PROSPECTUS
November 30, 1995
INVESCO SMALL COMPANY FUND
INVESCO Small Company Fund (the "Fund") seeks long-term capital growth.
The Fund pursues this objective by investing its assets primarily in equity
securities of U.S. companies with market capitalizations that are below those of
the 1,000 U.S. companies having the largest market capitalizations ("small
companies"). Such market capitalization will be based on a company's equity
capitalization, which, for purposes of determining what is a small company, may
not exceed one billion dollars. The Fund is a series of INVESCO Diversified
Funds, Inc. (the "Company"), an open-end, diversified, no-load management
investment company. The Fund is currently the only investment portfolio of the
Company. However, additional portfolios may be offered in the future.
This Prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated November 30, 1995, has been filed with the Securities and
Exchange Commission and is incorporated by reference into this Prospectus. You
can obtain a copy without charge by writing INVESCO Funds Group, Inc., Post
Office Box 173706, Denver, Colorado 80217-3706; or by calling 1-800-525-8085.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
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TABLE OF CONTENTS
Page
ANNUAL FUND EXPENSES 2
FINANCIAL HIGHLIGHTS 3
PERFORMANCE DATA 4
INVESTMENT OBJECTIVE AND POLICIES 4
RISK FACTORS 7
THE FUND AND ITS MANAGEMENT 10
HOW SHARES CAN BE PURCHASED 12
SERVICES PROVIDED BY THE FUND 13
HOW TO REDEEM SHARES 15
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS 17
ADDITIONAL INFORMATION 18
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ANNUAL FUND EXPENSES
The Fund is 100% no-load; there are no fees to purchase, exchange or
redeem shares nor any ongoing marketing ("12b-1") expenses. Lower expenses
benefit Fund shareholders by increasing the Fund's investment return.
Shareholder Transaction Expenses
Sales load "charge" on purchases None
Sales load "charge" on reinvested dividends None
Redemption fees None
Exchange fees None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.75%
12b-1 Fees None
Other Expenses
(after voluntary expense limitation)(1) 0.25%
Transfer Agency Fee(2) 0.08%
General Services, Administrative
Services, Registration, Postage (3) 0.17%
Total Fund Operating Expenses
(after voluntary expense limitation)(1) 1.00%
(1) Certain Fund expenses are being voluntarily absorbed by INVESCO Funds
Group, Inc. ("INVESCO") and INVESCO Management and Research, Inc. ("INVESCO
Management") to ensure that the Fund's total operating expenses do not exceed
1.00% of the Fund's average net assets. In the absence of such voluntary expense
limitation, the Fund's "Other Expenses" and "Total Fund Operating Expenses" in
the above table would have been 0.57% and 1.32%, respectively, of the Fund's
average net assets based on the actual expenses of the Fund for the fiscal year
ended July 31, 1995.
(2) Consists of the transfer agency fee described under "Additional
Information - Transfer and Dividend Disbursing Agent."
(3) Includes, but is not limited to, fees and expenses of directors,
custodian bank, legal counsel and auditors, securities pricing services, costs
of administrative services furnished under an Administrative Services Agreement,
costs of registration of Fund shares under applicable laws, and costs of
printing and distributing reports to shareholders.
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Example
Based upon Total Operating Expenses as estimated above, a shareholder
would pay the following expenses on a $1,000 investment for the periods shown,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
1 Year 3 Years 5 Years 10 Years
$10 $32 $55 $123
The purpose of the foregoing expense table is to assist investors in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. Such expenses are paid from the Fund's assets. (See
"The Fund and Its Management.") The Fund charges no sales load, redemption fee
or exchange fee. THE EXPENSE TABLE AND EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The assumed 5% annual return is hypothetical and should
not be considered a representation of past or future annual returns, which may
be greater or less than the assumed amount.
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding throughout Each Period)
The following information has been audited by Price Waterhouse LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the report of independent accountants thereon
appearing in the Fund's 1995 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting INVESCO Funds Group, Inc. at the address
or telephone number shown below.
Year Period
Ended Ended
July 31 July 31
1995 1994^
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PER SHARE DATA
Net Asset Value -- Beginning of Period $ 9.76 $10.00
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INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.06
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 2.05 (0.28)
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Total from Investment Operations 2.10 (0.22)
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LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.09 0.02
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Net Asset Value-- End of Period $11.77 $9.76
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TOTAL RETURN 21.64% (2.21%)*
RATIOS
Net Assets -- End of Period
($000 Omitted) $40,071 $13,474
Ratio of Expenses to Average
Net Assets# 1.00% 1.00%~
Ratio of Net Investment Income to
Average Net Assets# 0.84% 1.20%~
Portfolio Turnover Rate 73% 55%*
^ From December 1, 1993, commencement of operations, to July 31, 1994.
* These amounts are based on operations for the period shown and, accordingly,
are not representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by INVESCO and INVESCO
Management for the year ended July 31, 1995 and for the period ended July 31,
1994. If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 1.32% and 1.64% (annualized), respectively,
and ratio of net investment income to average net assets would have been 0.52%
and 0.56% (annualized), respectively.
~ Annualized
Further information about the performance of the Fund is contained in the
Company's Annual Report to Shareholders, which may be obtained without charge by
writing INVESCO Funds Group, Inc., P.O. Box 173706, Denver, Colorado 80217-3706;
or by calling 1-800- 525-8085.
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PERFORMANCE DATA
From time to time, the Fund advertises its total return performance. These
figures are based upon historical investment results and are not intended to
indicate future performance. The "total return" of the Fund refers to the
average annual rate of return of an investment in the Fund. This figure is
computed by calculating the percentage change in value of an investment of
$1,000, assuming reinvestment of all income dividends and capital gain
distributions, to the end of a specified period. Thus, a given report of total
return performance should not be considered as representative of future
performance. The Fund charges no sales load, redemption fee, or exchange fee
which would affect total return computations.
In conjunction with performance reports and/or analyses of shareholder
service for the Fund, comparative data between the Fund's performance for a
given period and recognized indices of investment results for the same period,
and/or assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include those provided by Dow Jones & Company,
Standard & Poor's, Lipper Analytical Services, Inc., Lehman Brothers, National
Association of Securities Dealers Automated Quotations, Frank Russell Company,
Value Line Investment Survey, the American Stock Exchange, Morgan Stanley
Capital International, Wilshire Associates, the Financial Times-Stock Exchange,
the New York Stock Exchange, the Nikkei Stock Average and the Deutcher
Aktienindex, all of which are unmanaged market indicators. In addition,
rankings, ratings, and comparisons of investment performance and/or assessments
of the quality of shareholder service appearing in publications such as Money,
Forbes, Kiplinger's Personal Finance, Morningstar, and similar sources which
utilize information compiled (i) internally; (ii) by Lipper Analytical Services,
Inc.; or (iii) by other recognized analytical services, may be used in
advertising. The Lipper Analytical Services, Inc., mutual fund rankings and
comparisons, which may be used by the Fund in performance reports will be drawn
from the "Small Company Growth" Lipper mutual fund grouping, in addition to the
broad-based Lipper general fund groupings.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of INVESCO Small Company Fund is to seek
long-term capital growth. The Fund pursues this objective by investing its
assets primarily in equity securities of U.S. companies with market
capitalizations that are below those of the 1,000 U.S companies having the
largest market capitalizations ("small companies"). Normally the Fund invests at
least 65% of its net assets in such securities. The balance of the Fund's assets
may be invested in equity securities of foreign companies and companies whose
capitalizations exceed that of small companies, U.S. government securities,
short-term investments, and nonconvertible long-term debt securities. Small
companies are those U.S. companies with market capitalizations that are smaller
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than those of companies included in the Russell 1000 Large Cap Stock Index.
Such companies will generally be companies within the range of companies
included in the Russell 2000 Small Stock Index (Russell 2000), having market
capitalizations of approximately $10 million to $600 million. In making
investments in equity securities of small companies, the Fund will not invest in
companies whose equity capitalizations exceed one billion dollars. Market
capitalization is a measure of the size of a company and is based upon such
company's equity capitalization. The equity securities in which the Fund invests
may include common and preferred stocks, convertible bonds and convertible
preferred stocks, and other securities having equity characteristics such as
warrants and rights. There can be no assurance that the Fund will be able to
achieve its investment objective.
In selecting investments for the Fund, the investment adviser or
sub-adviser (collectively, "Fund Management") will seek to identify securities
of small companies that are expected by the adviser to produce an annual total
return on that is higher than the average annual total return of the Russell
2000 over a full market cycle. These securities typically pay lower dividends
and possess higher rates of return on invested capital and greater risks than
securities of larger companies. The Fund seeks to achieve a greater return than
the Russell 2000 with a lower level of volatility by using a portfolio
optimization process to maximize expected return after trading costs, while at
the same time seeking to control risk. The Russell 2000 is an unmanaged index.
It includes the common stocks of 2000 U.S. companies having market
capitalizations that are smaller than those of the 1000 U.S. companies included
in the Russell 1000 Index. Companies included in the Russell 1000 Index are the
largest U.S. companies, whereas the companies included in the Russell 2000 are
the 2000 next largest companies, in each case measured by market capitalization.
Companies included in the indices are readjusted annually. These indices are
compiled by Frank Russell Company.
In managing the Fund, Fund Management will apply a combination of
quantitative strategies and traditional stock selection methods to a very broad
universe of stocks of small companies in order to uncover the best possible
values. Typically, over 2,500 stocks will be examined quantitatively for their
exposure to certain factors which Fund Management has identified as helpful in
selecting equities which can be expected to have superior future performance.
These factors may include earnings-to-price and book value-to-price ratios,
earnings estimate revision momentum, relative market strength compared to
competitors, inventory/sales trend, and financial leverage. A stock's expected
return is estimated based upon its exposure to these and other factors, and when
combined with proprietary estimates of trading costs, a risk-controlled optimal
portfolio is generated. Once an initial suggested portfolio has been generated
through the computer optimization process, traditional fundamental analysis is
used to provide a final review before stocks are selected for purchase by the
Fund.
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The Fund may invest up to 25% of its net assets in foreign securities, and
may invest up to 15% of its net assets in illiquid securities. In addition, the
Fund may purchase and sell covered call options and cash secured puts. These
practices and their risks are discussed below under "Risk Factors."
The equity securities purchased for the Fund will be traded principally in
the over-the-counter ("OTC") market, although the Fund may purchase securities
traded on national, regional or foreign stock exchanges. The short-term
investments of the Fund may consist of U.S. government and agency securities,
domestic bank certificates of deposit, bankers' acceptances, and commercial
paper rated A-1 by Standard and Poor's ("S&P") or P-1 by Moody's Investors
Service, Inc. ("Moody's"). The Fund may enter into repurchase agreements with
banks, registered broker-dealers and registered U.S. government securities
dealers with respect to any debt securities of the type in which the Fund
intends to invest. The Fund's assets invested in short-term investments will
normally be used to meet current cash requirements, such as to satisfy requests
to redeem shares of the Fund and to preserve investment flexibility. Investments
in short-term and longer-term U.S. government securities may consist of
securities issued or guaranteed by the United States government or any agency or
instrumentality of the United States government. In some cases, these securities
are direct obligations of the U.S. government, such as U.S. Treasury Bills,
Notes and Bonds. In other cases, these securities are obligations guaranteed by
the U.S. government, such as Government National Mortgage Association
obligations, or obligations of U.S. government authorities, agencies or
instrumentalities, consisting of the Federal National Mortgage Association,
Federal Home Loan Bank, Federal Financing Bank and Federal Farm Credit Bank,
which are supported only by the assets of the issuer. All bank certificates of
deposit and bankers' acceptances must be issued by domestic banks which, at the
time of purchase by the Fund (i) are members of the Federal Reserve System
having total assets in excess of $5 billion, (ii) have received at least a B
ranking from Thompson Bank Watch Credit Rating Service or International Bank
Credit Analysis, and (iii) either directly or through parent holding companies
have securities outstanding which have been rated Aaa, Aa or P-1 by Moody's or
AAA, AA or A-1 by S&P. Short-term investments may also include corporate
short-term notes rated at the time of purchase at least A-1 by S&P or Prime-1 by
Moody's, and municipal short-term notes rated at the time of purchase at least
SP-1 by S&P or MIG-1 by Moody's (the highest rating category for such notes
indicating a very strong capacity to make timely payments of principal and
interest).
Investments in bonds and other long-term debt securities, convertible and
non-convertible issues will be made for purposes of achieving the Fund's
objective of long-term capital growth, and will not be rated below Ba by Moody's
or BB by S&P or, if unrated, will be of a quality similar to securities so
rated, as determined by Fund Management.
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In order to decrease its risk in investing in straight debt securities,
the Fund will invest no more than 15% of its net assets in straight debt
securities rated below AAA, AA, A or BBB by S&P, or Aaa, Aa, A or Baa by
Moody's, (sometimes referred to as "junk bonds") and in no event will the Fund
ever invest in a straight debt security rated below Ba by Moody's or BB by S&P.
