareholders constructively in exchange for the Shareholders' Target
Shares, will constitute a reorganization within the meaning of section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
6.6.2. Target will recognize no gain or loss on the transfer to
Acquiring Fund of the Assets in exchange solely for Acquiring Fund Shares
and Acquiring Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to the Shareholders in constructive exchange
for their Target Shares;
6.6.3. Acquiring Fund will recognize no gain or loss on its receipt
of the Assets in exchange solely for Acquiring Fund Shares and its
assumption of the Liabilities;
B-13
<PAGE>
6.6.4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's aggregate basis for the Acquiring Fund Shares
to be received by it in the Reorganization will be the same as the
aggregate basis for its Target Shares to be constructively surrendered in
exchange for those Acquiring Fund Shares, and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding subparagraphs 6.6.2 and 6.6.4, the Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder with respect to any asset as to which any unrealized gain or loss is
required to be recognized for federal income tax purposes at the end of a
taxable year (or on the termination or transfer thereof) under a mark-to-market
system of accounting.
At any time before the Closing, either Fund may waive any of the foregoing
conditions if, in the judgment of its Board, such waiver will not have a
material adverse effect on its shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
---------------------------
7.1. Each Fund represents and warrants to the other that there are no
brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
7.2. Except as otherwise provided herein, 50% of the total Reorganization
Expenses will be borne by INVESCO and the remaining 50% will be borne partly by
each Fund.
8. ENTIRE AGREEMENT; NO SURVIVAL
-----------------------------
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.
9. TERMINATION OF AGREEMENT
------------------------
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before August 31, 1999; or
9.2. By the parties' mutual agreement.
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<PAGE>
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or its directors or officers,
to the other Fund.
10. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as may
be mutually agreed upon in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
-------------
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Maryland; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Fund and delivered to
the other party hereto. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officers as of the day and year first
written above.
ATTEST: INVESCO Diversified Funds, Inc.
By:
- ---------------------- ---------------------------
Assistant Secretary Vice President
ATTEST: INVESCO Emerging Opportunity Funds, Inc.
By:
- ---------------------- ---------------------------
Assistant Secretary Vice President
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<PAGE>
APPENDIX C
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
------------------------------------------------
This AGREEMENT AND PLAN OF CONVERSION AND TERMINATION ("Agreement") is
made as of March 21, 1999, between INVESCO Diversified Funds, Inc., a Maryland
corporation (operating through a single series, INVESCO Small Company Value
Fund) ("Old Fund"), and INVESCO Stock Funds, Inc., a Maryland corporation
("Stock Funds"), on behalf of its INVESCO Small Company Value Fund, a segregated
portfolio of assets ("series") thereof ("New Fund"). (Old Fund and New Fund are
sometimes referred to herein individually as a "Fund" and collectively as the
"Funds"; and Old Fund and Stock Funds are sometimes referred to herein
individually as an "Investment Company.") All agreements, representations,
actions, and obligations described herein made or to be taken or undertaken by
New Fund are made and shall be taken or undertaken by Stock Funds on its behalf.
Old Fund intends to change its identity -- by converting to a series of
Stock Funds -- through a reorganization within the meaning of section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended ("Code"). Old Fund
desires to accomplish such conversion by transferring all its assets to New Fund
(which is being established solely for the purpose of acquiring such assets and
continuing Old Fund's business) in exchange solely for voting shares of common
stock in New Fund ("New Fund Shares") and New Fund's assumption of Old Fund's
liabilities, followed by the constructive distribution of the New Fund Shares
PRO RATA to the holders of shares of common stock in Old Fund ("Old Fund
Shares") in exchange therefor, all on the terms and conditions set forth in this
Agreement (which is intended to be, and is adopted as, a "plan of
reorganization" for federal income tax purposes). All such transactions are
referred to herein as the "Reorganization."
In consideration of the mutual promises herein contained, the parties
agree as follows:
1. PLAN OF CONVERSION AND TERMINATION
----------------------------------
1.1. Old Fund agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to New Fund. New Fund agrees in
exchange therefor --
(a) to issue and deliver to Old Fund the number of full and
fractional (rounded to the third decimal place) New Fund Shares equal to
the number of full and fractional Old Fund Shares then outstanding, and
(b) to assume all of Old Fund's liabilities described in paragraph
1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 2.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Old Fund's books, and other property owned by Old Fund at the
Effective Time (as defined in paragraph 2.1).
1.3. The Liabilities shall include all of Old Fund's liabilities, debts,
obligations, and duties of whatever kind or nature, whether absolute, accrued,
<PAGE>
contingent, or otherwise, whether or not arising in the ordinary course of
business, whether or not determinable at the Effective Time, and whether or not
specifically referred to in this Agreement.
1.4. At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Share issued pursuant to paragraph 4.4 shall be
redeemed by New Fund for $1.00 and (b) Old Fund shall distribute the New Fund
Shares it received pursuant to paragraph 1.1 to its shareholders of record,
determined as of the Effective Time (each a "Shareholder" and collectively
"Shareholders"), in constructive exchange for their Old Fund Shares. Such
distribution shall be accomplished by Stock Funds' transfer agent's opening
accounts on New Fund's share transfer books in the Shareholders' names and
transferring such New Fund Shares thereto. Each Shareholder's account shall be
credited with the respective PRO RATA number of full and fractional (rounded to
the third decimal place) New Fund Shares due that Shareholder. All outstanding
Old Fund Shares, including those represented by certificates, shall
simultaneously be canceled on Old Fund's share transfer books. New Fund shall
not issue certificates representing the New Fund Shares in connection with the
Reorganization.
1.5. As soon as reasonably practicable after distribution of the New Fund
Shares pursuant to paragraph 1.4, but in all events within twelve months after
the Effective Time, Old Fund shall be terminated and any further actions shall
be taken in connection therewith as required by applicable law.
1.6. Any reporting responsibility of Old Fund to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.7. Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder on Old Fund's books of the Old Fund
Shares constructively exchanged therefor shall be paid by the person to whom
such New Fund Shares are to be issued, as a condition of such transfer.
2. CLOSING AND EFFECTIVE TIME
--------------------------
2.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office on
June 4, 1999, or at such other place and/or on such other date as to which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the close of business on the date thereof or at such
other time as to which the parties may agree ("Effective Time").
2.2. Old Fund's fund accounting and pricing agent shall deliver at the
Closing a certificate of an authorized officer verifying that the information
(including adjusted basis and holding period, by lot) concerning the Assets,
including all portfolio securities, transferred by Old Fund to New Fund, as
reflected on New Fund's books immediately following the Closing, does or will
conform to such information on Old Fund's books immediately before the Closing.
Old Fund's custodian shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets held by the custodian will be transferred to
New Fund at the Effective Time and (b) all necessary taxes in conjunction with
the delivery of the Assets, including all applicable federal and state stock
transfer stamps, if any, have been paid or provision for payment has been made.
2.3. Stock Funds' transfer agent shall deliver at the Closing a
certificate as to the opening on New Fund's share transfer books of accounts in
the Shareholders' names. Stock Funds shall issue and deliver a confirmation to
Old Fund evidencing the New Fund Shares to be credited to Old Fund at the
Effective Time or provide evidence satisfactory to Old Fund that such New Fund
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<PAGE>
Shares have been credited to Old Fund's account on such books. At the Closing,
each party shall deliver to the other such bills of sale, checks, assignments,
stock certificates, receipts, or other documents as the other party or its
counsel may reasonably request.
2.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES
------------------------------
3.1. Old Fund represents and warrants as follows:
3.1.1. Old Fund is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Maryland; and a copy
of its Articles of Incorporation is on file with the Secretary of State of
Maryland;
3.1.2. Old Fund is duly registered as an open-end management
investment company under the Investment Company Act of 1940, as amended
("1940 Act"), and such registration will be in full force and effect at
the Effective Time;
3.1.3. At the Closing, Old Fund will have good and marketable title
to the Assets and full right, power, and authority to sell, assign,
transfer, and deliver the Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, New Fund will acquire good
and marketable title thereto;
3.1.4. New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms
hereof;
3.1.5. Old Fund qualified for treatment as a regulated investment
company under Subchapter M of the Code ("RIC") for each past taxable year
since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; and it
has no earnings and profits accumulated in any taxable year in which the
provisions of Subchapter M did not apply to it. The Assets shall be
invested at all times through the Effective Time in a manner that ensures
compliance with the foregoing;
3.1.6. The Liabilities were incurred by Old Fund in the ordinary
course of its business and are associated with the Assets;
3.1.7. Old Fund is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
3.1.8. Not more than 25% of the value of Old Fund's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock and securities of any one issuer, and not more than 50% of
the value of such assets is invested in the stock and securities of five
or fewer issuers;
C-3
<PAGE>
3.1.9. As of the Effective Time, Old Fund will not have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Old Fund Shares;
3.1.10. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Old Fund's
shareholders; and
3.1.11. Old Fund will be terminated as soon as reasonably
practicable after the Effective Time, but in all events within twelve
months thereafter.