A bond rating of Baa by Moody's indicates that the bond issue is of "medium
grade," neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics, and have
speculative characteristics as well. A bond rating of BBB by S&P indicates that
the bond issue is in the lowest "investment grade" security rating. Bonds rated
BBB, while having speculative characteristics, are regarded as having an
adequate capacity to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay principal
and interest for bonds in this category than the bonds in the A category. High
yield, high risk debt securities rated by Moody's (category Ba) are of poorer
quality and may have speculative characteristics. Lower rated bonds by S&P
(category BB) include those which are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with their terms; BB indicates the lowest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. For more information on straight debt
securities and the foregoing corporate bond rating categories, see the Statement
of Additional Information and the Appendix therein.
As a temporary defensive measure, more than 35% of the Fund's total assets
(and up to 100% of such assets) may be held as cash or invested in debt
securities having maturities of less than three years at the time of purchase if
Fund Management determines it to be appropriate for purposes of enhancing
liquidity or preserving capital in light of prevailing market or economic
conditions. During such times, the Fund will not be pursuing its objective of
long-term capital growth.
The Fund also may lend its securities to qualified brokers, dealers,
banks, or other financial institutions. This practice permits the Fund to earn
income, which, in turn, can be invested in additional securities to pursue the
Fund's investment objective. Loans of securities by the Fund will be
collateralized by cash, letters of credit, or securities issued or guaranteed by
the U.S. government or its agencies equal to at least 100% of the current market
value of the loaned securities, determined on a daily basis. Lending securities
involves certain risks, the most significant of which is the risk that a
borrower may fail to return a portfolio security. The Fund monitors the
<PAGE>
creditworthiness of borrowers in order to minimize such risks. The Fund
will not lend any security if, as a result of the loan, the aggregate value of
securities then on loan would exceed 33 1/3% of the Fund's total assets (taken
at market value).
The investment objective of the Fund is deemed to be a fundamental policy
that may not be changed without prior approval by the holders of a majority of
the Fund's outstanding voting securities, as defined in the Investment Company
Act of 1940. One fundamental policy allows the Fund, notwithstanding any other
investment policy or limitation (whether or not fundamental), to 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. In addition, the Company and the Fund are subject to
various investment restrictions set forth in the Statement of Additional
Information. Certain of those restrictions may not be altered without approval
of shareholders. One restriction limits the Fund's borrowing of money to
borrowings from banks for temporary or emergency purposes (but not for
investment) in an amount not to exceed 33 1/3% of the total assets of the Fund.
RISK FACTORS
Investors should consider the special factors associated with the policies
discussed below in determining the appropriateness of an investment in the Fund.
Risks of Investing in Debt Securities Under the Fund's Investment
Policies.
The debt securities in which the Fund invests are generally subject to two
kinds of risk, 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.
The ratings given a debt security by Moody's and S&P provide a generally useful
guide as to such credit risk. The lower the rating given a debt security by such
rating service, the greater the credit risk such rating service perceives to
exist with respect to such security. Increasing the amount of Fund assets
invested in unrated or lower grade debt securities, while intended to increase
the yield produced by those assets, will also increase the credit risk to which
those assets are subject, and, given the fact that the Fund may invest in
unrated or lower grade debt securities, commonly referred to as junk bonds, the
securities held by the Fund generally will be subject to a greater degree of
credit risk.
Market risk relates to the fact that the market values of debt securities
in which the Fund invests 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 such securities, whereas a decline in interest rates will tend to
increase their values. Medium and lower rated debt securities (Baa or BBB and
lower) and non-rated debt securities of comparable quality tend to
<PAGE>
be subject to wider fluctuations in yields and market values than higher rated
debt securities and may have speculative characteristics. Although the Fund may
invest in debt securities assigned low ratings by S&P or Moody's, the Fund's
investments will be limited to debt securities rated BB or higher by S&P or Ba
or higher by Moody's. Fund Management intends to continue to limit the Fund's
investments to securities which are not believed by the adviser to be highly
speculative. Of course, relying in part on ratings assigned by credit agencies
in making investments will not protect the Fund from the risk that the debt
securities in which it invests will decline in value, since credit ratings
represent evaluations of the safety of principal, dividend and interest payments
on preferred stocks and debt securities, not the market values of such
securities, and such ratings may not be changed on a timely basis to reflect
subsequent events. The Fund is not required to sell immediately debt securities
that go into default, but may continue to hold such securities until such time
as Fund Management determines it is in the best interests of the Fund to sell
such securities.
Because investment in medium and lower rated debt securities involves both
greater credit risk and market risk, achievement of the Fund's investment
objectives may be more dependent on Fund Management's own credit analysis than
is the case for funds investing in higher quality securities. In addition, the
share price and yield of the Fund may be expected to fluctuate more than in the
case of funds investing in higher quality, shorter term debt securities.
Moreover, a significant economic downturn or major increase in interest rates
may result in issuers of lower rated debt securities experiencing increased
financial stress, which would adversely affect their ability to service their
principal, dividend and interest obligations, meet projected business goals, and
obtain additional financing. In this regard, it should be noted that while the
market for high yield corporate bonds has been in existence for many years and
from time to time has experienced economic downturns in recent years, this
market has involved a significant increase in the use of high yield corporate
debt securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not, therefore, provide an accurate
indication of future performance of the high yield bond market, particularly
during periods of economic recession. Furthermore, expenses incurred to recover
an investment in a defaulted debt security may adversely affect the Fund's net
asset value. Finally, while Fund Management attempts to limit purchases of
medium and lower rated debt securities to securities having an established
secondary market, the secondary market for such debt securities may be less
liquid than the market for higher quality debt securities. The reduced liquidity
of the secondary market for such securities may adversely affect the market
price of, and ability of the Fund to value, particular debt securities at
certain times, thereby making it difficult to make specific valuation
determinations. The Fund does not invest in any medium and lower rated debt
securities which present special tax consequences, such as zero coupon bonds or
pay-in-kind bonds.
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Risks of Investing in Equity Securities Under the Fund's Investment Policies.
Fund Management seeks to reduce the overall risks associated with the
Fund's investments in equity securities through diversification and
consideration of factors affecting the value of securities it considers
relevant. No assurance can be given, however, regarding the degree of success
that will be achieved in this regard or in the Fund's achieving its investment
objectives.
The ability of Fund Management to select equity securities for investment
which increase in market value is the primary factor that will determine whether
the Fund will be able to achieve its investment objective. In this regard, it
should be noted that companies in which the Fund is likely to invest may have
limited product lines, markets or financial resources, may be in the early
stages of development, and may lack management depth. The securities of these
companies may in some cases have limited marketability and may be subject to
more abrupt or erratic market movements than securities of larger, more
established companies or the market averages in general. While the
over-the-counter ("OTC") market has grown rapidly in recent years, many OTC
securities trade less frequently and in smaller volume than exchange-listed
securities. The values of these securities may fluctuate more sharply than
exchange-listed securities, and the Fund may experience some difficulty in
acquiring or disposing of positions in these securities at prevailing market
prices.
Other Investment Practices
Repurchase Agreements. As noted above, the Fund may enter into repurchase
agreements. A repurchase agreement is a means of investing monies for a short
period. In a repurchase agreement, the Fund acquires a debt instrument
(generally a security issued by the U.S. government or an agency thereof, a
bankers' acceptance, or a certificate of deposit) subject to resale to the
seller at an agreed upon price and date (normally, the next business day). In
the event that the original seller defaults on its obligation to repurchase the
security, the Fund could incur costs or delays in seeking to sell such security.
To minimize risk, the securities that are the subject of the repurchase
agreement will be maintained with the Fund's custodian in an amount at least
equal to the repurchase price under the agreement (including accrued interest),
and such agreements will be effected only with parties that meet certain
creditworthiness standards established by the Company's board of directors. The
Fund will not enter into a repurchase agreement maturing in more than seven days
if as a result more than 15% of its net assets would be invested in such
repurchase agreements and other illiquid securities.
<PAGE>
Illiquid and Rule 144A Securities
The Fund is authorized to invest in securities that are illiquid because
they are subject to restrictions on their resale ("restricted securities") or
because, based upon their nature or the market for such securities, they are not
readily marketable. However, pursuant to undertakings made to certain states,
the Fund will not purchase any such security if the purchase would cause the
Fund to invest more than 5% of its total assets in illiquid securities.
Repurchase agreements maturing in more than seven days will be considered as
illiquid for purposes of this restriction. Investments in illiquid securities
involve certain risks to the extent that the Fund may be unable to dispose of
such a security at the time desired or at a reasonable price. In addition, in
order to resell a restricted security, the Fund might have to bear the expense
and incur the delays associated with effecting registration.
Certain restricted securities that are not registered for sale to the
general public, but that can be resold to institutional investors ("Rule 144A
Securities"), may be purchased if a liquid institutional trading market exists.
However, pursuant to undertakings made to certain states, the Fund's investments
in Rule 144A Securities and other restricted securities, in the aggregate, will
not exceed 10% of the Fund's total assets. The liquidity of the Fund's
investments in Rule 144A Securities could be impaired if dealers or
institutional investors become uninterested in purchasing these securities. The
Company's board of directors has delegated to Fund Management the authority to
determine the liquidity of Rule 144A Securities pursuant to guidelines approved
by the board. For more information concerning Rule 144A securities, see the
Statement of Additional Information.
Foreign Securities
The Fund may also invest up to 25% of its total assets in foreign
securities. It should be recognized that investments in securities of foreign
companies involve certain risks not associated with investments in the
securities of domestic companies, including the risks of fluctuations in foreign
currency exchange rates and of political or economic instability in the country
of issue, the difficulty of predicting international trade patterns, and the
possibility of imposition of exchange controls or currency blockage. In
addition, there may be less information publicly available about a foreign
company than about a domestic company, and there is generally less government
regulation of foreign stock exchanges, brokers, and listed companies abroad than
in the United States. Moreover, with respect to certain foreign countries, there
may be a possibility of expropriation or confiscatory taxation. Further,
economies of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the United States. For additional information
regarding foreign securities, see the Fund's Statement of Additional
Information.
<PAGE>
Futures Contracts and Options
The Fund may enter into futures contracts for hedging or other
non-speculative purposes within the meaning and intent of applicable rules of
the Commodity Futures Trading Commission ("CFTC"). Futures contracts are
purchased or sold to attempt to hedge against the effects of price changes on
the Fund's current or intended investments in securities. In the event that an
anticipated decrease in the value of portfolio securities occurs as a result of
a general decrease in prices, the adverse effects of such changes may be offset,
in whole or part, by gains on the sale of futures contracts. Conversely, the
increased cost of portfolio securities to be acquired, caused by a general
increase in prices, may be offset, in whole or part, by gains on futures
contracts purchased by the Fund. The Fund will incur brokerage fees when it
purchases and sells futures contracts, and it will be required to maintain
margin deposits. The Fund also may use options to buy or sell futures contracts
or securities. Such investment strategies will be used as a hedge and not for
speculation.
Put and call options on futures contracts may be traded by the Fund in
order to protect against declines in the values of portfolio securities or
against increases in the cost of securities to be acquired. Purchases of options
on futures contracts may present less dollar risk in hedging the portfolio of
the Fund than the purchase and sale of the underlying futures contracts since
the potential loss is limited to the amount of the premium plus related
transaction costs. The premium paid for such a put or call option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise of liquidation of the option, and, unless the price of the underlying
futures contract changes sufficiently, the option may expire without value to
the Fund. The writing of such covered options, however, does not present less
risk than the trading of futures contracts, and will constitute only a partial
hedge, up to the amount of the premium received, and, if an option is exercised,
the Fund may suffer a loss on the transaction.
The Fund will purchase put or call options on securities in anticipation
of changes in factors which may adversely affect the value of its portfolio or
the prices of securities which the Fund anticipates purchasing at a later date.
The Fund may be able to offset such adverse effects on its portfolio, in whole
or part, through the options purchased. The premium paid for a put or a call
option plus any transaction costs will reduce the benefit, if any, realized by
the Fund upon exercise or liquidation of the option, and, unless the price of
the underlying security changes sufficiently, the option may expire without
value to the Fund.
The Fund may, from time to time, also sell ("write") covered call options
or cash secured puts in order to attempt to increase the return on its portfolio
or to protect against declines in the value of its portfolio securities. Such
covered call options and
<PAGE>
cash secured puts will not exceed 25% of the Fund's total assets. By writing a
covered call option, the Fund, in return for the premium income realized from
the sale of the option, gives up the opportunity to profit from a price increase
in the underlying security above the option exercise price, where the price
increase occurs while the option is in effect. In addition, the Fund's ability
to sell the underlying security will be limited while the option is in effect.
By writing a cash secured put the Fund, which receives a premium, has the
obligation during the option period, upon assignment of an exercise notice, to
buy the underlying security at a specified price. A put is secured by cash if
the Fund maintains at all times cash, Treasury bills or other high grade
short-term obligations with a value equal to the option exercise price in a
segregated account with its custodian.
Although the Fund will enter into futures contracts and options on
securities solely for hedging or other nonspeculative purposes, within the
meaning and intent of applicable rules of the CFTC, their use does involve
certain risks. For example, a lack of correlation between the value of an
instrument underlying an option or futures contract and the assets being hedged,
or unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful and could result in losses. In addition, there can be no assurance
that a liquid secondary market will exist for any contract purchased or sold,
and the Fund may be required to maintain a position until exercise or expiration
which could result in losses. Transactions in futures contracts and options are
subject to other risks as well, which are set forth in greater detail in the
Statement of Additional Information, which should be reviewed in conjunction
with the foregoing discussion.
Portfolio Turnover
There are no fixed limitations regarding portfolio turnover for the Fund.
Although the Fund does not trade for short-term profits, securities may be sold
without regard to the time they have been held in the Fund when, in the opinion
of Fund Management, market considerations warrant such action. In addition, the
Fund's portfolio turnover rate may increase as a result of large amounts of
purchases or redemptions of Fund shares due to economic, market, or other
factors that are not within the control of Fund Management. As a result, while
it is anticipated that the Fund's annual portfolio turnover rate generally will
not exceed 100%, under certain market conditions the portfolio turnover rate may
exceed 100%. The Fund's portfolio turnover rate is set forth under "Financial
Highlights", and, along with the Fund's brokerage allocation policies, is
discussed in the Statement of Additional Information.
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as an open-end, diversified management investment company.
<PAGE>
It was incorporated on April 2, 1993, under the laws of Maryland. The
overall supervision of the Fund is the responsibility of the Company's board of
directors.
Pursuant to an agreement with the Company, INVESCO Funds Group, Inc.
("INVESCO"), 7800 E. Union Avenue, Denver, Colorado, serves as the Fund's
investment adviser. INVESCO is primarily responsible for providing the Fund with
various administrative services and supervising the Fund's daily business
affairs. These services are subject to review by the Company's board of
directors.
INVESCO is an indirect wholly-owned subsidiary of INVESCO PLC. INVESCO PLC
is a financial holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. INVESCO was
established in 1932 and, as of July 31, 1995, managed 14 mutual funds,
consisting of 38 separate portfolios, with combined assets of approximately
$10.1 billion on behalf of over 790,000 shareholders.
Pursuant to an agreement with INVESCO, INVESCO Management, 101 Federal
Street, Boston, Massachussetts, serves as the sub-adviser to the Fund. INVESCO
Management, formerly Gardener and Preston Moss, Inc., also is an indirect,
wholly-owned subsidiary of INVESCO PLC, and has been offering investment
services to U.S. institutions and wealthy individuals. Its products include
actively managed equity, fixed income, and balanced portfolios. INVESCO
Management, subject to the supervision of INVESCO, is primarily responsible for
selecting and managing the Fund's investments. Although the Company is not a
party to the sub-advisory agreement between INVESCO and INVESCO Management, the
agreement has been approved by INVESCO as the then sole shareholder of the
Company.
The following individual serves as portfolio manager for the Fund and is
primarily responsible for the day-to-day management of the Fund's portfolio of
securities:
Bob Slotpole Portfolio manager of the Fund since 1994; lead portfolio
manager of INVESCO Multi-Asset Allocation Fund since
1994; portfolio manager for INVESCO Management since
1993; began investment career in 1975; formerly employed
in proprietary options department at Lehman Brothers
(1983-1984); developed program trading department at
First Boston (1985-1992); B.S., State University of
New York at Buffalo; M.B.A., Stanford University.
The Fund pays INVESCO a monthly advisory fee which is based upon a
percentage of the average net assets of the Fund, determined daily. The maximum
advisory fee is computed at the annual rate of 0.75% on the Fund's average net
assets. For the fiscal year ended July 31, 1995, the investment advisory fees
paid by the Fund amounted to 0.75% of the Fund's average net assets.
<PAGE>
Out of its advisory fee which it receives from the Fund, INVESCO pays
INVESCO Management, as sub-adviser to the Fund, a monthly fee, which is computed
at an annual rate of 0.375% of the Fund's average net assets. No fee is paid by
the Fund to INVESCO Management. While the 0.75% advisory fee rate is higher than
those charged by most other investment advisers to mutual funds, it is not
higher than those charged by a great many other investment advisers to funds
comparable to the Fund that invest their assets predominately in equity
securities of small companies.
The Company has also entered into an Administrative Service Agreement (the
"Administrative Agreement") with INVESCO. Pursuant to the Administrative
Agreement, INVESCO performs certain administrative, recordkeeping and internal
sub-accounting services, including without limitation, maintaining general
ledger and capital stock accounts, preparing a daily trial balance, calculating
net asset value daily, providing selected general ledger report, and providing
sub-accounting and recordkeeping services for Fund shareholder accounts
maintained by certain retirement and employee benefit plans for the benefit of
participants in such plans. For such services, the Fund pays INVESCO a fee
consisting of a base fee of $10,000 per year, plus an additional incremental fee
computed at an annual rate of 0.015% per year of the average net assets of the
Fund. INVESCO also is paid a fee by the Fund for providing transfer agent
services. See "Additional Information."
The Fund's expenses, which are accrued daily, are generally deducted from
the Fund's total income before dividends are paid. Total expenses of the Fund
for the fiscal year ended July 31, 1995, including investment advisory fees (but
excluding brokerage commissions which are a cost of acquiring securities),
amounted to 1.00% of the Fund's average net assets. Certain Fund expenses are
being absorbed by INVESCO and INVESCO Management voluntarily pursuant to a
commitment to the Fund in order to ensure that the Fund's total expenses do not
exceed 1.00% of the Fund's average net assets. This commitment may be changed
following consultation with the Company's board of directors. In the absence of
such voluntary expense limitation, the Fund's total expenses for the fiscal year
ended July 31, 1995, would have been 1.32% of the Fund's average net assets.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of
their financial responsibility coupled with their ability to effect transactions
at the best available prices. Although the Company does not market its shares
through intermediary brokers or dealers, the Company may place orders for
portfolio transactions with qualified broker-dealers that recommend the Company,
or sell shares of the Fund to clients, or act as agent in the purchase of
Company shares for clients, if Fund Management believes that the quality of the
execution of the transaction and
<PAGE>
level of commission are comparable to those available from other qualified
brokerage firms.
Fund Management permits investment and other personnel to purchase and
sell securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires investment and other personnel to
conduct their personal investment activities in a manner that Fund Management
believes is not detrimental to the Fund or Fund Management's other advisory
clients. See the Statement of Additional Information for more detailed
information.
HOW SHARES CAN BE PURCHASED
Shares of the Fund are sold on a continuous basis by INVESCO, as the
Fund's Distributor, at the net asset value per share next calculated after
receipt of a purchase order in good form. No sales charge is imposed upon the
sale of shares of the Fund. To purchase shares of the Fund, send a check made
payable to INVESCO Funds Group, Inc., together with a completed application
form, to:
INVESCO FUNDS GROUP, INC.
Post Office Box 173706
Denver, Colorado 80217-3706
PURCHASE ORDERS MUST SPECIFY THE FUND IN WHICH THE INVESTMENT IS TO BE
MADE.
The minimum initial purchase must be at least $1,000, with subsequent
investments of not less than $50, except that: (1) those shareholders
establishing an EasiVest or direct payroll purchase account, as described below
in the Prospectus section entitled "Services Provided by the Fund," may open an
account without making any initial investment if they agree to make regular,
minimum purchases of at least $50; (2) those shareholders investing in an
Individual Retirement Account ("IRA"), or through omnibus accounts where
individual shareholder recordkeeping and sub-accounting are not required, may
make initial minimum purchases of $250; (3) Fund Management may permit a lesser
amount to be invested in the Fund under a federal income tax-deferred retirement
plan (other than an IRA, or under a group investment plan qualifying as a
sophisticated investor; and (4) Fund Management reserves the right to reduce or
waive the minimum purchase requirements in its sole discretion where it
determines such action is in the best interests of the Fund.
The purchase of Fund shares can be expedited by placing bank wire,
overnight courier or telephone orders. Overnight courier orders must meet the
above minimum investment requirements. In no case can a bank wire order or a
telephone order be in an amount less than $1,000. For further information, the
purchaser may call the Fund's office by using the telephone number on the cover
of this Prospectus. Orders sent by overnight courier, including Express Mail,
should be sent to the street address, not Post Office Box, of INVESCO Funds
Group, Inc., at 7800 E. Union Avenue, Denver, CO 80237.
<PAGE>
Orders to purchase shares of the Fund can be placed by telephone. Shares
of the Fund will be issued at the net asset value per share next determined
after receipt of telephone instructions. Generally, payments for telephone
orders must be received by the Fund within three business days or the
transaction may be cancelled. In the event of such cancellation, the purchaser
will be held responsible for any loss resulting from a decline in the value of
the shares. In order to avoid such losses, purchasers should send payments for
telephone purchases by overnight courier or bank wire. INVESCO has agreed to
indemnify the Fund for any losses resulting from the cancellation of telephone
purchases.
If your check does not clear, or if a telephone purchase must be cancelled
due to non-payment, you will be responsible for any related loss the Fund or
INVESCO incurs. If you are already a shareholder in the INVESCO funds, the Fund
has the option to redeem shares from any identically registered account either
in the Fund or in any other INVESCO fund as reimbursement for any loss incurred.
You also may be prohibited or restricted from making future purchases in any of
the INVESCO funds.
Persons who invest in the Fund through a securities broker may be charged
a commission or transaction fee by the broker for the handling of the
transaction if the broker so elects. Any investor may deal directly with the
Fund in any transaction. In that event, there is no such charge. INVESCO may
from time to time make payments from its revenues to securities dealers and
other financial institutions that provide distribution-related and/or
administrative services for the Fund.
The Fund reserves the right in its sole discretion to reject any order for
purchase of its shares (including purchases by exchange) when, in the judgment
of Fund Management, such rejection is in the best interest of the Fund.
Net asset value per share is computed once each day that the New York
Stock Exchange is open as of the close of regular trading on that Exchange
(usually 4:00 p.m., New York time) and may also be computed on other days under
certain circumstances. Net asset value per share of the Fund is calculated by
dividing the market value of the Fund's securities plus the value of its other
assets (including dividends and interest accrued but not collected), less all
liabilities (including accrued expenses), by the number of outstanding shares of
the Fund. If market quotations are not readily available, a security or other
asset will be valued at fair value as determined in good faith by the board of
directors. Debt securities with remaining maturities of 60 days or less at the
time of purchase will be valued at amortized cost, absent unusual circumstances,
so long as the Company's board of directors believes that such value represents
fair value.
<PAGE>
SERVICES PROVIDED BY THE FUND
Shareholder Accounts. INVESCO maintains a share account that reflects the
current holdings of each shareholder. Share certificates will be issued only
upon specific request. Since certificates must be carefully safeguarded and must
be surrendered in order to exchange or redeem Fund shares, most shareholders do
not request share certificates in order to facilitate such transactions. Each
shareholder is sent a detailed confirmation of each transaction in shares of the
Fund. Shareholders whose only transactions are through the EasiVest, automatic
monthly exchange, direct payroll purchase or periodic withdrawal programs, or
are reinvestments of dividends or capital gains in the same or another fund,
will receive confirmations of those transactions on their quarterly statements.
These programs are discussed below. For information regarding a shareholder's
account and transactions, the shareholder may call the Fund's office by using
the telephone number on the cover of this Prospectus.
Reinvestment of Distributions. Dividends and other distributions are
automatically reinvested in additional shares of the Fund at the net asset value
per share of the Fund in effect on the ex-dividend date. A shareholder may,
however, elect to reinvest dividends and other distributions in certain of the
other no-load mutual funds advised and distributed by INVESCO, or to receive
payment of all dividends and other distributions in excess of $10.00 by check by
giving written notice to INVESCO at least two weeks prior to the record date on
which the change is to take effect. Further information concerning these options
can be obtained by contacting INVESCO.
Periodic Withdrawal Plan. A Periodic Withdrawal Plan is available to
shareholders who own or purchase shares of any mutual funds advised by INVESCO
having a total value of $10,000 or more; provided, however, that at the time the
Plan is established, the shareholder owns shares having a value of at least
$5,000 in the fund from which the withdrawals will be made. Under the Periodic
Withdrawal Plan, INVESCO, as agent, will make specified monthly or quarterly
payments of any amount selected (minimum payment of $100) to the party
designated by the shareholder. Notice of all changes concerning the Periodic
Withdrawal Plan must be received by INVESCO at least two weeks prior to the next
scheduled check. Further information regarding the Periodic Withdrawal Plan and
its requirements and tax consequences can be obtained by contacting INVESCO.
Exchange Privilege. Shares of the Fund may be exchanged for shares of any
of the following other no-load mutual funds, which are also advised and
distributed by INVESCO, on the basis of their respective net asset values at the
time of the exchange: INVESCO Dynamics Fund, Inc., INVESCO Emerging Opportunity
Funds, Inc., INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO
Industrial Income Fund, Inc., INVESCO International Funds, Inc.,
<PAGE>
INVESCO Money Market Funds, Inc., INVESCO Multiple Asset Funds, Inc., INVESCO
Specialty Funds, Inc., INVESCO Strategic Portfolios, Inc., INVESCO Tax-Free
Income Funds, Inc., INVESCO Value Trust.
An exchange involves the redemption of shares in the Fund and investment
of the redemption proceeds in shares of one of the funds listed above. Exchanges
will be made at the net asset value per share next determined after receipt of
an exchange request in proper order. Any gain or loss realized on such an
exchange is recognizable for federal income tax purposes by the shareholder.