3.2. New Fund represents and warrants as follows:
3.2.1. Stock Funds is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland;
and a copy of its Articles of Incorporation is on file with the Secretary
of State of Maryland;
3.2.2. Stock Funds is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
3.2.3. Before the Effective Time, New Fund will be a duly
established and designated series of Stock Funds;
3.2.4. New Fund has not commenced operations and will not do so
until after the Closing;
3.2.5. Prior to the Effective Time, there will be no issued and
outstanding shares in New Fund or any other securities issued by New Fund,
except as provided in paragraph 4.4;
3.2.6. No consideration other than New Fund Shares (and New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets
in the Reorganization;
3.2.7. The New Fund Shares to be issued and delivered to Old Fund
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, will be duly and validly issued
and outstanding shares of New Fund, fully paid and non-assessable;
3.2.8. New Fund will be a "fund" as defined in section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
3.2.9. New Fund has no plan or intention to issue additional New
Fund Shares following the Reorganization except for shares issued in the
ordinary course of its business as a series of an open-end investment
company; nor does New Fund have any plan or intention to redeem or
otherwise reacquire any New Fund Shares issued to the Shareholders
pursuant to the Reorganization, except to the extent it is required by the
1940 Act to redeem any of its shares presented for redemption at net asset
value in the ordinary course of that business;
3.2.10. Following the Reorganization, New Fund (a) will continue Old
Fund's "historic business" (within the meaning of section 1.368-1(d)(2) of
the Income Tax Regulations under the Code), (b) use a significant portion
C-4
<PAGE>
of Old Fund's historic business assets (within the meaning of section
1.368-1(d)(3) of those regulations) in a business, (c) has no plan or
intention to sell or otherwise dispose of any of the Assets, except for
dispositions made in the ordinary course of that business and dispositions
necessary to maintain its status as a RIC, and (d) expects to retain
substantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
3.2.11. There is no plan or intention for New Fund to be dissolved
or merged into another corporation or a business trust or any "fund"
thereof (within the meaning of section 851(g)(2) of the Code) following
the Reorganization; and
3.2.12. Immediately after the Reorganization, (a) not more than 25%
of the value of New Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities
of any one issuer and (b) not more than 50% of the value of such assets
will be invested in the stock and securities of five or fewer issuers.
3.3. Each Fund represents and warrants as follows:
3.3.1. The aggregate fair market value of the New Fund Shares, when
received by the Shareholders, will be approximately equal to the aggregate
fair market value of their Old Fund Shares constructively surrendered in
exchange therefor;
3.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of
their Old Fund Shares before the Reorganization to any person related
(within the meaning of section 1.368-1(e)(3) of the Income Tax Regulations
under the Code) to either Fund or (ii) any portion of the New Fund Shares
to be received by them in the Reorganization to any person related (as so
defined) to New Fund, (b) does not anticipate dispositions of those New
Fund Shares at the time of or soon after the Reorganization to exceed the
usual rate and frequency of dispositions of shares of Old Fund as an
open-end investment company, (c) expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be DE MINIMIS, and (d) does not
anticipate that there will be extraordinary redemptions of New Fund Shares
immediately following the Reorganization;
3.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
3.3.4. Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares and will own such shares
solely by reason of their ownership of Old Fund Shares immediately before
the Reorganization;
3.3.5. Immediately following consummation of the Reorganization, New
Fund will hold the same assets -- except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization -- and be subject
to the same liabilities that Old Fund held or was subject to immediately
prior to the Reorganization, plus any liabilities for expenses of the
parties incurred in connection with the Reorganization. Such excepted
assets, together with the amount of all redemptions and distributions
(other than regular, normal dividends) made by Old Fund immediately
preceding the Reorganization, will, in the aggregate, constitute less than
1% of its net assets;
C-5
<PAGE>
3.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount; and
3.3.7. Neither Fund will be reimbursed for any expenses incurred by
it or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1
C.B. 187) ("Reorganization Expenses").
4. CONDITIONS PRECEDENT
--------------------
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all its obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
4.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by each Investment Company's board of directors
and shall have been approved by Old Fund's shareholders in accordance with
applicable law;
4.2. All necessary filings shall have been made with the Securities and
Exchange Commission ("SEC") and state securities authorities, and no order or
directive shall have been received that any other or further action is required
to permit the parties to carry out the transactions contemplated hereby. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Investment Company to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on the assets or properties of either Fund, provided that either
Investment Company may for itself waive any of such conditions;
4.3. Each Investment Company shall have received an opinion of Kirkpatrick
& Lockhart LLP, addressed to and in form and substance satisfactory to it, as to
the federal income tax consequences mentioned below ("Tax Opinion"). In
rendering the Tax Opinion, such counsel may rely as to factual matters,
exclusively and without independent verification, on the representations made in
this Agreement (or in separate letters addressed to such counsel) and the
certificates delivered pursuant to paragraph 2.4. The Tax Opinion shall be
substantially to the effect that, based on the facts and assumptions stated
therein and conditioned on consummation of the Reorganization in accordance with
this Agreement, for federal income tax purposes:
4.3.1. New Fund's acquisition of the Assets in exchange solely for
New Fund Shares and New Fund's assumption of the Liabilities, followed by
Old Fund's distribution of those shares PRO RATA to the Shareholders
constructively in exchange for the Shareholders' Old Fund Shares, will
constitute a reorganization within the meaning of section 368(a)(1)(F) of
the Code, and each Fund will be "a party to a reorganization" within the
meaning of section 368(b) of the Code;
4.3.2. Old Fund will recognize no gain or loss on the transfer to
New Fund of the Assets in exchange solely for New Fund Shares and New
Fund's assumption of the Liabilities or on the subsequent distribution of
those shares to the Shareholders in constructive exchange for their Old
Fund Shares;
C-6
<PAGE>
4.3.3. New Fund will recognize no gain or loss on its receipt of the
Assets in exchange solely for New Fund Shares and its assumption of the
Liabilities;
4.3.4. New Fund's basis for the Assets will be the same as the basis
thereof in Old Fund's hands immediately before the Reorganization, and New
Fund's holding period for the Assets will include Old Fund's holding
period therefor;
4.3.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Old Fund Shares solely for New Fund
Shares pursuant to the Reorganization;
4.3.6. A Shareholder's aggregate basis for the New Fund Shares to be
received by it in the Reorganization will be the same as the aggregate
basis for its Old Fund Shares to be constructively surrendered in exchange
for those New Fund Shares, and its holding period for those New Fund
Shares will include its holding period for those Old Fund Shares, provided
they are held as capital assets by the Shareholder at the Effective Time;
and
4.3.7. For purposes of section 381 of the Code, New Fund will be
treated as if there had been no Reorganization. Accordingly, the
Reorganization will not result in the termination of Old Fund's taxable
year, Old Fund's tax attributes enumerated in section 381(c) of the Code
will be taken into account by New Fund as if there had been no
Reorganization, and the part of Old Fund's taxable year before the
Reorganization will be included in New Fund's taxable year after the
Reorganization;
4.4. Prior to the Closing, Stock Funds' directors shall have authorized
the issuance of, and New Fund shall have issued, one New Fund Share to Old Fund
in consideration of the payment of $1.00 to vote on the matters referred to in
paragraph 4.5; and
4.5. Stock Funds (on behalf of and with respect to New Fund) shall have
entered into a management contract, a distribution and service plan pursuant to
Rule 12b-1 under the 1940 Act, and such other agreements as are necessary for
New Fund's operation as a series of an open-end investment company. Each such
contract, plan, and agreement shall have been approved by Stock Funds' directors
and, to the extent required by law, by such of those directors who are not
"interested persons" thereof (as defined in the 1940 Act) and by Old Fund as the
sole shareholder of New Fund.
At any time before the Closing, either Investment Company may waive any of the
foregoing conditions (except that set forth in paragraph 4.1) if, in the
judgment of its board of directors, such waiver will not have a material adverse
effect on its Fund's shareholders' interests.
5. BROKERAGE FEES AND EXPENSES
---------------------------
5.1 Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
5.2 Except as otherwise provided herein, 50% of the total Reorganization
Expenses will be borne by INVESCO Funds Group, Inc., and the remaining 50% will
be borne one-half by each Fund.
C-7
<PAGE>
6. ENTIRE AGREEMENT; NO SURVIVAL
-----------------------------
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.
7. TERMINATION
-----------
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Old Fund's shareholders:
7.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before August 31, 1999; or
7.2. By the parties' mutual agreement.
In the event of termination under paragraphs 7.1(c) or 7.2, there shall be no
liability for damages on the part of either Fund, or the directors or officers
of either Investment Company, to the other Fund.
8. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Old Fund's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
9. MISCELLANEOUS
-------------
9.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Maryland; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
9.2. Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
9.3. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other party hereto. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
C-8
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officers as of the day and year first
written above.