Exchange requests may be made either by telephone or by written request to
INVESCO Funds Group, Inc., using the address or telephone number on the cover of
this Prospectus. Exchanges made by telephone must be in an amount of at least
$250, if the exchange is being made into an existing account of one of the
INVESCO Funds. All exchanges that establish a new account must meet the Fund's
applicable minimum initial investment requirements. Written exchange requests
into an existing account have no minimum requirements other than the Fund's
applicable minimum subsequent investment requirements.
The privilege of exchanging Fund shares by telephone is available to
shareholders automatically unless expressly declined. By signing the new account
Application, a Telephone Transaction Authorization Form or otherwise utilizing
telephone exchange privileges, the investor has agreed that the Fund will not be
liable for following instructions communicated by telephone that it reasonably
believes to be genuine. The Fund employs procedures, which it believes are
reasonable, designed to confirm that exchange instructions are genuine. These
may include recording telephone instructions and providing written confirmation
of exchange transactions. As a result of this policy, the investor may bear the
risk of any loss due to unauthorized or fraudulent instructions; provided,
however, that if the Fund fails to follow these or other reasonable procedures,
the Fund may be liable.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, the Fund reserves the right to terminate the exchange privilege of
any shareholder who requests more than four exchanges in a year. The Fund will
determine whether to do so based on a consideration of both the number of
exchanges any particular shareholder or group of shareholders has requested and
the time period over which those exchange requests have been made, together with
the level of expense to the Fund which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. Except for those limited instances where redemptions of the exchanged
security are suspended under Section 22(e) of the Investment Company Act of 1940
(the "1940 Act"), or where sales of the fund into which the shareholder is
exchanging are temporarily stopped, notice of all such modifications or
termination of the exchange privilege will be given at least 60 days prior to
the date of termination or the effective date of the modification.
<PAGE>
Before making an exchange, the shareholder should review the prospectuses
of the funds involved and consider their differences, and should be aware that
the exchange privilege may only be available in those states where exchanges
legally may be made, which will require that the shares being acquired are
registered for sale in the shareholder's state of residence. Shareholders
interested in exercising the exchange privilege may contact INVESCO for
information concerning their particular exchanges.
Automatic Monthly Exchange. Shareholders who have accounts in one or more
of the mutual funds distributed by INVESCO may arrange for a fixed dollar amount
of their fund shares to be automatically exchanged for shares of any other
INVESCO mutual fund listed under "Exchange Privilege" on a monthly basis. The
minimum monthly exchange in this program is $50.00. This automatic exchange
program can be changed by the shareholder at any time by notifying INVESCO at
least two weeks prior to the date the change is to be made. Further information
regarding this service can be obtained by contacting INVESCO.
EasiVest. For shareholders who want to maintain a schedule of monthly
investments, EasiVest uses various methods to draw a preauthorized amount from
the shareholder's bank account to purchase Fund shares. This automatic
investment program can be changed by the shareholder at any time by writing to
INVESCO at least two weeks prior to the date the change is to be made. Further
information regarding this service can be obtained by contacting INVESCO.
Direct Payroll Purchase. Shareholders may elect to have their employer
make automatic purchases of Fund shares for them, by deducting a specified
amount from their regular paychecks. This automatic investment program can be
modified or terminated at any time by the shareholder, by notifying the
employer. Further information regarding this service can be obtained by
contacting INVESCO.
Tax-Deferred Retirement Plans. Shares of the Fund may be purchased for
self-employed individual retirement plans, IRAs, simplified employee pension
plans, and corporate retirement plans. In addition, shares can be used to fund
tax qualified plans established under Section 403(b) of the Internal Revenue
Code by educational institutions, including public school systems and private
schools, and certain kinds of non-profit organizations, which provide deferred
compensation arrangements for their employees.
Prototype forms for the establishment of these various plans, including,
where applicable, disclosure statements required by the Internal Revenue
Service, are available from INVESCO. INVESCO Trust Company, a subsidiary of
INVESCO, is qualified to serve as trustee or custodian under these plans and
provides the required services at competitive rates. Retirement plans (other
than IRAs)
<PAGE>
receive monthly statements reflecting all transactions in their Fund accounts.
IRAs receive the confirmations and quarterly statements described under
"Shareholder Accounts." For complete information, including prototype forms and
service charges, call INVESCO at the telephone number listed on the cover of
this Prospectus or send a written request to: Retirement Services, INVESCO Funds
Group, Inc., Post Office Box 173706, Denver, Colorado 80217-3706.
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed at any time at their current net asset
value per share next determined after a request in proper form is received at
the Fund's office. (See "How Shares Can Be Purchased.") Net asset value per
share at the time of redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the Fund's investment
performance.
If the shares to be redeemed are represented by stock certificates, a
written request for redemption signed by the registered shareholder(s) and the
certificates must be forwarded to INVESCO Funds Group, Inc., Post Office Box
173706, Denver, Colorado 80217-3706. Redemption requests sent by overnight
courier, including Express Mail, should be sent to the street address, not Post
Office Box, of INVESCO Funds Group, Inc. at 7800 E. Union Avenue, Denver, CO
80237. If no certificates have been issued, a written redemption request signed
by each registered owner of the account may be submitted to INVESCO at the
address noted above. If shares are held in the name of a corporation, additional
documentation may be necessary. Call or write for specifics. If payment for the
redeemed shares is to be made to someone other than the registered owner(s), the
signature(s) must be guaranteed by a financial institution which qualifies as an
eligible guarantor institution. Redemption procedures with respect to accounts
registered in the names of broker/dealers may differ from those applicable to
other shareholders.
BE CAREFUL TO SPECIFY THE ACCOUNT FROM WHICH THE REDEMPTION IS TO BE MADE.
INVESCO SHAREHOLDERS HAVE A SEPARATE ACCOUNT FOR EACH FUND IN WHICH THEY INVEST.
Payment of redemption proceeds will be mailed within seven days following
receipt of the required documents. However, payment may be postponed under
unusual circumstances, such as when normal trading is not taking place on the
New York Stock Exchange, or an emergency as defined by the Securities and
Exchange Commission exists. If the shares to be redeemed were purchased by check
and that check has not yet cleared, payment will be made promptly upon clearance
of the purchase check (which may take up to 15 days).
If a shareholder participates in EasiVest, the Fund's automatic monthly
investment program, and redeems all of the shares
<PAGE>
in his Fund account, INVESCO will terminate any further EasiVest purchases
unless otherwise instructed by the shareholder.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to effect the involuntary redemption of all
shares in such account, in which case the account would be liquidated and the
proceeds forwarded to the shareholder. Prior to any such redemption, a
shareholder will be notified and given 60 days to increase the value of the
account to $250 or more.
Fund shareholders (other than shareholders holding Fund shares in accounts
of IRA plans) may request expedited redemption of shares having a minimum value
of $250 (or redemption of all shares if their value is less than $250) held in
accounts maintained in their name by telephoning redemption instructions to
INVESCO, using the telephone number on the cover of this Prospectus. The
redemption proceeds, at the shareholder's option, either will be mailed to the
address listed for the shareholder's Fund account, or wired (minimum of $1,000)
or mailed to the bank which the shareholder has designated to receive the
proceeds of telephone redemptions. The Fund charges no fee for effecting such
telephone redemptions. Unless Fund Management permits a larger redemption
request to be placed by telephone, a shareholder may not place a redemption
request by telephone in excess of $25,000. These telephone redemption privileges
may be modified or terminated in the future at the discretion of Fund
Management.
For INVESCO Trust Company-sponsored federal income tax-deferred retirement
plans, the term "shareholders" is defined to mean plan trustees that file a
written request to be able to redeem Fund shares by telephone. Shareholders
should understand that, while the Fund will attempt to process all telephone
redemption requests on an expedited basis, there may be times, particularly in
periods of severe economic or market disruption, when (a) they may encounter
difficulty in placing a telephone redemption request, and (b) processing
telephone redemptions may require up to seven days following receipt of the
telephone redemption request, or additional time because of postponements
resulting from the unusual circumstances set forth above.
The privilege of redeeming Fund shares by telephone is available to
shareholders automatically unless expressly declined. By signing a new account
Application, a Telephone Transaction Authorization Form or otherwise utilizing
telephone redemption privileges, the shareholder has agreed that the Fund will
not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine. The Fund employs procedures, which it
believes are reasonable, designed to confirm that telephone instructions are
genuine. These may include recording telephone instructions and providing
written confirmations of transactions initiated by telephone. As a result of
this policy, the investor may bear the risk of any loss due to unauthorized or
<PAGE>
fraudulent instructions; provided, however, that if the Fund fails to follow
these or other reasonable procedures, the Fund may be liable.
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders substantially all of
its net investment income, net capital gains, and net gains from foreign
currency transactions if any, in order to continue to qualify for tax treatment
as a regulated investment company. Thus, the Fund does not expect to pay any
federal income or excise taxes.
Unless shareholders are exempt from income taxes, they must include all
dividends and capital gain distributions in taxable income for federal, state
and local income tax purposes. Dividends and other distributions are taxable
whether they are received in cash or automatically distributed in shares of the
Fund or another fund in the INVESCO group.
The Fund may be subject to withholding of foreign taxes on dividends or
interest it receives on foreign securities. Foreign taxes withheld will be
treated as an expense of the Fund unless the Fund meets the qualifications to
enable it to pass these taxes through to shareholders for use by them as a
foreign tax credit or deduction.
Shareholders may be subject to backup withholding of 31% on dividends,
capital gain distributions and redemption proceeds. Unless a shareholder is
subject to backup withholding for other reasons, the shareholder can avoid
backup withholding on his Fund account by ensuring that INVESCO has a correct,
certified tax identification number.
Dividends and Capital Gain Distributions. The Fund earns ordinary or net
investment income in the form of dividends and interest on its investments. The
Fund's policy is to distribute substantially all of this income, less Fund
expenses, to shareholders on an annual basis, at the discretion of the Company's
board of directors.
In addition, the Fund realizes capital gains and losses when it sells
securities for more or less than it paid. If total gains on sales exceed total
losses (including losses carried forward from previous years), the Fund has a
net realized capital gain. Net realized capital gains, if any, are distributed
to shareholders at least annually, usually in December.
Dividends and capital gain distributions are paid to shareholders who hold
shares on the record date of the distribution regardless of how long the shares
have been held. The Fund's share price will then drop by the amount of the
distribution on the day the distribution is made. If a shareholder purchases
shares immediately prior to the distribution, the shareholder will, in effect,
<PAGE>
have "bought" the distribution by paying the full purchase price, a portion
of which is then returned in the form of a taxable distribution.
At the end of each year, information regarding the tax status of dividends
and capital gain distributions is provided to shareholders. Net realized capital
gains are divided into short-term and long-term gains depending upon how long
the Fund held the security which gave rise to the gains. The capital gains
distribution consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest as ordinary income and are paid to shareholders as dividends.
Shareholders also may realize capital gains or losses when they sell their
Fund shares at more or less than the price originally paid.
Shareholders are encouraged to consult their tax advisers with respect to
these matters. For further information see "Dividends, Capital Gain
Distributions and Taxes" in the Statement of Additional Information.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Fund have equal voting rights based on
one vote for each share owned and a corresponding fractional vote for each
fractional share owned. The Company is not generally required, and does not
expect, to hold regular annual meetings of shareholders. However, the board of
directors will call special meetings of shareholders for the purpose, among
other reasons, of voting upon the question of removal of a director or directors
when requested to do so in writing by the holders of 10% or more of the
outstanding shares of the Company or as may be required by applicable law or the
Company's Articles of Incorporation. The Company will assist shareholders in
communicating with other shareholders as required by the 1940 Act. Directors may
be removed by action of the holders of a majority of the outstanding shares of
the Company.
Master/Feeder Option. The Company may in the future seek to achieve the
Fund's investment objective by investing all of the Fund's assets in another
investment company having the same investment objective and substantially the
same investment policies and restrictions as those applicable to the Fund. It is
expected that any such investment company would be managed by INVESCO in
substantially the same manner as the existing Fund. If permitted by applicable
laws and policies then in effect, any such investment may be made in the sole
discretion of the Company's board of directors without further approval of the
shareholders of the Fund. However, Fund shareholders will be given at least 30
days prior notice of any such investment. Such investment would be made only if
the Company's board of directors determines it to be in the best interests of
the Fund and its shareholders. In making that determination, the board will
<PAGE>
consider, among other things, the benefits to shareholders and/or the
opportunity to reduce costs and achieve operational efficiencies. No assurance
can be given that costs will be materially reduced if this option is
implemented.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone number or mailing address set forth on the cover
page of this Prospectus.
Transfer and Dividend Disbursing Agent. INVESCO Funds Group, Inc., 7800 E.