ATTEST: INVESCO DIVERSIFIED FUNDS, INC.
By:
- ------------------------ ---------------------------
Assistant Secretary Vice President
ATTEST: INVESCO STOCK FUNDS, INC.,
on behalf of its series,
INVESCO Small Company Growth Fund
By:
- ------------------------ ---------------------------
Assistant Secretary Vice President
C-9
<PAGE>
INVESCO SMALL COMPANY GROWTH FUND
(A SERIES OF INVESCO STOCK FUNDS, INC.)
INVESCO SMALL COMPANY VALUE FUND
(A SERIES OF INVESCO DIVERSIFIED FUNDS, INC.)
7800 E. UNION AVENUE
DENVER, COLORADO 80237
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates specifically to the
proposed Reorganization whereby INVESCO Small Company Growth Fund ("Growth
Fund") would acquire the assets of INVESCO Small Company Value Fund ("Value
Fund") in exchange solely for shares of Growth Fund and the assumption by Growth
Fund of Value Fund's liabilities. This Statement of Additional Information
consists of this cover page and the following described documents, each of which
is incorporated by reference herein:
(1) The Statement of Additional Information of Growth Fund, dated
October 1, 1998.
(2) The Statement of Additional Information of Value Fund, dated December
1, 1998.
(3) The Annual Report to Shareholders of Growth Fund for the fiscal year
ended May 31, 1998.
(4) The Annual Report to Shareholders of Value Fund for the fiscal year
ended July 31, 1998.
(5) The Semi-Annual Report to Shareholders of Growth Fund for the
six-month period ended November 30, 1998, previously filed on EDGAR, Accession
Number 0000870781-99-000002.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Prospectus/Proxy Statement dated March 23,
1999 relating to the above-referenced matter. A copy of the Prospectus/Proxy
Statement may be obtained by calling toll-free 1-800-646-8372. This Statement of
Additional Information is dated March 23, 1999.
<PAGE>
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SMALL COMPANY SMALL COMPANY PRO FORMA PRO FORMA
VALUE FUND GROWTH FUND ADJUSTMENTS COMBINED
--------------------------------------------------------------------------
ASSETS
Investment Securities at Value
(Cost $59,712,445, $265,093,977 and
$324,806,422, respectively)(a) $61,161,304 $282,604,515 $343,765,819
Cash 57,448 208,157 265,605
Receivables:
Investment Securities Sold 2,965,880 2,965,880
Fund Shares Sold 222,639 606,301 828,940
Dividends and Interest 52,858 11,164 64,022
Prepaid Expenses and Other Assets 112,887 124,187 237,074
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 61,607,136 286,520,204 348,127,340
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Investment Securities Purchased 2,452,557 2,452,557
Fund Shares Repurchased 2,094,261 10,351,399 12,445,660
Accrued Distribution Expenses 11,903 54,054 65,957
Accrued Expenses and Other Payables 71,375 266,596 337,971
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,177,539 13,124,606 15,302,145
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $59,429,597 $273,395,598 $332,825,195
=======================================================================================================================
NET ASSETS
Paid-in Capital $59,967,674 $237,818,949 $297,786,623
Accumulated Undistributed Net
Investment Income 136,893 (653,747) (516,854)
Accumulated Undistributed Net Realized
Gain (Loss) on Investment Securities
and Foreign Currency Transactions (2,123,829) 18,719,858 16,596,029
Net Appreciation of Investment Securities
and Foreign Currency Transactions 1,448,859 17,510,538 18,959,397
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $59,429,597 $273,395,598 $332,825,195
=======================================================================================================================
Shares Outstanding 5,754,669 23,648,672 (613,700) (b) 28,789,641
NET ASSET VALUE, OFFERING AND REDEMPTION
Price per Share $ 10.33 $ 11.56 $ 11.56
=======================================================================================================================
(a) Investment securities at cost and value at November 30, 1998 include repurchase agreements of $322,000 and
$58,055,000 for Small Company Value and Small Company Growth Funds, respectively.
(b) Adjustment to reflect the exchange of shares of common stock outstanding from
Small Company Value Fund to Small Company Growth Fund.
See Notes to Financial Statements.
</TABLE>
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED NOVEMBER 30, 1998
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SMALL COMPANY SMALL COMPANY PRO FORMA PRO FORMA
VALUE FUND GROWTH FUND ADJUSTMENTS COMBINED
--------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 897,205 $ 408,722 $ 1,305,927
Interest 152,395 2,273,590 2,425,985
Foreign Taxes Withheld (174) (4,910) (5,084)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 1,049,426 2,677,402 3,726,828
- -----------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees (Note 3) 459,151 2,053,783 $ (2,687) (a) 2,510,247
Distribution Expenses (Note 3) 37,067 684,594 115,088 (a) 836,749
Transfer Agent Fees 224,136 1,051,417 (56,034) (b) 1,219,519
Administrative Fees (Note 3) 19,237 51,076 (10,108) (a) 60,205
Custodian Fees and Expenses 14,512 32,718 (8,707) (b) 38,523
Directors' Fees and Expenses 14,351 30,134 (8,000) (b) 36,485
Professional Fees and Expenses 22,172 31,995 (16,989) (b) 37,178
Registration Fees and Expenses 77,090 93,699 (69,789) (b) 101,000
Reports to Shareholders 28,879 89,458 (7,220) (b) 111,117
Other Expenses 2,546 11,134 (1,744) (b) 11,936
- -----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 899,141 4,130,008 4,962,958
Fees and Expenses Absorbed by
Investment Adviser (135,198) (67,161) (110,989) (c) (91,370)
Fees and Expenses Paid Indirectly (6,989) (26,847) (33,836)
- -----------------------------------------------------------------------------------------------------------------------
NET EXPENSES 756,954 4,036,000 44,799 4,837,753
- -----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 292,472 (1,358,598) (44,799) (1,110,925)
- -----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on:
Investment Securities (5,231,922) (7,961,038) (13,192,960)
Foreign Currency Transactions 68,795 68,795
- -----------------------------------------------------------------------------------------------------------------------
Total Net Realized Gain (Loss) (5,231,922) (7,892,243) (13,124,165)
- -----------------------------------------------------------------------------------------------------------------------
Change in Net Appreciation of:
Investment Securities 2,704,338 3,966,110 6,670,448
Foreign Currency Transactions 70,693 70,693
- -----------------------------------------------------------------------------------------------------------------------
Total Net Appreciation 2,704,338 4,036,803 6,741,141
- -----------------------------------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENT SECURITIES AND
FOREIGN CURRENCY TRANSACTIONS (2,527,584) (3,855,440) (6,383,024)
- -----------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (2,235,112) $ (5,214,038) $(44,799) $ (7,493,949)
=======================================================================================================================
(a) Reflects adjustments to Investment Advisory Fees, Distribution Expenses and Administrative Fees based on the
surviving Fund's contractual fee obligation.
(b) Reflects elimination of duplicate services or fees.
(c) Reflects adjustment to the level of the surviving Fund's voluntary expense reimbursement.
See Notes to Financial Statements
</TABLE>
<PAGE>
PRO FORMA NOTES TO FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 -- BASIS OF COMBINATION. INVESCO Emerging Opportunity Funds, Inc. is
incorporated in Maryland and presently consists of Small Company Growth Fund
(the "Fund"). The Fund is registered under the Investment Company Act of 1940 as
a diversified, open-end management investment company. The Pro Forma Statement
of Assets and Liabilities, including the Statement of Investments at November
30, 1998, and the related Pro Forma Statements of Operations ("Pro Forma
Statements") for the twelve months ended November 30, 1998, reflect the combined
operations of Small Company Value Fund, the sole portfolio constituting INVESCO
Diversified Funds, Inc. and Small Company Growth Fund
The Pro Forma Statements give effect to the proposed transfer of all assets and
liabilities of Small Company Value Fund in exchange for shares in Small Company
Growth Fund. Under generally accepted accounting principles, the historical cost
of investment securities will be carried forward to the surviving entity and the
and the results of operations of the Small Company Value Fund for
pre-combination periods will not be restated. The Pro Forma Statements do not
reflect the expenses of either Fund in carrying out its obligations under the
proposed Agreement and Plan of Reorganization and Termination. The Pro Forma
Statements should be read in conjunction with the historical financial
statements of each Fund included in their respective Statements of Additional
Information.
NOTE 2 -- SHARES OUTSTANDING. Shareholders of Small Company Value Fund would
become shareholders of Small Company Growth Fund upon receiving shares of Small
Company Growth Fund equal to the value of their holdings in Small Company Value
Fund as of the date of the reorganization.
NOTE 3 -- PRO FORMA OPERATIONS. The Pro Forma Statement of Operations assumes
that the combined gross investment income is equal to the sum of each Fund's
actual gross investment income for the twelve months ended November 30, 1998.