Union Ave., Denver, Colorado 80237, acts as registrar, transfer agent, and
dividend disbursing agent for the Fund pursuant to a Transfer Agency Agreement
which provides that the Fund will pay an annual fee of $14.00 per shareholder
account or omnibus account participant. The transfer agency fee is not charged
to each shareholder's or participant's account, but is an expense of the Fund to
be paid from the Fund's assets. Registered broker-dealers, third party
administrators of tax-qualified retirement plans and other entities, including
affiliates of INVESCO, may provide sub-transfer agency services to the Fund
which reduce or eliminate the need for identical services to be provided on
behalf of the Fund by INVESCO. In such cases, INVESCO may pay the third party an
annual sub-transfer agency or record-keeping fee of up to $14.00 per participant
in the third party's omnibus account out of the transfer agency fee which is
paid to INVESCO by the Fund.
<PAGE>
INVESCO DIVERSIFIED FUNDS, INC.
A no-load mutual fund seeking
long-term capital growth.
INVESCO SMALL COMPANY FUND
PROSPECTUS
November 30, 1995
To receive general information and prospectuses on any of INVESCO's funds, or
retirement plans, or to obtain current account or price information, call
toll-free:
1-800-525-8085
To reach PAL, your 24-hour Personal Account Line, call:
1-800-424-8085
Or write to:
INVESCO Funds Group, Inc., Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
If you're in Denver, visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 E. Union Avenue
Lobby Level
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
November 30, 1995
INVESCO DIVERSIFIED FUNDS, INC.
A no-load mutual fund seeking
long-term capital growth
Address: Mailing Address:
7800 E. Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
- --------------------------------------------------------------------------------
INVESCO DIVERSIFIED FUNDS, INC. (the "Company") is a diversified, no-load
management investment company currently consisting of one portfolio of
investments, the INVESCO Small Company Fund (the "Fund"). INVESCO Small Company
Fund seeks long-term capital growth. Additional funds may be offered in the
future.
INVESCO SMALL COMPANY FUND
The INVESCO Small Company Fund seeks to achieve its investment objective
through the investment of at least 65% of its net assets in equity securities of
U.S. companies with market capitalizations that are below those of the 1,000
U.S. companies having the largest market capitalizations ("small companies").
A Prospectus for the Fund dated November 30, 1995 which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from INVESCO Funds Group, Inc., Post Office Box 173706, Denver,
Colorado 80217-3706. This Statement of Additional Information is not a
Prospectus, but contains information in addition to and more detailed than that
set forth in the Prospectus. It is intended to provide additional information
regarding the activities and operations of the Fund and should be read in
conjunction with the Prospectus.
Investment Adviser and Distributor: INVESCO FUNDS GROUP, INC.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT POLICIES AND RESTRICTIONS 35
THE FUND AND ITS MANAGEMENT 45
HOW SHARES CAN BE PURCHASED 57
HOW SHARES ARE VALUED 57
FUND PERFORMANCE 59
SERVICES PROVIDED BY THE FUND 60
TAX-DEFERRED RETIREMENT PLANS 61
HOW TO REDEEM SHARES 61
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES 62
INVESTMENT PRACTICES 64
ADDITIONAL INFORMATION 66
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
Reference is made to the section entitled "Investment Objective and
Policies" in the Prospectus for a discussion of the investment objective and
policies of the Fund. The following is additional information concerning the
Fund's investment policies.
Loans of Securities. As described in the Fund's Prospectus, the Fund may
lend its portfolio securities to brokers, dealers, and other financial
institutions, provided that such loans are callable at any time by the Fund and
are at all times secured by collateral consisting of cash or securities issued
or guaranteed by the United States government or its agencies, or any
combination thereof, equal to at least the market value, determined daily, of
the loaned securities. The advantage of such loans is that the Fund continues to
have the benefits (and risks) of ownership of the loaned securities, while at
the same time receiving interest from the borrower of the securities. Loans will
be made only to firms deemed by the Adviser or Sub-Adviser (under procedures
established by the Company's board of directors) to be creditworthy and when the
amount of interest to be received justifies the inherent risks. A loan may be
terminated by the borrower on one business day's notice, or by the Fund at any
time. If at any time the borrower fails to maintain the required amount of
collateral (at least 100% of the market value of the borrowed securities), the
Fund will require the deposit of additional collateral not later than the
business day following the day on which a collateral deficiency occurs or the
collateral appears inadequate. If the deficiency is not remedied by the end of
that period, the Fund will use the collateral to replace the securities while
holding the borrower liable for any excess of replacement cost over collateral.
Upon termination of the loan, the borrower is required to return the securities
to the Fund. Any gain or loss during the loan period would inure to the Fund.
Futures and Options on Futures. As described in the Fund's Prospectus, the
Fund may enter into futures contracts, and purchase and sell ("write") options
to buy or sell futures contracts. The Fund will comply with and adhere to all
limitations in the manner and extent to which it effects transactions in futures
and options on such futures currently imposed by the rules and policy guidelines
of the Commodity Futures Trading Commission as conditions for exemption of a
mutual fund, or investment advisers thereto, from registration as a commodity
pool operator. Under those restrictions, the Fund will not, as to any positions,
whether long, short or a combination thereof, enter into futures and options
thereon for which the aggregate initial margins and premiums exceed 5% of the
fair market value of its assets after taking into account unrealized profits and
losses on options it has entered into. In the case of an option that is
"in-the-money," as defined in the Commodity Exchange Act (the "CEA"), the
in-the-money amount may be excluded in computing such 5%. (In general a call
option on a future is "in-the-money" if the value of the future exceeds the
exercise ("strike") price of the call; a put option on a future is
<PAGE>
"in-the-money" if the value of the future which is the subject of the put
is exceeded by the strike price of the put.) The Fund may use futures and
options thereon solely for bona fide hedging or for other non-speculative
purposes within the meaning and intent of the applicable provisions of the CEA.
As to long positions which are used as part of the Fund's portfolio strategies
and are incidental to its activities in the underlying cash market, the
"underlying commodity value" of the Fund's futures and options thereon must not
exceed the sum of (i) cash set aside in an identifiable manner, or short-term
U.S. debt obligations or other dollar-denominated high-quality, short-term money
instruments so set aside, plus sums deposited on margin; (ii) cash proceeds from
existing investments due in 30 days; and (iii) accrued profits held at the
futures commission merchant. The "underlying commodity value" of a future is
computed by multiplying the size of the future by the daily settlement price of
the future. For an option on a future, that value is the underlying commodity
value of the future underlying the option.
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Instead,
the Fund will be required to deposit in its segregated asset account an amount
of cash or qualifying securities (currently U.S. Treasury bills), currently in a
minimum amount of $15,000. This is called "initial margin." Such initial margin
is in the nature of a performance bond or good faith deposit on the contract.
However, since losses on open contracts are required to be reflected in cash in
the form of variation margin payments, the Fund may be required to make
additional payments during the term of the contracts to its broker. Such
payments would be required, for example, where, during the term of an interest
rate futures contract purchased by the Fund, there was a general increase in
interest rates, thereby making the Fund's portfolio securities less valuable. In
all instances involving the purchase of financial futures contracts by the Fund,
an amount of cash together with such other securities as permitted by applicable
regulatory authorities to be utilized for such purpose, at least equal to the
market value of the futures contracts, will be deposited in a segregated account
with the Fund's custodian to collateralize the position. At any time prior to
the expiration of a futures contract, the Fund may elect to close its position
by taking an opposite position which will operate to terminate the Fund's
position in the futures contract. For a more complete discussion of the risks
involved in futures and options on futures and other securities, refer to
Appendix A ("Description of Futures, Options and Forward Contracts").
Where futures are purchased to hedge against a possible increase in the
price of a security before the Fund is able in an orderly fashion to invest in
the security, it is possible that the market may decline instead. If the Fund,
as a result, concluded not to make the planned investment at that time because
of concern as to possible further market decline or for other reasons, the Fund
<PAGE>
would realize a loss on the futures contract that is not offset by a reduction
in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the futures contracts and the
portion of the portfolio being hedged, the price of futures may not correlate
perfectly with movements in the prices due to certain market distortions. All
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between underlying instruments and the
value of the futures contract. Moreover, the deposit requirements in the futures
market are less onerous than margin requirements in the securities market and
may therefore cause increased participation by speculators in the futures
market. Such increased participation may also cause temporary price distortions.
Due to the possibility of price distortion in the futures market and because of
the imperfect correlation between movements in the underlying instrument and
movements in the prices of futures contracts, the value of futures contracts as
a hedging device may be reduced.
In addition, if the Fund has insufficient available cash, it may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it may be disadvantageous to do so.
Options on Futures Contracts The Fund may buy and write options on futures
contracts for hedging purposes. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the price of the
underlying instrument, ownership of the option may or may not be less risky than
ownership of the futures contract or the underlying instrument. As with the
purchase of futures contracts, when the Fund is not fully invested it may buy a
call option on a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures price at expiration of the option is higher than the exercise price,
the Fund will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the Fund is
<PAGE>
considering buying. If a call or put option which the Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it received. Depending on the degree of correlation between change in
the value of its portfolio securities and changes in the value of the futures
positions, the Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may buy a put option on a futures contract to hedge the Fund's
portfolio against the risk of falling prices.
The amount of risk the Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be reflected fully in the value of the options bought.
Foreign Securities
As discussed in the Fund's Prospectus, the Fund may invest up to 25% of
its total assets, at the time of purchase, in securities of foreign issuers.
There is generally less publicly available information, reports and ratings
about foreign companies and other foreign issuers than that which is available
about companies and issuers in the United States. Foreign issuers are also
generally subject to fewer uniform accounting and auditing and financial
reporting standards, practices, and requirements as compared to those applicable
to United States issuers.
The Fund's investment adviser or sub-adviser will normally purchase
foreign securities in over-the-counter markets or on exchanges located in the
countries in which the respective principal offices of the issuers of the
various equity securities are located, as such markets or exchanges are
generally the best available market for foreign securities. Foreign securities
markets are generally not as developed or efficient as those in the United
States. While growing in volume, they usually have substantially less volume
than the New York Stock Exchange, and securities of some foreign issuers are
less liquid and more volatile than securities of comparable United States
issuers. Fixed commissions on foreign exchanges are generally higher than
negotiated commissions on United States exchanges, although the Fund will
endeavor to achieve favorable net results on its portfolio transactions. There
is generally less government supervision and regulation of securities exchanges,
brokers and listed issuers than in the United States.
<PAGE>
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Moreover, the
economics of individual countries may differ favorably or unfavorably from the
United States' economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payment position.
The dividends and interest payable on certain of the Fund's foreign
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to the Fund's shareholders.
Restricted/144A Securities
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act of 1933 (the "1993
Act"). Institutional investors generally will not seek to sell these instruments
to the general public, but instead will often depend on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1993 Act establishes a "safe harbor" from the
registration requirements of the 1993 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and the Fund might be unable to dispose of such
securities promptly or at reasonable prices.
<PAGE>
Repurchase Agreements
As discussed in the Fund's Prospectus, the Fund may enter into repurchase
agreements with commercial banks, registered brokers or registered government
securities dealers. A repurchase agreement is an agreement under which the Fund
acquires a debt security subject to resale to the seller at an agreed upon price
and date (normally, the next business day). A repurchase agreement may be
considered a loan collateralized by securities. The resale price reflects an
agreed upon interest rate effective for the period the instrument is held by the
Fund and is unrelated to the interest rate on the underlying security. In these
transactions, the securities acquired by the Fund (including accrued interest
earned thereon) must have a total value in excess of the value of the repurchase
agreement and are held by the Fund's Custodian Bank until repurchased. In
addition, the Company's board of directors will monitor the Fund's repurchase
agreement transactions and will establish guidelines and standards for review by
the investment adviser or sub-adviser of the creditworthiness of any bank,
broker or dealer party to a repurchase agreement with the Fund. The Fund will
not enter into a repurchase agreement maturing in more than seven days if as a
result more than 15% of the Fund's net assets would be invested in such
repurchase agreements and other illiquid securities.
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within the control
of the Fund and therefore the realization by the Fund on such collateral may
automatically be stayed. Finally, it is possible that the Fund may not be able
to substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Fund's
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.
Investment Restrictions. As described in the Prospectus, the Fund is
subject to certain investment restrictions which are fundamental and may not be
changed with respect to the Fund without the prior approval of the holders of a
majority, as defined in the Investment Company Act of 1940 (the "1940 Act"), of
the outstanding voting securities of the Fund. For purposes of the Fund's
investment restrictions and its investment policies, all percentage limitations
apply immediately after a purchase or initial investment. Any subsequent change
in a particular percentage resulting from fluctuations in value does not require
elimination of any security from the Fund.
<PAGE>
Under the Fund's fundamental investment restrictions, the Fund may not:
(1) 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;
(2) 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 33 1/3% of the value of its total assets (including the
amount borrowed) less liabilities (other than borrowings). Any
borrowings that come to exceed 33 1/3% 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 33 1/3% 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.
(3) Invest more than 25% of the value of its assets in any particular
industry (other than Government securities).
(4) 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.
(5) 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).
(6) Lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties (but this
limitation does not apply to purchases of commercial paper, debt
securities or to repurchase agreements.)
(7) 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.
<PAGE>
In applying the industry concentration investment restriction (no. 3
above), the Fund uses an industry classification system based on the O'Neil
Database published by William O'Neil & Co., Inc.
As a fundamental policy in addition to the above, 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.