Operating expenses combine the actual expenses of each Fund with certain
expenses adjusted to reflect the changes in expenses resulting from the
combination. The Investment Advisory, Distribution Expenses and Administrative
Fees have been calculated for the combined Fund based on contractual rates
expected to be in effect for the Small Company Growth Fund at the time of
reorganization based upon the combined level of average net assets for the
twelve months ended November 30, 1998.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
PRO FORMA STATEMENT OF INVESTMENT SECURITIES
November 30, 1998
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SHARES OR PRINCIPAL AMOUNT VALUE
- --------------------------------------- --------------------------------------------
Small Company Small Company Pro Forma Small Company Small Company Pro Forma
Value Fund Growth Fund Combined DESCRIPTION Value Fund Growth Fund Combined
- -----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 83.02%
AEROSPACE & DEFENSE 3.06%
253,400 253,400 Aeroflex Inc(a) $ 3,468,413 $ 3,468,413
32,300 32,300 Esterline Technologies $ 674,262 674,262
15,500 15,500 GenCorp Inc 381,687 381,687
7,800 87,800 95,600 Moog Inc Class A(a) 226,200 2,546,200 2,772,400
84,510 84,510 Orbital Sciences(a) 3,232,508 3,232,508
=======================================================================================================================
10,529,270
AIR FREIGHT 0.94%
4,900 4,900 Airborne Freight 130,769 130,769
162,800 162,800 Eagle USA Airfreight(a) 3,093,200 3,093,200
=======================================================================================================================
3,223,969
AIRLINES 0.34%
47,000 47,000 America West Holdings Class B(a) 663,875 663,875
18,200 18,200 SkyWest Inc 492,538 492,538
=======================================================================================================================
1,156,413
AUTO PARTS 1.84%
15,100 15,100 Arvin Industries 634,200 634,200
5,000 5,000 Borg-Warner Automotive 249,375 249,375
102,200 102,200 CSK Auto(a) 2,848,825 2,848,825
15,000 15,000 Detroit Diesel(a) 310,312 310,312
41,000 41,000 O'Reilly Automotive(a) 1,860,375 1,860,375
22,700 22,700 Standard Products 422,788 422,788
=======================================================================================================================
6,325,875
BANKS 2.48%
5,500 5,500 Banknorth Group 183,562 183,562
19,600 19,600 Carolina First 488,775 488,775
84,480 84,480 City National 3,157,440 3,157,440
12,600 12,600 Cullen/Frost Bankers 675,675 675,675
6,100 6,100 FNB Corp 172,325 172,325
11,100 11,100 FirstBank Puerto Rico 303,862 303,862
6,800 6,800 GBC Bancorp 169,150 169,150
415 415 HUBCO Inc 11,205 11,205
29,750 29,750 Imperial Bancorp(a) 461,125 461,125
9,600 9,600 Independent Bank 151,200 151,200
23,300 23,300 Republic Bancorp 385,906 385,906
6,700 6,700 Trustmark Corp 138,606 138,606
33,000 33,000 US Trust 2,231,625 2,231,625
=======================================================================================================================
8,530,456
BEVERAGES 0.33%
11,600 11,600 Canandaigua Brands Class A(a) 577,100 577,100
11,400 11,400 Coors (Adolph) Co Class B 567,150 567,150
=======================================================================================================================
1,144,250
BIOTECHNOLOGY 0.12%
6,000 6,000 MedImmune Inc(a) 401,250 401,250
=======================================================================================================================
BUILDING MATERIALS 0.63%
9,300 9,300 Cameron Ashley Building 118,575 118,575
Products(a)
23,700 23,700 Centex Construction Products 841,350 841,350
16,700 16,700 Comfort Systems USA(a) 313,125 313,125
7,900 7,900 Elcor Corp 243,912 243,912
11,500 11,500 TJ International 271,688 271,688
13,500 13,500 Texas Industries 390,656 390,656
=======================================================================================================================
2,179,306
<PAGE>
SHARES OR PRINCIPAL AMOUNT VALUE
- --------------------------------------- --------------------------------------------
Small Company Small Company Pro Forma Small Company Small Company Pro Forma
Value Fund Growth Fund Combined DESCRIPTION Value Fund Growth Fund Combined
- -----------------------------------------------------------------------------------------------------------------------
CABLE 0.86%
5,200 5,200 Adelphia Communications $ 181,675) $ 181,675
Class A(a)
97,000 97,000 TCA Cable TV $2,764,500 2,764,500
=======================================================================================================================
2,946,175
CHEMICALS 0.28%
8,600 8,600 Dexter Corp 275,737 275,737
10,000 10,000 Ferro Corp 279,375 279,375
30,000 30,000 NL Industries 399,375 399,375
=======================================================================================================================
954,487
COMMUNICATIONS - EQUIPMENT &
MANUFACTURING 4.67%
34,000 34,000 Comverse Technology(a) 1,955,000 1,955,000
80,000 80,000 Excel Switching(a) 2,090,000 2,090,000
11,700 43,600 55,300 GeoTel Communications(a) 321,750 1,199,000 1,520,750
54,600 54,600 Gilat Satellite Networks Ltd(a) 2,777,775 2,777,775
139,800 139,800 Melita International(a) 2,097,000 2,097,000
96,100 96,100 Power Integrations(a) 2,306,400 2,306,400
224,150 224,150 REMEC Inc(a) 3,110,081 3,110,081
12,200 12,200 Tekelec(a) 189,100 189,100
=======================================================================================================================
16,046,106
COMPUTER RELATED 10.28%
7,700 7,700 AVT Corp(a) 179,987 179,987
11,050 11,050 BancTec Inc(a) 145,722 145,722
23,400 23,400 BroadVision Inc(a) 623,025 623,025
17,500 17,500 Citrix Systems(a) 1,452,500 1,452,500
35,700 35,700 Kronos Inc(a) 1,544,025 1,544,025
7,800 7,800 Legato Systems(a) 372,937 372,937
24,000 24,000 Lycos Inc(a) 1,416,000 1,416,000
171,000 171,000 MAPICS Inc(a) 3,323,813 3,323,813
4,100 51,000 55,100 Mercury Interactive(a) 188,088 2,339,625 2,527,713
115,000 115,000 Metro Information Services(a) 2,990,000 2,990,000
75,000 75,000 Micromuse Inc(a) 1,710,938 1,710,938
7,200 7,200 Micron Electronics(a) 163,800 163,800
10,200 10,200 MICROS Systems(a) 290,700 290,700
115,180 115,180 Mobius Management Systems(a) 1,353,365 1,353,365
6,100 6,100 Network Appliance(a) 458,263 458,263
60,600 60,600 Peregrine Systems(a) 2,238,412 2,238,412
6,800 6,800 Pinnacle Systems(a) 229,500 229,500
88,600 88,600 QuadraMed Corp(a) 2,126,400 2,126,400
127,000 127,000 Rational Software(a) 2,881,312 2,881,312
53,000 53,000 Spyglass Inc(a) 1,245,500 1,245,500
6,600 6,600 THQ Inc(a) 184,800 184,800
140,000 140,000 USWeb Corp(a) 3,185,000 3,185,000
140,000 140,000 Verity Inc(a) 2,415,000 2,415,000
42,275 42,275 Wind River Systems(a) 1,971,072 1,971,072
9,600 9,600 Xircom Inc(a) 289,800 289,800
=======================================================================================================================
35,319,584
CONSUMER - JEWELRY, NOVELTIES
& GIFTS 0.18%
21,800 21,800 Zale Corp(a) 624,025 624,025
=======================================================================================================================
CONSUMER FINANCE 0.22%
13,500 13,500 Metris Cos 450,563 450,563
21,200 21,200 Resource Bancshares 291,500 291,500
Mortgage Group
=======================================================================================================================
742,063
<PAGE>
SHARES OR PRINCIPAL AMOUNT VALUE
- --------------------------------------- --------------------------------------------
Small Company Small Company Pro Forma Small Company Small Company Pro Forma
Value Fund Growth Fund Combined DESCRIPTION Value Fund Growth Fund Combined
- -----------------------------------------------------------------------------------------------------------------------
CONTAINERS 1.00%
17,400 17,400 AptarGroup Inc $ 486,112 $ 486,112
151,300 151,300 Ivex Packaging(a) $2,950,350 2,950,350
=======================================================================================================================
3,436,462
DISTRIBUTION 0.37%
125,800 125,800 Natrol Inc(a) 1,273,725 1,273,725
=======================================================================================================================
ELECTRIC UTILITIES 0.81%
17,700 17,700 CMP Group 317,494 317,494
6,000 6,000 CILCORP Inc 363,000 363,000
6,100 6,100 Cleco Corp 208,544 208,544
14,000 14,000 Commonwealth Energy Systems SBI 539,000 539,000
10,400 10,400 Hawaiian Electric Industries 404,950 404,950
8,800 8,800 Minnesota Power 367,950 367,950
17,000 17,000 SIGCORP Inc 573,750 573,750
=======================================================================================================================
2,774,688
ELECTRICAL EQUIPMENT 0.22%
16,200 16,200 C&D Technologies 469,800 469,800
9,800 9,800 Technitrol Inc 295,838 295,838
=======================================================================================================================
765,638
ELECTRONICS 3.67%
200,000 200,000 Aehr Test Systems(a) 900,000 900,000
140,050 140,050 Cerprobe Corp(a) 2,048,231 2,048,231
11,600 11,600 General Cable 220,400 220,400
76,000 76,000 Level One Communications(a) 2,351,250 2,351,250
110,300 110,300 Mettler-Toledo International(a) 2,895,375 2,895,375
15,000 15,000 Simac Techniek NV 1,926,728 1,926,728
7,400 7,400 Superior Telecom 321,900 321,900
36,200 36,200 Uniphase Corp(a) 1,961,587 1,961,587
=======================================================================================================================
12,625,471
ELECTRONICS - SEMICONDUCTOR 6.41%
52,500 52,500 Applied Micro Circuits(a) 1,758,750 1,758,750
35,000 35,000 Flextronics International Ltd(a) 2,327,500 2,327,500
110,000 110,000 Galileo Technology Ltd(a) 1,815,000 1,815,000
164,000 164,000 Genesis Microchip(a) 2,736,750 2,736,750
5,600 5,600 Metromedia Fiber Network(a) 290,500 290,500
25,000 25,000 PMC-Sierra Inc(a) 1,346,875 1,346,875
140,000 140,000 Photronics Inc(a) 2,800,000 2,800,000
6,300 6,300 Plexus Corp 189,000 189,000
13,700 13,700 QLogic Corp(a) 1,405,962 1,405,962
26,800 26,800 Recoton Corp(a) 500,825 500,825
69,000 69,000 SIPEX Corp(a) 2,225,250 2,225,250
273,000 273,000 Unitrode Corp(a) 4,623,938 4,623,938
=======================================================================================================================
22,020,350
ENGINEERING & CONSTRUCTION 0.40%
12,000 12,000 EMCOR Group(a) 196,500 196,500
13,200 13,200 Granite Construction 426,525 426,525
13,600 13,600 Insituform Technologies 178,500 178,500
Class A(a)
14,900 14,900 NVR Inc(a) 586,688 586,688
=======================================================================================================================
1,388,213
ENTERTAINMENT 1.30%
19,600 19,600 International Speedway Class A 695,800 695,800
75,600 75,600 SFX Entertainment Class A(a) 3,789,450 3,789,450
=======================================================================================================================
4,485,250
FINANCIAL 0.04%
7,600 7,600 Doral Financial 135,850 135,850
=======================================================================================================================
FOODS 0.11%
16,300 16,300 Pilgrim's Pride Class B 395,275 395,275
=======================================================================================================================
<PAGE>
SHARES OR PRINCIPAL AMOUNT VALUE
- --------------------------------------- --------------------------------------------
Small Company Small Company Pro Forma Small Company Small Company Pro Forma
Value Fund Growth Fund Combined DESCRIPTION Value Fund Growth Fund Combined
- -----------------------------------------------------------------------------------------------------------------------
FOOTWEAR 0.10%
10,000 10,000 Kenneth Cole Productions $ 181,875 $ 181,875
Class A(a)
14,300 14,300 Maxwell Shoe(a) 169,813 169,813
=======================================================================================================================
351,688
GOLD & PRECIOUS METALS
MINING 0.06%
5,600 5,600 Stillwater Mining(a) 204,750 204,750
=======================================================================================================================
HEALTH CARE DRUGS -
PHARMACEUTICALS 0.50%
11,800 11,800 Alpharma Inc Class A 424,800 424,800
22,866 22,866 Bindley Western Industries 883,199 883,199
17,200 17,200 Roberts Pharmaceutical(a) 421,400 421,400
=======================================================================================================================
1,729,399
HEALTH CARE RELATED 6.23%
204,000 204,000 Capital Senior Living(a) $2,524,500 2,524,500
116,700 116,700 Colorado MEDtech(a) 1,050,300 1,050,300
34,600 34,600 DVI Inc(a) 611,987 611,987
9,400 9,400 Datascope Corp(a) 207,975 207,975
2,800 2,800 Express Scripts Class A(a) 154,000 154,000
136,000 136,000 First Consulting Group(a) 3,196,000 3,196,000
9,300 9,300 Hanger Orthopedic Group(a) 223,200 223,200
90,000 90,000 HealthCare Financial Partners(a) 2,958,750 2,958,750
7,200 7,200 Laser Vision Centers(a) 128,250 128,250
14,300 14,300 Maxxim Medical(a) 389,675 389,675
13,500 13,500 MedQuist Inc(a) 410,063 410,063
3,200 3,200 MiniMed Inc(a) 228,000 228,000
9,400 9,400 OEC Medical Systems(a) 259,088 259,088
83,300 83,300 Province Healthcare(a) 2,665,600 2,665,600
13,200 73,000 86,200 ResMed Inc(a) 450,450 2,491,125 2,941,575
64,000 64,000 Sunrise Assisted Living(a) 2,760,000 2,760,000
10,700 10,700 Theragenics Corp(a) 147,794 147,794
3,800 3,800 VISX Inc(a) 276,925 276,925
6,500 6,500 Xomed Surgical Products(a) 284,375 284,375
=======================================================================================================================
21,418,057
HOMEBUILDING 0.23%
23,600 23,600 MDC Holdings 433,650 433,650
2,300 2,300 Nortek Inc(a) 62,819 62,819
11,800 11,800 Pulte Corp 300,163 300,163
=======================================================================================================================
796,632
HOUSEHOLD FURNITURE &
APPLIANCES 0.18%
7,000 7,000 Ethan Allen Interiors 276,500 276,500
12,800 12,800 Furniture Brands 325,600 325,600
International(a)
=======================================================================================================================
602,100
INSURANCE 0.83%
10,200 10,200 American Heritage Life 250,537 250,537
Investment
12,031 12,031 Delphi Financial Group(a) 561,693 561,693
12,200 12,200 FBL Financial Group 298,900 298,900
16,800 16,800 Fidelity National Financial 551,250 551,250
10,500 10,500 First American Financial 321,562 321,562
6,800 6,800 LandAmerica Financial Group 416,925 416,925
9,400 9,400 NAC Re 448,850 448,850
=======================================================================================================================
2,849,717
INVESTMENT BANK/BROKER FIRM 0.06%
9,400 9,400 Advest Group 219,137 219,137
=======================================================================================================================
<PAGE>
SHARES OR PRINCIPAL AMOUNT VALUE
- --------------------------------------- --------------------------------------------
Small Company Small Company Pro Forma Small Company Small Company Pro Forma
Value Fund Growth Fund Combined DESCRIPTION Value Fund Growth Fund Combined
- -----------------------------------------------------------------------------------------------------------------------
IRON & STEEL 0.27%
14,000 14,000 AK Steel Holding $ 268,625 $ 268,625
28,300 28,300 Metals USA(a) 263,544 263,544
12,600 12,600 Reliance Steel & Aluminum 385,875 385,875
======================================================================================================================
918,044
LEISURE TIME 2.45%
78,200 78,200 Action Performance(a) $ 2,854,300 2,854,300
141,300 141,300 Family Golf Centers(a) 2,905,481 2,905,481
165,000 165,000 Intrawest Corp 2,650,312 2,650,312
======================================================================================================================
8,410,093
MACHINERY 0.30%
7,200 7,200 Manitowoc Co 286,200 286,200
1,900 1,900 NACCO Industries Class A 165,419 165,419
20,300 20,300 Terex Corp(a) 568,400 568,400
======================================================================================================================
1,020,019
MANUFACTURING 0.12%
26,100 26,100 Johnstown America Industries(a) 402,919 402,919
======================================================================================================================
NATURAL GAS 0.33%
9,000 9,000 Eastern Enterprises 365,062 365,062
17,000 17,000 NUI Corp 413,313 413,313
10,200 10,200 ONEOK Inc 355,088 355,088
======================================================================================================================
1,133,463
OFFICE EQUIPMENT & SUPPLIES 0.28%
13,800 13,800 Knoll Inc(a) 372,600 372,600
18,100 18,100 Polycom Inc(a) 321,275 321,275
9,600 9,600 United Stationers(a) 254,400 254,400
======================================================================================================================
948,275
OIL & GAS RELATED 2.28%
13,600 13,600 Atwood Oceanics 255,000 255,000
18,300 18,300 Barrett Resources(a) 447,206 447,206
11,500 11,500 Basin Exploration(a) 133,687 133,687
19,700 19,700 Energen Corp 354,600 354,600
20,400 20,400 Evergreen Resources(a) 385,050 385,050
21,700 21,700 HS Resources(a) 188,519 188,519
170,000 170,000 Key Energy Group(a) 1,062,500 1,062,500
93,300 93,300 Newfield Exploration(a) 1,819,350 1,819,350
118,000 118,000 Precision Drilling(a) 1,275,875 1,275,875
12,800 12,800 Rock-Tenn Co Class A 208,800 208,800
10,000 10,000 SEACOR SMIT(a) 477,500 477,500
75,000 75,000 Stolt Comex Seaway SA(a) 632,812 632,812
25,000 25,000 Tesoro Petroleum(a) 332,813 332,813
17,100 17,100 Veritas DGC(a) 250,088 250,088
======================================================================================================================
7,823,800