Additional investment restrictions adopted by the Company on behalf of the
Fund and which may be changed by the directors, at their discretion, without
shareholder approval, include the following:
(1) The Fund's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included
within that amount, but not to exceed 2% of the value of the Fund's
net assets, may be warrants that are not listed on the New York or
American Stock Exchanges. Warrants acquired by the Fund in units or
attached to securities shall be deemed to be without value.
(2) The Fund will not (i) enter into any futures contracts or options on
futures contracts if immediately thereafter the aggregate margin
deposits on all outstanding futures contracts positions held by the
Fund and premiums paid on outstanding options on futures contracts,
after taking into account unrealized profits and losses, would
exceed 5% of the market value of the total assets of the Fund, or
(ii) enter into any futures contracts if the aggregate amount of the
Fund's commitments under outstanding futures contracts positions of
the Fund would exceed the market value of the total assets of the
Fund.
(3) The Fund does not currently intend to sell securities short, unless
it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short, and provided that transactions
in options and forward futures contracts are not deemed to
constitute selling securities short.
(4) The Fund does not currently intend to purchase securities on margin,
except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that
margin payments and other deposits in connection with transactions
in options, futures, and forward contracts shall not be deemed to
constitute purchasing securities on margin.
<PAGE>
(5) The Fund does not currently intend to (i) purchase securities of
other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (ii)
purchase or retain securities issued by other open-end investment
companies. Limitations (i) and (ii) do not apply to money market
funds or to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or
merger. If the Fund invests in a money market fund, the Fund's
investment adviser will reduce its advisory fee by the amount of any
investment advisory and administrative services fees paid to the
investment manager of the money market fund.
(6) The Fund may not mortgage or pledge any securities owned or held by
the Fund in amounts that exceed, in the aggregate, 15% of the Fund's
net asset value, provided that this limitation does not apply to
reverse repurchase agreements or in the case of assets deposited to
margin or guarantee positions in futures, options, swaps or forward
contracts or placed in a segregated account in connection with such
contracts.
(7) The Fund does not currently intend to invest directly in oil, gas,
or other mineral development or exploration programs or leases;
however, the Fund may own debt or equity securities of companies
engaged in those businesses.
(8) The Fund does not currently intend to purchase any illiquid
securities or enter into a repurchase agreement if, as a result,
more than 15% of its net assets would be invested in repurchase
agreements not entitling the holder to payment of principal and
interest within seven days and in securities that are illiquid by
virtue of legal or contractual restrictions on resale or for which
there is no readily available market. The board of directors, or the
Fund's investment adviser acting pursuant to authority delegated by
the board of directors, may determine that a readily available
market exists for securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933, or any successor to such
rule, and that such securities are not subject to the foregoing
limitation.
(9) The Fund may not invest in companies for the purpose of exercising
control or management.
With respect to the non-fundamental investment restriction (8) above, the
board of directors has delegated to the Fund's investment adviser the authority
to determine whether a liquid market exists for securities eligible for resale
pursuant to Rule 144A under the 1933 Act, or any successor to such rule, and
that
<PAGE>
whether or not such securities are subject to the non-fundamental restriction
(8) above. Under guidelines established by the board of directors, the adviser
will consider the following factors, among others, in making this determination:
(1) the unregistered nature of a Rule 144A security, (2) the frequency of trades
and quotes for the security; (3) the number of dealers willing to purchase or
sell the security and the number of other potential purchasers; (4) dealer
undertakings to make a market in the security; and (5) the nature of the
security and the nature of marketplace trades (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics of transfer).
The Fund has given an undertaking to the State of Ohio that the Fund will
not purchase or retain the securities of any issuer if any individual officers
and directors of the Company, the Adviser, or any subsidiary thereof owns
individually more than 0.5% of the securities of that issuer and all such
officers and directors together own more than 5% of the securities of that
issuer.
The Fund has given undertakings to the State of Arkansas that the Fund
will not purchase any security if, by reason thereof, more than 10% of its total
assets will be invested in securities of issuers which the Fund is restricted
from selling to the public without registration under the Securities Act of
1933. Additionally, the Fund may purchase or write put and call options on
securities or straddles, spreads or combinations thereof, only if by reason
thereof the value of the Fund's aggregate investment in such classes of
securities will be 5% or less of its total assets.
The Fund also has given the following undertaking to the State of Texas.
The Fund will not buy or sell real property (including limited partnership
interests therein), but may buy or sell readily marketable interests in real
estate investment trusts or readily marketable securities of companies which
invest in real estate.
The Fund has also given the following undertaking to the State of
Missouri. Should the Fund change its investment restrictions to allow for short
sales of securities in excess of 5% of its total assets full prospectus
disclosure will be provided.
The Fund has also given the following undertaking to the State of
Arkansas. The Fund will not invest in securities of unseasoned issuers,
including their predecessors, which have been in operation for less than 3
years, and equity securities of issuers which are not readily marketable, if by
reason thereof the value of its aggregate investment in such securities would
exceed 5% of its total assets.
The Fund has given an undertaking to the States of Arizona, Kentucky and
Texas that it will comply with the Guidelines for Registration of Master
Fund/Feeder Funds adopted by the membership
<PAGE>
of the North American Securities Administrators Association, Inc. in the
event that, in the future, the Fund is converted into a feeder fund in a master
fund/feeder fund structure.
THE FUND AND ITS MANAGEMENT
The Company. The Company was incorporated on April 2, 1993, under the laws
of Maryland.
The Investment Adviser. INVESCO Funds Group, Inc., a Delaware corporation
("INVESCO"), is employed as the Company's investment adviser. INVESCO was
established in 1932 and also serves as an investment adviser to INVESCO Dynamics
Fund, Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO Growth Fund, Inc.,
INVESCO Income Funds, Inc., INVESCO Industrial Income Fund, Inc., INVESCO
International Funds, Inc., INVESCO Money Market Funds, Inc., INVESCO Multiple
Asset Funds, Inc., INVESCO Specialty Funds, Inc., INVESCO Strategic Portfolios,
Inc., INVESCO Tax-Free Income Funds, Inc., INVESCO Value Trust, and INVESCO
Variable Investment Funds, Inc.
The Sub-Adviser. INVESCO, as investment adviser, has contracted with
INVESCO Management & Research, Inc. ("INVESCO Management") to provide investment
advisory and research services to the Company. INVESCO Management has the
primary responsibility for providing portfolio investment management services to
the Funds.
INVESCO is an indirect wholly-owned subsidiary of INVESCO PLC, a
publicly-traded holding company traded on the New York and London Stock
Exchanges organized in 1935. Through subsidiaries located in London, Denver,
Atlanta, Boston, Louisville, Dallas, Tokyo, Hong Kong, and the Channel Islands,
INVESCO PLC provides investment services around the world. INVESCO was acquired
by INVESCO PLC in 1982 and, as of July 31, 1995 managed 14 mutual funds,
consisting of 38 separate portfolios, on behalf of over 790,000 shareholders.
INVESCO PLC's other North American subsidiaries include the following:
--INVESCO Capital Management, Inc. of Atlanta, Georgia manages
institutional investment portfolios, consisting primarily of discretionary
employee benefit plans for corporations and state and local governments, and
endowment funds. INVESCO Capital Management, Inc. is the sole shareholder of
INVESCO Services, Inc., a registered broker/dealer whose primary business is the
distribution of shares of two registered investment companies.
--INVESCO Management & Research, Inc. (formerly Gardner and Preston Moss,
Inc.) of Boston, Massachusetts primarily manages pension and endowment accounts.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
<PAGE>
--INVESCO Realty Advisors, Inc. of Dallas, Texas is responsible for
providing advisory services in the U.S. real estate markets for INVESCO PLC's
clients worldwide. Clients include corporate plans, public pension funds as well
as endowment and foundation accounts.
The corporate headquarters of INVESCO PLC are located at 11 Devonshire
Square, London, EC2M 4YR, England.
As indicated in the Prospectus, INVESCO and INVESCO Management permit
investment and other personnel to purchase and sell securities for their own
accounts in accordance with a compliance policy governing personal investing by
directors, officers and employees of INVESCO, INVESCO Management and their North
American affiliates. The policy requires officers, inside directors, investment
and other personnel of INVESCO, INVESCO Management and their North American
affiliates to pre-clear all transactions in securities not otherwise exempt
under the policy. Requests for trading authority will be denied when, among
other reasons, the proposed personal transaction would be contrary to the
provisions of the policy or would be deemed to adversely affect any transaction
then known to be under consideration for or to have been effected on behalf of
any client account, including the Fund.
In addition to the pre-clearance requirement described above, the policy
subjects officers, inside directors, investment and other personnel of INVESCO,
INVESCO Management and their North American affiliates to various trading
restrictions and reporting obligations. All reportable transactions are reviewed
for compliance with the policy. The provisions of this poicy are administered by
and subject to exceptions authorized by INVESCO or INVESCO Management.
Investment Advisory Agreement. INVESCO serves as investment adviser
pursuant to an investment advisory agreement (the "Agreement") with the Company
which was approved on April 21, 1993, and October 20, 1993, as revised, by a
vote cast in person by a majority of the directors of the Company, including a
majority of the directors who are not "interested persons" of the Company or
INVESCO at a meeting called for such purpose. The Agreement was approved by
INVESCO Funds Group, Inc. on October 20, 1993, as the then sole shareholder of
the Fund. The Agreement is for an initial term expiring April 30, 1995 and has
been continued by action of the board of directors until April 30, 1996.
Thereafter, the Agreement may be continued from year to year as long as each
such continuance is specifically approved at least annually by the board of
directors of the Company, or by a vote of the holders of a majority, as defined
in the 1940 Act, of the outstanding shares of the Fund. Any such continuance
also must be approved by a majority of the Company's directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
<PAGE>
such continuance. The Agreement may be terminated at any time without penalty
by either party upon sixty (60) days' written notice and terminates
automatically in the event of an assignment to the extent required by the 1940
Act and the rules thereunder.
The Agreement provides that INVESCO shall manage the investment portfolio
of the Fund in conformity with the Fund's investment policies (either directly
or by delegation to a sub-adviser which may be affiliated with INVESCO).
Further, INVESCO shall perform all administrative, internal accounting
(including computation of net asset value), clerical, statistical, secretarial
and all other services necessary or incidental to the administration of the
affairs of the Fund excluding, however, those services which are the subject of
separate agreement between the Company and INVESCO or any affiliate thereof,
including the distribution and sale of Fund shares and provision of transfer
agency, dividend disbursing agency, and registrar services, and services
furnished under an Administrative Services Agreement with INVESCO discussed
below. Services provided under the Agreement include, but are not limited to:
supplying the Company with officers, clerical staff and other employees, if any,
who are necessary in connection with the Fund's operation; furnishing office
space, facilities, equipment, and supplies; providing personnel and facilities
required to respond to inquiries related to shareholder accounts; conducting
periodic compliance reviews of the Fund's operations; preparation and review of
required documents, reports and filings by INVESCO's in-house legal and
accounting staff (including the prospectus, statement of additional information,
proxy statements, shareholder reports, tax returns, reports to the SEC, and
other corporate documents of the Fund), with the assistance of independent
accountants or attorneys to the extent necessary or desirable; supplying basic
telephone service and other utilities; and preparing and maintaining certain of
the books and records required to be prepared and maintained by the Fund under
the 1940 Act. Expenses not assumed by INVESCO are borne by the Fund.
As full compensation for its advisory services provided to the Company,
INVESCO receives a monthly fee. The fee with respect to INVESCO Small Company
Fund is based upon a percentage of the Fund's average net assets determined
daily at an annual rate of 0.75% of the Fund's average net assets. The advisory
fee is calculated daily at the applicable annual rate and paid monthly. While
the fee is higher than those generally charged by investment advisers to mutual
funds, it is not higher than those charged by most other investment advisers to
funds comparable to the Fund, whose assets are primarily invested in securities
of small companies. For the fiscal year ended July 31, 1995 and the period ended
July 31, 1994, the Fund incurred advisory fees in the amount of $135,262 and
$52,145, respectively, prior to the voluntary absorption of certain Fund
expenses by INVESCO and INVESCO Management.
Certain states in which the shares of the Fund are qualified for sale
currently impose limitations on the expenses of the Fund.
<PAGE>
As of the date of this Statement of Additional Information, the most
restrictive state-imposed annual expense limitation requires that INVESCO absorb
the amount necessary to prevent the Fund's aggregate ordinary operating expenses
(excluding interest, taxes, Rule 12b-1 fees, brokerage fees and commissions, and
extraordinary charges such as litigation costs) from exceeding in any fiscal
year 2.5% on the Fund's first $30 million of average net assets, 2.0% on the
next $70 million of average net assets and 1.5% on the remaining average net
assets. No payment of the investment advisory fee will be made to INVESCO which
would result in the Fund's expenses exceeding on an annualized basis this state
limitation. During the fiscal year ended July 31, 1995, INVESCO did not absorb
any amounts under this provision.