PERSONAL CARE 1.51%
134,000 134,000 Helen of Troy Ltd(a) 2,244,500 2,244,500
190,000 190,000 Playtex Products(a) 2,945,000 2,945,000
======================================================================================================================
5,189,500
PUBLISHING 0.43%
5,700 5,700 Consolidated Graphics(a) 328,106 328,106
35,800 35,800 Hollinger International 463,162 463,162
12,900 12,900 McClatchy Co Class A 424,088 424,088
5,500 5,500 Media General Class A 260,906 260,906
======================================================================================================================
1,476,262
<PAGE>
SHARES OR PRINCIPAL AMOUNT VALUE
- --------------------------------------- --------------------------------------------
Small Company Small Company Pro Forma Small Company Small Company Pro Forma
Value Fund Growth Fund Combined DESCRIPTION Value Fund Growth Fund Combined
- -----------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST 1.62%
21,700 21,700 Bedford Property Investors $ 385,175 $ 385,175
26,700 26,700 CBL & Associates Properties 670,837 670,837
9,300 9,300 Essex Property Trust 287,719 287,719
13,056 13,056 FelCor Lodging Trust 310,896 310,896
13,200 13,200 Gables Residential Trust SBI 327,525 327,525
21,600 21,600 Innkeepers USA Trust 238,950 238,950
45,000 45,000 Koger Equity 714,375 714,375
11,800 11,800 MGI Properties 328,188 328,188
13,600 13,600 Macerich Co 362,100 362,100
16,400 16,400 Prentiss Properties Trust 356,700 356,700
16,100 16,100 SL Green Realty 344,138 344,138
26,200 26,200 Shurgard Storage Centers Class A 689,388 689,388
8,600 8,600 Smith(Charles E)Residential Realty 254,238 254,238
29,100 29,100 Sunstone Hotel Investors 309,188 309,188
======================================================================================================================
5,579,417
REAL ESTATE RELATED 0.10%
14,900 14,900 Kilroy Realty 333,387 333,387
======================================================================================================================
RESTAURANTS 0.45%
15,400 15,400 Brinker International(a) 391,737 391,737
11,400 11,400 CEC Entertainment(a) 337,725 337,725
9,800 9,800 Cheesecake Factory(a) 254,800 254,800
30,300 30,300 Ruby Tuesday 564,338 564,338
======================================================================================================================
1,548,600
RETAIL 5.18%
4,300 4,300 American Eagle Outfitters(a) 256,925 256,925
85,000 85,000 Cost Plus(a) $ 2,805,000 2,805,000
128,000 128,000 Family Dollar Stores 2,568,000 2,568,000
21,300 21,300 Footstar Inc(a) 519,187 519,187
75,000 75,000 Men's Wearhouse(a) 1,898,438 1,898,438
13,000 13,000 Musicland Stores(a) 220,188 220,188
96,000 96,000 Pacific Sunwear of California(a) 1,422,000 1,422,000
147,000 147,000 Rental Service(a) 3,114,562 3,114,562
9,900 9,900 Shopko Stores(a) 319,275 319,275
39,400 39,400 software.net Corp(a) 856,950 856,950
74,000 74,000 Stage Stores(a) 851,000 851,000
105,000 105,000 Wild Oats Markets(a) 2,992,500 2,992,500
======================================================================================================================
17,824,025
SAVINGS & LOAN 1.10%
7,500 7,500 Anchor Bancorp Wisconsin 150,937 150,937
19,100 19,100 Commercial Federal 438,106 438,106
21,020 21,020 Downey Financial 546,520 546,520
22,600 90,000 112,600 FirstFed Financial(a) 401,150 1,597,500 1,998,650
9,900 9,900 Flagstar Bancorp 240,075 240,075
11,700 11,700 Peoples Heritage Financial Group 239,850 239,850
10,700 10,700 WSFS Financial 178,556 178,556
======================================================================================================================
3,792,694
SERVICES 12.33%
75,000 75,000 ACNielsen Corp(a) 2,067,188 2,067,188
9,700 9,700 ADVO Inc(a) 250,987 250,987
57,650 57,650 AHL Services(a) 1,902,450 1,902,450
69,000 69,000 Atlantic Data Services(a) 1,242,000 1,242,000
137,000 137,000 AXENT Technologies(a) 3,570,563 3,570,563
67,750 67,750 Concord EFS(a) 2,155,297 2,155,297
7,300 7,300 Copart Inc(a) 168,812 168,812
154,200 154,200 Cotelligent Group(a) 2,823,788 2,823,788
53,000 53,000 Documentum Inc(a) $ 2,229,31$ 2,229,313
111,000 111,000 HA-LO Industries(a) 3,545,063 3,545,063
7,900 7,900 InaCom Corp(a) 163,925 163,925
<PAGE>
SHARES OR PRINCIPAL AMOUNT VALUE
- --------------------------------------- --------------------------------------------
Small Company Small Company Pro Forma Small Company Small Company Pro Forma
Value Fund Growth Fund Combined DESCRIPTION Value Fund Growth Fund Combined
- -----------------------------------------------------------------------------------------------------------------------
82,000 82,000 Integrated Electrical $1,568,250 $1,568,250
Services(a)
138,200 138,200 Interim Services(a) 2,867,650 2,867,650
25,220 25,220 Jack Henry & Associates 1,267,305 1,267,305
9,000 9,000 Labor Ready(a) $ 196,312 196,312
4,900 4,900 Lason Inc(a) 300,737 300,737
9,900 9,900 Mastech Corp(a) 263,588 263,588
19,500 19,500 META Group(a) 483,844 483,844
30,200 30,200 Metzler Group(a) 1,253,300 1,253,300
50,800 50,800 NCO Group(a) 1,873,250 1,873,250
1,000 33,200 34,200 ProBusiness Services(a) 44,000 1,460,800 1,504,800
43,200 43,200 Profit Recovery Group 1,458,000 1,458,000
International(a)
10,100 10,100 RemedyTemp Inc Class A(a) 146,450 146,450
181,000 181,000 Romac International(a) 2,522,687 2,522,687
114,000 114,000 Safeguard Scientifics(a) 3,227,625 3,227,625
5,300 5,300 Sapient Corp(a) 245,125 245,125
98,000 98,000 Sylvan Learning Systems(a) 2,848,125 2,848,125
18,000 18,000 Syntel Inc(a) 243,000 243,000
=======================================================================================================================
42,389,434
SPECIALTY PRINTING 0.13%
26,900 26,900 Bowne & Co 450,575 450,575
=======================================================================================================================
TELECOMMUNICATIONS - CELLULAR &
WIRELESS 0.14%
11,900 11,900 Centennial Cellular Class 476,000 476,000
=======================================================================================================================
TELECOMMUNICATIONS - LONG
DISTANCE 3.72%
53,300 53,300 Dycom Industries(a) 2,095,356 2,095,356
115,000 115,000 ICG Communications(a) 2,645,000 2,645,000
145,000 145,000 IDT Corp(a) 2,809,375 2,809,375
5,100 44,000 49,100 Pacific Gateway Exchange(a) 228,225 1,969,000 2,197,225
205,000 205,000 Viatel Inc(a) 3,049,375 3,049,375
=======================================================================================================================
12,796,331
TEXTILE - APPAREL
MANUFACTURING 0.73%
50,900 50,900 Burlington Industries(a) 531,269 531,269
11,800 11,800 Galey & Lord Inc(a) 127,587 127,587
76,000 76,000 Quiksilver Inc(a) 1,843,000 1,843,000
=======================================================================================================================
2,501,856
TEXTILE - HOME FURNISHINGS 0.68%
62,600 62,600 Linens 'n Things(a) 1,917,125 1,917,125
11,200 11,200 Springs Industries Class A 436,100 436,100
=======================================================================================================================
2,353,225
TOBACCO 0.06%
6,100 6,100 Universal Corp 214,644 214,644
=======================================================================================================================
UTILITIES WATER 0.06%
5,000 5,000 E'Town Corp 210,625 210,625
=======================================================================================================================
TOTAL COMMON STOCKS
(Cost $59,390,445, $207,038,977
and $266,429,422, respectively) 285,388,819
=======================================================================================================================
<PAGE>
SHARES OR PRINCIPAL AMOUNT VALUE
- --------------------------------------- --------------------------------------------
Small Company Small Company Pro Forma Small Company Small Company Pro Forma
Value Fund Growth Fund Combined DESCRIPTION Value Fund Growth Fund Combined
- -----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS-
REPURCHASE AGREEMENTS 16.98%
Repurchase Agreements with
State Street dated 11/30/1998
due 12/1/1998 at 5.100%,
repurchased at $322,046 and
$58,063,224, respectively,
(Collateralized by US Treasury
Bonds due 4/15/2028 at 3.625%,
value $335,329 and $59,638,426,
respectively) (Cost $322,000,
$58,055,000 and $58,377,000,
$322,000 $58,055,000 $58,377,000 respectively) $ 322,000 $ 58,055,000 $58,377,000
=======================================================================================================================
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $59,712,445, $265,093,977
and $324,806,422, respectively)
(Cost for Income Tax Purposes
$59,717,367, $267,057,741 and
$326,775,108, respectively) $61,161,304 $282,604,515 $343,765,819
=======================================================================================================================
(a) Security is non-income producing.
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO EMERGING OPPORTUNITY FUNDS, INC.
PART C
OTHER INFORMATION
Item 15. Indemnification
---------------
Indemnification provisions for officers and directors of Registrant are
set forth in Article VII, Section 2 of the Articles of Incorporation, and are
hereby incorporated by reference. See Item 16(1) below. Under this Article,
officers and directors will be indemnified to the fullest extent permitted to
directors by the Maryland General Corporation Law, subject only to such
limitations as may be required by the Investment Company Act of 1940, as amended
("1940 Act"), and the rules thereunder. Under the 1940 Act, directors and
officers of Registrant cannot be protected against liability to Registrant or
its shareholders to which they would be subject because of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties of their office.
Registrant also maintains liability insurance policies covering its directors
and officers.
Item 16. Exhibits
--------
(1) Articles of Incorporation (Charter).(2)
(a) Amendment to Articles of Incorporation, dated December 4,
1990.(2)
(b) Amendment to Articles of Incorporation, dated December 19,
1991.(2)
(c) Amendment to Articles of Incorporation, dated June 28, 1993.(2)
(d) Articles of Amendment of Articles of Incorporation, dated
November 17, 1994.(2)
(e) Articles of Amendment of Articles of Incorporation, dated January
18, 1995.(2)
(f) Articles Supplementary to Articles of Incorporation, dated July
6, 1995.(2)
(2) By-Laws, as amended July 21, 1993.(2)
(3) Voting trust agreement - none.
(4) (a) Agreement and Plan of Reorganization and Termination is attached
hereto as Appendix B.
(b) Agreement and Plan of Conversion and Termination is attached
hereto as Appendix C.
(5) Provisions of instruments defining the rights of holders of securities
are contained in Articles III, IV, VI, VIII of Registrant's Articles
of Incorporation as amended, and Articles I, V, VII, VIII, IX and X of
Registrant's By-Laws.
(6) Investment Advisory Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997.(3)
(7) (a) General Distribution Agreement with INVESCO Funds Group, Inc.
dated February 28, 1997.(3)
(b) General Distribution Agreement with INVESCO Distributors, Inc.
dated September 30, 1997.(4)
<PAGE>
(8) (a) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees.(4)
(b) Form of Amended Defined Compensation Plan for Non-Interested
Directors and Trustees.(4)
(9) (a) Amended and Restated Custodian Contract between Registrant and
State Street Bank and Trust Company dated August 31, 1995.(2)
(b) Amendment to Custody Agreement dated October 25, 1995.(3)
(c) Data Access Service Addendum dated May 19, 1997.(3)
(10) (a) Plan and Agreement of Distribution pursuant to Rule 12b-1 under
the Investment Company Act of 1940 dated April 30, 1991.(1)
(b) Amendment of Plan and Agreement of Distribution pursuant to Rule
12b-1 dated July 19, 1995.(1)
(c) Amended Plan and Agreement of Distribution between Applicant and
INVESCO Funds Group, Inc. adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940 dated January 1, 1997.(3)
(d) Amended Plan and Agreement of Distribution between Applicant and
INVESCO Distributors, Inc. adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940 dated September 30, 1997.(4)
(11) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of securities being registered.(5)
(12) (a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters in connection with INVESCO Small Company
Value Fund (to be filed).
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters in connection with INVESCO Small Company
Growth Fund (to be filed).
(13) (a) Transfer Agency Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997.(3)
(b) Administrative Services Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997.(3)
(14) Consent of PricewaterhouseCoopers LLP (filed herewith).
(15) Financial statements omitted from part B - none.
(16) Copies of manually signed Powers of Attorney - incorporated by
reference to Powers of Attorney previously filed with the Securities
and Exchange Commission on May 22, 1992, June 9, 1992, October 13,
1992, July 26, 1994, June 27, 1995, July 12, 1995, September 5, 1995,
July 23, 1996 and September 26, 1997.
(17) Additional Exhibits.
(a) Amended Form of Proxy Card (filed herewith).
- -------------------------------
(1) Incorporated by reference from Post-Effective Amendment No. 6 to the
registration statement, filed September 5, 1995.
(2) Incorporated by reference from Post-Effective Amendment No. 7 to the
registration statement, filed July 23, 1996.
(3) Incorporated by reference from Post-Effective Amendment No. 8 to the
registration statement, filed September 26, 1997.
(4) Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement, filed September 24, 1998.
(5) Incorporated by reference from the Registration Statement on Form N-14
filed on January 20, 1999.
<PAGE>
Item 17. Undertakings
------------
(1) The undersigned Registrant agrees that prior to any public re-offering
of the securities registered through the use of the prospectus which is a part
of this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the
re-offering prospectus will contain the information called for by the applicable
registration form for re-offering by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this Pre-Effective
Amendment No. 1 to this Registration Statement on Form N-14 has been signed on
behalf of the Registrant, in the City of Denver and the State of Colorado, on
this 12th day of March 1999.
ATTEST: INVESCO Emerging Opportunity Funds, Inc.
/s/ Glen A. Payne By: /s/ Mark H. Williamson
- ----------------------- ----------------------
Glen A. Payne Mark H. Williamson
Secretary President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to this Registration Statement on Form N-14 has
been signed below by the following persons in the capacities and on the dates
indicated:
Signature Title Date
- --------- ----- ----
/s/ Mark H. Williamson President, Director and March 12, 1999
- --------------------------- Chief Executive Officer
Mark H. Williamson
/s/ Ronald L. Grooms Treasurer and Chief March 12, 1999
- --------------------------- Financial and Accounting
Ronald L. Grooms Officer
* Director March 12, 1999
- ---------------------------
Victor L. Andrews
* Director March 12, 1999
- ---------------------------
Bob R. Baker
* Director March 12, 1999
- ---------------------------
Charles W. Brady
* Director March 12, 1999
- ---------------------------
Wendy L. Gramm
<PAGE>
* Director March 12, 1999
- ---------------------------
Lawrence H. Budner
* Director March 12, 1999
- ---------------------------
Fred A. Deering
* Director March 12, 1999
- ---------------------------
Larry Soll
* Director March 12, 1999
- ---------------------------
Kenneth T. King
* Director March 12, 1999
- ---------------------------
John W. McIntyre
By: * March 12, 1999
----------------------
Edward F. O'Keefe
Attorney in Fact
By: */s/ Glen A. Payne March 12, 1999
----------------------
Glen A. Payne
Attorney in Fact
* Original Powers of Attorney authorizing Edward F. O'Keefe and Glen A. Payne,
and each of them, to execute this Registration Statement of the Registrant on
behalf of the above-named directors and officers of the Registrant have been
filed with the Securities and Exchange Commission on May 22, 1992, June 9, 1992,
October 13, 1992, July 26, 1994, June 27, 1995, July 12, 1995, September 5,
1995, July 23, 1996 and September 26, 1997, respectively.
<PAGE>
Exhibit Index
(1) Articles of Incorporation (Charter).(2)
(a) Amendment to Articles of Incorporation, dated December 4, 1990.(2)
(b) Amendment to Articles of Incorporation, dated December 19, 1991.(2)
(c) Amendment to Articles of Incorporation, dated June 28, 1993.(2)
(d) Articles of Amendment of Articles of Incorporation, dated
November 17, 1994.(2)
(e) Articles of Amendment of Articles of Incorporation, dated
January 18, 1995.(2)
(f) Articles Supplementary to Articles of Incorporation, dated July 6,
1995.(2)
(2) By-Laws, as amended July 21, 1993.(2)
(3) Voting trust agreement - none.
(4) (a) Agreement and Plan of Reorganization and Termination is attached
hereto as Appendix B.
(b) Agreement and Plan of Conversion and Termination is attached hereto
as Appendix C.
(5) Provisions of instruments defining the rights of holders of securities are
contained in Articles III, IV, VI, VIII of Registrant's Articles of
Incorporation as amended, and Articles I, V, VII, VIII, IX and X of
Registrant's By-Laws.