Sub-Advisory Agreement. INVESCO Management serves as sub-adviser to the
Fund, pursuant to a sub-advisory agreement (the "Sub-Agreement") with INVESCO
which was approved on October 20, 1993 by a vote cast in person by a majority of
the directors of the Company, including a majority of the directors who are not
"interested persons" of the Company, INVESCO, or INVESCO Management at a meeting
called for such purpose. The Sub-Agreement was approved on October 20, 1993, by
INVESCO as the then sole shareholder of the Fund for an initial term expiring
April 30, 1995. The Sub-Agreement has been continued by action of the board of
directors until April 30, 1996. Thereafter, the Sub-Agreement may be continued
from year to year as long as each such continuance is specifically approved by
the board of directors of the Company, or by a vote of the holders of a
majority, as defined in the 1940 Act, of the outstanding shares of the Fund.
Each such continuance also must be approved by a majority of the directors who
are not parties to the Sub-Agreement or interested persons (as defined in the
1940 Act) of any such party, cast in person at a meeting called for the purpose
of voting on such continuance. The Sub-Agreement may be terminated at any time
without penalty by either party or the Company upon sixty (60) days' written
notice, and terminates automatically in the event of an assignment to the extent
required by the 1940 Act and the rules thereunder.
The Sub-Agreement provides that INVESCO Management, subject to the
supervision of INVESCO, shall manage the investment portfolio of the Fund in
conformity with the Fund's investment policies. These management services
include: (a) managing the investment and reinvestment of all the assets, now or
hereafter acquired, of the Fund, and executing all purchases and sales of
portfolio securities; (b) maintaining a continuous investment program for the
Fund, consistent with (i) the Fund's investment policies as set forth in the
Company's Articles of Incorporation, Bylaws, and Registration Statement, as from
time to time amended, under the 1940 Act and in any prospectus and/or statement
of additional information of the Company, as from time to time amended and in
use under the Securities Act of 1933 (the "1933 Act"), as amended, and (ii) the
Company's status as a regulated investment company under the Internal Revenue
Code of 1986, as amended; (c) determining what securities are to be purchased or
<PAGE>
sold for the Fund, unless otherwise directed by the directors of the
Company or INVESCO, and executing transactions accordingly; (d) providing the
Fund the benefit of all of the investment analysis and research, the reviews of
current economic conditions and trends, and the consideration of long-range
investment policy now or hereafter generally available to investment advisory
customers of the Sub-Adviser; (e) determining what portion of the Fund should be
invested in the various types of securities authorized for purchase by the Fund;
and (f) making recommendations as to the manner in which voting rights, rights
to consent to Company action and any other rights pertaining to the portfolio
securities of the Fund shall be exercised.
The Sub-Agreement provides that as compensation for its services, INVESCO
Management shall receive from INVESCO, at the end of each month, a fee based on
the average daily value of the Fund's net assets at the annual rates of 0.375%
of the Fund's average net assets. The Sub-Advisory fee is paid by INVESCO, NOT
the Fund.
Administrative Services Agreement. INVESCO, either directly or through
affiliated companies, provides certain administrative, sub-accounting, and
recordkeeping services to the Fund pursuant to an Administrative Services
Agreement dated April 30, 1993 (the "Administrative Agreement"). The
Administrative Agreement was approved on April 21, 1993, by a vote cast in
person by all of the directors of the Company, including all of the directors
who are not "interested persons" of the Company or INVESCO at a meeting called
for such purpose. The Administrative Agreement was for an initial term of one
year expiring April 30, 1994, and has been continued by action of the board of
directors through April 30, 1996. The Administrative Agreement may be continued
from year to year as long as each such continuance is specifically approved by
the board of directors of the Company, including a majority of the directors who
are not parties to the Administrative Agreement or interested persons (as
defined in the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such continuance. The Administrative Agreement may
be terminated at any time without penalty by INVESCO on sixty (60) days' written
notice, or by the Company upon thirty (30) days' written notice, and terminates
automatically in the event of an assignment unless the Company's board of
directors approves such assignment.
The Administrative Agreement provides that INVESCO shall provide the
following services to the Fund: (A) such sub- accounting and recordkeeping
services and functions as are reasonably necessary for the operation of the
Fund; and (B) such sub-accounting, recordkeeping, and administrative services
and functions, which may be provided by affiliates of INVESCO, as are reasonably
necessary for the operation of Fund shareholder accounts maintained by certain
retirement plans and employee benefit plans for the benefit of participants in
such plans. As full compensation for services provided under the Administrative
Agreement, the Fund pays a monthly fee to INVESCO consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
<PAGE>
monthly at an annual rate of 0.015% per year of the average net assets of
the Fund.
During the fiscal year ended July 31, 1995 and the period ended July 31,
1994, the Fund incurred $12,705 and $7,709, respectively, in administrative fees
prior to the voluntary absorption of certain Fund expenses by INVESCO and
INVESCO Management.
Transfer Agency Agreement. INVESCO also performs transfer agent, dividend
disbursing agent, and registrar services for the Fund pursuant to a Transfer
Agency Agreement approved by the board of directors of the Company, including a
majority of the Company's directors who are not parties to the Transfer Agency
Agreement or "interested persons" of any such party, on April 21, 1993, for an
initial term expiring April 30, 1994. The Transfer Agency Agreement has been
continued by action of the board of directors until April 30, 1996, and
thereafter may be continued from year to year as long as such continuance is
specifically approved at least annually by the board of directors of the
Company, or by a vote of the holders of a majority of the outstanding shares of
the Fund. Any such continuance must also be approved by a majority of the
Company's directors who are not parties to the Transfer Agency Agreement or
interested persons (as defined by the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such continuance. The
Transfer Agency Agreement may be terminated at any time without penalty by
either party upon sixty (60) days' written notice and terminates automatically
in the event of an assignment.
The Transfer Agency Agreement provides that the Fund shall pay to INVESCO
an annual fee of $14.00 per shareholder account or omnibus account participant.
This fee is paid monthly at 1/12 of the annual fee and is based upon the number
of shareholder accounts and omnibus account participants in existence at any
time during each month.
During the fiscal year ended July 31, 1995 and the period ended July 31,
1994, the Fund incurred transfer agency fees in the amount of $14,764 and
$2,956, respectively, prior to the voluntary absorption of certain Fund expenses
by INVESCO and INVESCO Management.
Officers and Directors of the Company. The overall direction and
supervision of the Company is the responsibility of the board of directors,
which has the primary duty of seeing that the general investment policies and
programs of the Fund are carried out and that the Fund is properly administered.
The officers of the Company, all of whom are officers and employees of, and are
paid by, INVESCO, are responsible for the day-to-day administration of the
Company and the Fund. The investment adviser for the Fund has the primary
responsibility for making investment decisions on behalf of the Fund. These
investment decisions are reviewed by the investment committee of INVESCO.
<PAGE>
All of the officers and directors of the Company hold comparable positions
with INVESCO Dynamics Fund, Inc., INVESCO Emerging Opportunity Funds, Inc.,
INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO Industrial Income
Fund, Inc., INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc.,
INVESCO Multiple Asset Funds, Inc., INVESCO Specialty Funds, Inc., INVESCO
Strategic Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc., and INVESCO
Variable Investment Funds, Inc. All of the directors of the Company are also
trustees of INVESCO Value Trust. In addition, all of the directors of the
Company, with the exception of Messrs. Hesser and Sim, also are trustees of
INVESCO Treasurer's Series Trust and directors of The EBI Funds, Inc. All of the
officers of the Company also hold comparable positions with INVESCO Value Trust.
Set forth below is information with respect to each of the Company's officers
and directors. Unless otherwise indicated, the address of the directors and
officers is Post Office Box 173706, Denver, Colorado 80217-3706. Their
affiliations represent their principal occupations during the past five years.
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive Officer and
Director of INVESCO PLC, London, England, and of various subsidiaries thereof;
Chairman of the Board of The EBI Funds, Inc., INVESCO Treasurer's Series Trust,
and The Global Heath Sciences Fund. Address: 1315 Peachtree Street, NE, Atlanta,
Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. Vice Chairman of The EBI
Funds, Inc. and INVESCO Treasurer's Series Trust. Trustee of The Global Health
Sciences Fund. Formerly, Chairman of the Executive Committee and Chairman of the
Board of Security Life of Denver Insurance Company, Denver, Colorado; Director
of NN Financial, Toronto, Ontario, Canada; Director and Chairman of the
Executive Committee of ING America Life Insurance Co. of Georgia and Southland
Life Insurance Company. Address: Security Life Center, 1290 Broadway, Denver,
Colorado. Born: January 12, 1928.
DAN J. HESSER,+* President and Director. Chairman of the Board, President
and Chief Executive Officer of INVESCO Funds Group, Inc. and Director of INVESCO
Trust Company. Trustee of The Global Health Sciences Fund. Born: December 27,
1939.
VICTOR L. ANDREWS,** Director. Mills Bee Lane Professor of Banking and
Finance and Chairman of the Department of Finance at Georgia State University,
Atlanta, Georgia, since 1968; since October 1984, Director of the Center for the
Study of Regulated Industry at Georgia State University; formerly, member of the
faculties of the Harvard Business School and the Sloan School of Management of
MIT. Dr. Andrews is also a Director of The Southeastern Thrift and Bank Fund,
Inc. and The Sheffield Funds, Inc. Address: Department of Finance, Georgia State
University, University Plaza, Atlanta, Georgia. Born: June 23, 1930.
<PAGE>
BOB R. BAKER,+** Director. President and Chief Executive Officer of AMC
Cancer Research Center, Denver, Colorado, since January 1989; until mid-December
1988, Vice Chairman of the Board of First Columbia Financial Corporation (a
financial institution), Englewood, Colorado. Formerly, Chairman of the Board and
Chief Executive Officer of First Columbia Financial Corporation. Address: 1775
Sherman Street, #1000, Denver, Colorado. Born: August 7, 1936.
FRANK M. BISHOP*, Director. President and Chief Operating Officer of
INVESCO Inc. since February, 1993; Director of INVESCO Funds Group, Inc. since
March 1993; Director (since February 1993), Vice President (since December
1991), and Portfolio Manager (since February 1987), of INVESCO Capital
Management, Inc. (and predecessor firms), Atlanta, Georgia. Address: 1315
Peachtree Street, N.E., Atlanta, Georgia. Born: December 7, 1943.
LAWRENCE H. BUDNER,# Director. Trust Consultant; prior to June 30, 1987,
Senior Vice President and Senior Trust Officer of InterFirst Bank, Dallas,
Texas. Address: 7608 Glen Albens, Dallas, Texas. Born: July 25, 1930.
DANIEL D. CHABRIS,+# Director. Financial Consultant; Assistant Treasurer of
Colt Industries Inc., New York, New York, from 1966 to 1988. Address: 15
Sterling Road, Armonk, New York. Born: August 1, 1923.
A. D. FRAZIER, JR., ** Director. Chief Operating Officer of the Atlanta
Committee for the Olympic Games. From 1982 to 1991, Mr. Frazier was employed in
various capacities by First Chicago Bank, most recently as Executive Vice
President of the North American Banking Group. Director of Charter Medical
Corporation, Atlanta, Georgia. Trustee of The Global Health Sciences Fund.
Address: 250 Williams Street, Suite 6000, Atlanta, Georgia 30301. Born: June 29,
1944.
KENNETH T. KING,** Director. Formerly, Chairman of the Board of The Capitol
Life Insurance Company, Providence Washington Insurance Company, and Director of
numerous subsidiaries thereof in the U.S. Formerly, Chairman of the Board of The
Providence Capitol Companies in the United Kingdom and Guernsey. Chairman of the
Board of the Symbion Corporation (a high technology company) until 1987.
Address: 4080 North Circulo Manzanillo, Tucson, Arizona. Born: November 16,
1925.
JOHN W. MCINTYRE,# Director. Retired. Formerly, Vice Chairman of the Board
of Directors of the Citizens and Southern Corporation and Chairman of the Board
and Chief Executive Officer of the Citizens and Southern Georgia Corporation and
Citizens and Southern National Bank. Director of Golden Poultry Co., Inc.
Trustee of The Global Health Sciences Fund and Gables Residential Trust.
Address: Seven Piedmont Center, Suite 100, Atlanta, Georgia 30305. Born:
September 14, 1930.
<PAGE>
R. DALTON SIM*, Director. Chairman of the Board (since March 1993) and
President (since January 1991) of INVESCO Trust Company; Director since June
1987 and, formerly, Executive Vice President and Chief Investment Officer (June
1987 to January 1991) of INVESCO Funds Group, Inc.; President (since 1994) and
Trustee (since 1991) of The Global Health Sciences Fund. Born: July 18, 1939.
GLEN A. PAYNE, Secretary. Senior Vice President, General Counsel and
Secretary of INVESCO Funds Group, Inc. and INVESCO Trust Company. Formerly,
employee of a U.S. regulatory agency, Washington, D.C., (June 1973 through May
1989). Born: September 25, 1947.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
Funds Group, Inc. and INVESCO Trust Company since January 1988. Born: October 1,
1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO Funds Group, Inc. and Trust Officer of INVESCO Trust Company; Vice
President of 440 Financial Group from June 1990 to August 1992; Assistant Vice
President of Putnam Companies from November 1986 to June 1990. Born: August 21,
1956.
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO Funds Group,
Inc. and Trust Officer of INVESCO Trust Company. Born: September 14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO Funds Group,
Inc. and Trust Officer of INVESCO Trust Company. Born: February 3, 1948.