(6) Investment Advisory Agreement between Registrant and INVESCO Funds Group,
Inc. dated February 28, 1997.(3)
(7) (a) General Distribution Agreement with INVESCO Funds Group, Inc. dated
February 28, 1997.(3)
(b) General Distribution Agreement with INVESCO Distributors, Inc. dated
September 30, 1997.(4)
(8) (a) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees.(4)
(b) Form of Amended Defined Compensation Plan for Non-Interested
Directors and Trustees.(4)
(9) (a) Amended and Restated Custodian Contract between Registrant and
State Street Bank and Trust Company dated August 31, 1995.(2)
(b) Amendment to Custody Agreement dated October 25, 1995.(3)
(c) Data Access Service Addendum dated May 19, 1997.(3)
(10) (a) Plan and Agreement of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 dated April 30, 1991.(1)
(b) Amendment of Plan and Agreement of Distribution pursuant to Rule
12b-1 dated July 19, 1995.(1)
(c) Amended Plan and Agreement of Distribution between Applicant and
INVESCO Funds Group, Inc. adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940 dated January 1, 1997.(3)
(d) Amended Plan and Agreement of Distribution between Applicant and
INVESCO Distributors, Inc. adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940 dated September 30, 1997.(4)
(11) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the legality
of securities being registered.(5)
<PAGE>
(12) (a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding certain
tax matters in connection with INVESCO Small Company Value Fund
(to be filed).
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP regarding certain
tax matters in connection with INVESCO Small Company Growth Fund (to
be filed).
(13) (a) Transfer Agency Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997.(3)
(b) Administrative Services Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997.(3)
(14) Consent of PricewaterhouseCoopers LLP (filed herewith).
(15) Financial statements omitted from part B - none.
(16) Copies of manually signed Powers of Attorney - incorporated by reference
to Powers of Attorney previously filed with the Securities and Exchange
Commission on May 22, 1992, June 9, 1992, October 13, 1992, July 26, 1994,
June 27, 1995, July 12, 1995, September 5, 1995, July 23, 1996 and
September 26, 1997.
(17) Additional Exhibits.
(a) Amended Form of Proxy Card (filed herewith).
- ---------------------------
(1) Incorporated by reference from Post-Effective Amendment No. 6 to the
registration statement, filed September 5, 1995.
(2) Incorporated by reference from Post-Effective Amendment No. 7 to the
registration statement, filed July 23, 1996.
(3) Incorporated by reference from Post-Effective Amendment No. 8 to the
registration statement, filed September 26, 1997.
(4) Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement, filed September 24, 1998.
(5) Incorporated by reference from the Registration Statement on Form N-14
filed on January 20, 1999.
Exhibit 14
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this registration statement on Form
N-14 (the "Registration Statement") of our report dated June 30, 1998 relating
to the financial statements and financial highlights appearing in the May 31,
1998 Annual Report to Shareholders of INVESCO Small Company Growth Fund (the
sole portfolio constituting INVESCO Emerging Opportunity Funds, Inc.) and our
report dated September 4, 1998 relating to the financial statements and
financial highlights appearing in the July 31, 1998 Annual Report to
Shareholders of INVESCO Small Company Value Fund (the sole portfolio
constituting INVESCO Diversified Funds, Inc.), which are also incorporated by
reference into the Statement of Additional Information.
We also consent to the incorporation by reference of our report into the
Prospectus of INVESCO Small Company Growth Fund dated October 1, 1998, and the
incorporation by reference of our report in the Prospectus of INVESCO Small
Company Value Fund dated December 1, 1998, which constitute parts of this
Registration Statement. We also consent to the references to us under the
headings "Independent Accountants" and "Financial Statements" in the Statement
of Additional Information of INVESCO Small Company Growth Fund and to the
reference to us under the heading "Financial Highlights" in the Prospectus of
INVESCO Small Company Growth Fund both dated October 1, 1998. We also consent to
the references to us under the headings "Independent Accountants" and "Financial
Statements" in the Statement of Additional Information of INVESCO Small Company
Value Fund and to the reference to us under the heading "Financial Highlights"
in the Prospectus of INVESCO Small Company Value Fund both dated December 1,
1998.
We also consent to the references to us under the headings "Financial
Highlights" and "Experts" in the combined Prospectus/Proxy Statement,
constituting part of this Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Denver, Colorado
March 16, 1999
INVESCO Distributors, Inc.
P.O. Box 173706
Denver, CO 80217-3706
INVESCO DIVERSIFIED FUNDS, INC.
SPECIAL MEETING OF SHAREHOLDERS
May 20, 1999
This proxy is being solicited on behalf of the Board of Directors of
INVESCO Diversified Funds, Inc. ("Company") and relates to the proposals with
respect to the Company and to INVESCO Small Company Value Fund, a series of the
Company ("Fund"). The undersigned hereby appoints as proxies Fred A. Deering and
Mark H. Williamson and each of them (with power of substitution) to vote for the
undersigned shares of beneficial interest/common stock of the undersigned in the
Fund at the Special Meeting of Shareholders to be held at 10:00 a.m., Mountain
time, on May 20, 1999, at the offices of the Company, 7800 E. Union Avenue,
Denver, Colorado 80237, and any adjournment thereof ("Meeting"), with all the
power the undersigned would have if personally present. The shares represented
by this proxy will be voted as instructed. Unless indicated to the contrary,
this proxy shall be deemed to grant authority to vote "FOR" all proposals
relating to the Company and the Fund with discretionary power to vote upon such
other business as may properly come before the Meeting.
YOUR VOTE IS IMPORTANT. IF YOU ARE NOT VOTING BY PHONE, FACSIMILE, OR INTERNET,
PLEASE DATE AND SIGN THIS PROXY BELOW AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
TO VOTE BY TOUCH-TONE PHONE OR THE INTERNET, PLEASE CALL 1-800-690-6903 TOLL
FREE OR VISIT HTTP://WWW.PROXYVOTE.COM. TO VOTE BY FACSIMILE TRANSMISSION,
PLEASE FAX YOUR COMPLETED PROXY CARD TO 1-800-733-1885.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
[X] KEEP THIS PORTION FOR YOUR RECORDS
<PAGE>
<TABLE>
<CAPTION>
NAME OF COMPANY/FUND
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Approval of an agreement and plan of reorganization and termination under / / / / / /
which INVESCO Small Company Growth Fund ("Growth Fund"), a series of
INVESCO Emerging Opportunity Funds, Inc., would acquire all of the assets
of Value Fund in exchange solely for shares of Growth Fund and the
assumption by Growth Fund of all of Value Fund's liabilities, followed by
the distribution of those shares to the shareholders of Value Fund, all as
described in the accompanying Prospectus/Proxy Statement;
2. Approval of changes to the fundamental investment policies; / / / / / /
/ / To vote against the proposed changes to one or more of the specific
fundamental investment policies, but to approve others, PLACE AN "X"
IN THE BOX AT LEFT and indicate the letter(s) (as set forth in the
proxy statement) of the investment policy or policies you do not
want to change on the line on the reverse side. IF YOU CHOOSE TO
VOTE DIFFERENTLY ON INDIVIDUAL RESTRICTIONS, YOU MUST MAIL IN YOUR
PROXY CARD. IF YOU CHOOSE TO VOTE THE SAME ON ALL RESTRICTIONS
PERTAINING TO YOUR FUND, TELEPHONE AND INTERNET VOTING ARE AVAILABLE.
</TABLE>
<TABLE>
<CAPTION>
FOR WITHHOLD ALL FOR ALL
ALL EXCEPT
<S> <C> <C> <C> <C>
3. Election of the Company's Board of Directors; To withhold authority
(1) Fred A. Deering; (2) Dr. Victor L. / / / / / / to vote for any
Andrews; (3) Bob R. Baker; (4) Lawrence H. individual nominee(s),
Budner; (5) Dr. Wendy Lee Gramm; (6) Kenneth mark "For All Except"
T. King; (7) John W. McIntyre; and (8) Dr. and write the nominee's
Larry Soll number on the line
below.
-----------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
4. Ratification of the selection of PricewaterhouseCoopers LLP as the / / / / / /
Company's Independent Public Accountants;
</TABLE>
Please sign exactly as name appears hereon. If stock is held in the name of
joint owners, each should sign. Attorneys-in-fact, executors, administrators,
etc. should so indicate. If a shareholder is a corporation or partnership,
please sign in full corporate or partnership name by authorized person.
- ---------------------------------------------------------- -------------------
Signature (PLEASE SIGN WITHIN BOX) Date
- ---------------------------------------------------------- -------------------
Signature (Joint Owners) Date
<PAGE>
[Back]
To vote against the proposed changes to one or
more of the specific fundamental investment
policies, indicate the letter(s) (as set forth
in the proxy statement) of the investment policy
or policies you do not want to change on the
line at the right. If you choose to vote
differently on individual restrictions, you must
mail in your proxy card. If you choose to vote
the same on all restrictions pertaining to your
fund, telephone and Internet voting are
available.
2. ________________________________