#Member of the audit committee of the Company.
+Member of the executive committee of the Company. On occasion, the
executive committee acts upon the current and ordinary business of the Company
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
*These directors are "interested persons" of the Company as defined in the
Investment Company Act of 1940.
**Member of the management liaison committee of the Company.
As of October 31, 1995, officers and directors of the Company, as a group,
beneficially owned less than 1% of the Company's outstanding shares and less
than 1% of the Fund's outstanding shares.
<PAGE>
Director Compensation
The following table sets forth, for the fiscal year ended July 31, 1995:
the compensation paid by the Fund to its eight independent directors for
services rendered in their capacities as directors of the Company; the benefits
accrued as Fund expenses with respect to the Defined Benefit Deferred
Compensation Plan discussed below; and the estimated annual benefits to be
received by these directors upon retirement as a result of their service to the
Fund. In addition, the table sets forth the total compensation paid by all of
the mutual funds distributed by INVESCO Funds Group, Inc. (including the Fund),
The EBI Funds, Inc., INVESCO Treasurer's Series Trust and The Global Health
Sciences Fund (collectively, the "INVESCO Complex") to these directors for
services rendered in their capacities as directors or trustees during the year
ended December 31, 1994. As of December 31, 1994, there were 45 funds in the
INVESCO Complex.
<PAGE>
Total
Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
tion From Company Upon Paid To
Company1 Expenses2 Retirement3 Directors1
Fred A.Deering, $1,058 $ 53 $ 27 $89,350
Vice Chairman of
the Board
Victor L. Andrews 1,042 50 31 68,000
Bob R. Baker 1,052 45 41 75,350
Lawrence H. Budner 1,042 50 31 68,000
Daniel D. Chabris 1,050 57 22 73,350
A. D. Frazier, Jr.4 259 0 0 32,500
Kenneth T. King 1,047 55 24 71,000
John W. McIntyre4 259 0 0 33,000
Total $6,809 $310 $176 $510,550
% of Net Assets 0.0170%5 0.0008%5 0.0052%6
1The vice chairman of the board, the chairmen of the audit, management
liaison and compensation committees, and the members of the executive and
valuation committees each receive compensation for serving in such capacities in
addition to the compensation paid to all independent directors.
2Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the election
of the directors.
3These figures represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding the Global Health Sciences
Fund which does not participate in any retirement plan) upon the directors'
retirement, calculated using the current method of allocating director
compensation among the funds in the INVESCO Complex. These estimated benefits
assume retirement at age 72 and that the basic retainer payable to the directors
will be adjusted periodically for inflation, for increases in the number of
funds in the INVESCO Complex, and for other reasons during the period in which
retirement benefits are accrued on behalf of the respective directors. This
results in lower estimated benefits for directors who are closer to retirement
and higher estimated benefits for directors who are further from retirement.
<PAGE>
With the exception of Messrs. Frazier and McIntyre, each of these directors
has served as a director/trustee of one or more of the funds in the INVESCO
Complex for the minimum five-year period required to be eligible to participate
in the Defined Benefit Deferred Compensation Plan.
4Messrs. Frazier and McIntyre began serving as directors of the Company on
April 19, 1995.
5Total as a percentage of the Fund's net assets as of July 31, 1995.
6Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1994.
Messrs. Bishop, Brady, Hesser, and Sim, as "interested persons" of the
Company and other funds in the INVESCO Complex, receive compensation as officers
or employees of INVESCO or its affiliated companies, and do not receive any
director's fees or other compensation from the Company or other funds in the
INVESCO Complex for their services as directors.
The boards of directors/trustees of the mutual funds managed by INVESCO,
The EBI Funds, Inc. and INVESCO Treasurer's Series Trust have adopted a Defined
Benefit Deferred Compensation Plan for the non-interested directors and trustees
of the funds. Under this plan, each director or trustee who is not an interested
person of the funds (as defined in the 1940 Act) and who has served for at least
five years (a "qualified director") is entitled to receive, upon retiring from
the boards at the retirement age of 72 (or the retirement age of 73 to 74, if
the retirement date is extended by the boards for one or two years, but less
than three years) continuation of payment for one year (the "first year
retirement benefit") of the annual basic retainer payable by the funds to the
qualified director at the time of his retirement (the "basic retainer").
Commencing with any such director's second year of retirement, and commencing
with the first year of retirement of a director whose retirement has been
extended by the board for three years, a qualified director shall receive
quarterly payments at an annual rate equal to 25% of the basic retainer. These
payments will continue for the remainder of the qualified director's life or ten
years, whichever is longer (the "reduced retainer payments"). If a qualified
director dies or becomes disabled after age 72 and before age 74 while still a
director of the funds, the first year retirement benefit and the reduced
retainer payments will be made to him or to his beneficiary or estate. If a
qualified director becomes disabled or dies either prior to age 72 or during
his/her 74th year while still a director of the funds, the director will not be
entitled to receive the first year retirement benefit; however, the reduced
retainer payments will be made to his beneficiary or estate. The plan is
administered by a committee of three directors who are also participants in the
plan and one director who is not a plan participant. The cost of the plan will
be allocated among the INVESCO, EBI and Treasurer's Series funds in a manner
<PAGE>
determined to be fair and equitable by the committee. The Company is not
making any payments to directors under the plan as of the date of this Statement
of Additional Information. The Company has no stock options or other pension or
retirement plans for management or other personnel and pays no salary or
compensation to any of its officers.
The Company has an audit committee comprised of four of the directors who
are not interested persons of the Company. The committee meets periodically with
the Company's independent accountants and officers to review accounting
principles used by the Company, the adequacy of internal controls, the
responsibilities and fees of the independent accountants, and other matters.
The Company also has a management liaison committee which meets quarterly
with various management personnel of INVESCO in order (a) to facilitate better
understanding of management and operations of the Company, and (b) to review
legal and operational matters which have been assigned to the committee by the
board of directors, in furtherance of the board of directors' overall duty of
supervision.
HOW SHARES CAN BE PURCHASED
The Fund's shares are sold on a continuous basis at the respective net
asset value per share of the Fund next calculated after receipt of a purchase
order in good form. The net asset value per share of the Fund is computed once
each day that the New York Stock Exchange is open as of the close of regular
trading on that Exchange, but may also be computed at other times. See "How
Shares Are Valued." INVESCO acts as the Fund's distributor under a distribution
agreement with the Company under which it receives no compensation and bears all
expenses, including the costs of printing and distribution of prospectuses
incident to direct sales and distribution of Fund shares on a no-load basis.
HOW SHARES ARE VALUED
As described in the section of the Fund's Prospectus entitled "How Shares
Can Be Purchased," the net asset value of shares of the Fund of the Company is
computed once each day that the New York Stock Exchange is open as of the close
of regular trading on that Exchange (usually 4:00 p.m., New York time) and
applies to purchase and redemption orders received prior to that time. Net asset
value per share is also computed on any other day on which there is a sufficient
degree of trading in the securities held by the Fund that the current net asset
value per share of the Fund might be materially affected by changes in the value
of the securities held, but only if on such day the Fund receives a request to
purchase or redeem shares. Net asset value per share is not calculated on days
the New York Stock Exchange is closed, such as federal holidays including New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving, and Christmas.
<PAGE>
The net asset value per share of the Fund is calculated by dividing the
value of all securities held by the Fund and its other assets (including
dividends and interest accrued but not collected), less the Fund's liabilities
(including accrued expenses), by the number of outstanding shares of the Fund.
Securities traded on national securities exchanges, the NASDAQ National Market
System, the NASDAQ Small Cap Market and foreign markets are valued at their last
sale prices on the exchanges or markets where such securities are primarily
traded. Securities traded in the over-the-counter market for which last sale
prices are not available, and listed securities for which no sales were reported
on a particular date, are valued at their highest closing bid prices (or, for
debt securities, yield equivalents thereof) obtained from one or more dealers
making markets for such securities. If market quotations are not readily
available, securities will be valued at their fair values as determined in good
faith by the Company's board of directors or pursuant to procedures adopted by
the board of directors. The above procedures may include the use of valuations
furnished by a pricing service which employs a matrix to determine valuations
for normal institutional-size trading units of debt securities. Prior to
utilizing a pricing service, the Company's board of directors reviews the
methods used by such service to assure itself that securities will be valued at
their fair values. The Company's board of directors also periodically monitors
the methods used by such pricing services. Debt securities with remaining
maturities of 60 days or less at the time of purchase are normally valued at
amortized cost.
The values of securities held by the Funds and other assets used in
computing net asset value generally are determined as of the time regular
trading in such securities or assets is completed each day. Since regular
trading in most foreign securities markets is completed simultaneously with, or
prior to, the close of regular trading on the New York Stock Exchange, closing
prices for foreign securities usually are available for purposes of computing
the Fund's net asset value. However, in the event that the closing price of a
foreign security is not available in time to calculate a Fund's net asset value
on a particular day, the Company's board of directors has authorized the use of
the market price for the security obtained from an approved pricing service at
an established time during the day which may be prior to the close of regular
trading in the security. The value of all assets and liabilities initially
expressed in foreign currencies will be converted into U.S. dollars at the spot
rate of such currencies against U.S. dollars provided by an approved pricing
service.
FUND PERFORMANCE
As described in the Fund's Prospectus, the Company advertises the total
return performance of the Fund. The average annual total return performance for
the fiscal year ended July 31, 1995 was 21.64% and for the period December 1,
<PAGE>
1993 (inception) through July 31, 1994 was (3.30%). Average annual return
performance is computed by finding the average annual compounded rates of return
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1 + T)n = ERV
where: P = initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
In conjunction with performance reports, comparative data between the
Fund's performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
From time to time, evaluations of performance made by independent sources
may also be used in advertisements, sales literature or shareholder reports,
including reprints of, or selections from, editorials or articles about the
Fund. Sources for Fund performance information and articles about the Fund
include, but are not limited to, the following:
American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
CNBC
CNN
Consumer Digest
Financial Times
Financial World
Forbes
Fortune
Ibbotson Associates, Inc.
Institutional Investor
Investment Company Data, Inc.
Investor's Business Daily
Kiplinger's Personal Finance
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis
Money
Morningstar
Mutual Fund Forecaster
No-Load Analyst
No-Load Fund X
Personal Investor
Smart Money
The New York Times
The No-Load Fund Investor
U.S. News and World Report
<PAGE>
United Mutual Fund Selector
USA Today
Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
SERVICES PROVIDED BY THE FUND
Periodic Withdrawal Plan. As described in the section of the Fund's
Prospectus entitled "Services Provided by the Fund," the Fund offers a Periodic
Withdrawal Plan. All dividends and distributions on shares owned by shareholders
participating in this Plan are reinvested in additional shares. Since withdrawal
payments represent the proceeds from sales of shares, the amount of
shareholders' investments in the Fund will be reduced to the extent that
withdrawal payments exceed dividends and other distributions paid and
reinvested. Any gain or loss on such redemptions must be reported for tax
purposes. In each case, shares will be redeemed at the close of business on or
about the 20th day of each month preceding payment and payments will be mailed
within five business days thereafter.
The Periodic Withdrawal Plan involves the use of principal and is not a
guaranteed annuity. Payments under such Plan do not represent income or a return
on investment.
A Periodic Withdrawal Plan may be terminated at any time by sending a
written request to INVESCO. Upon termination, all future dividends and capital
gain distributions will be reinvested in additional shares unless a shareholder
requests otherwise.
Exchange Privilege. As discussed in the section of the Fund's Prospectus
entitled "Services Provided by the Fund," the Fund offers shareholders the
privilege of exchanging shares of the Fund for shares of another fund or for
shares of certain other mutual funds advised by INVESCO. Exchange requests may
be made either by telephone or by written request to INVESCO Funds Group, Inc.
using the telephone number or address on the cover of this Statement of
Additional Information. Exchanges made by telephone must be in an amount of at
least $250, if the exchange is being made into an existing account of one of the
INVESCO funds. All exchanges that establish a new account must meet the fund's
applicable minimum initial investment requirements. Written exchange requests
into an existing account have no minimum requirements other than the fund's
applicable minimum subsequent investment requirements. Any gain or loss realized
on such an exchange is recognized for federal income tax purposes. This
privilege is not an option or right to purchase securities, but is a revocable
privilege permitted under the present policies of each of the funds and is not
available in any state or other jurisdiction where the shares of the mutual fund
into which transfer is to be made are not qualified for sale, or when the net
<PAGE>
asset value of the shares presented for exchange is less than the minimum
dollar purchase required by the appropriate prospectus.
TAX-DEFERRED RETIREMENT PLANS
As described in the section of the Prospectus entitled "Services Provided
by the Fund," shares of the Fund may be purchased as the investment medium for
various tax-deferred retirement plans. Persons who request information regarding
these plans from INVESCO will be provided with prototype documents and other
supporting information regarding the type of plan requested. Each of these plans
involves a long-term commitment of assets and is subject to possible regulatory
penalties for excess contributions, premature distributions or for insufficient
distributions after age 70-1/2. The legal and tax implications may vary
according to the circumstances of the individual investor. Therefore, the
investor is urged to consult with an attorney or tax adviser prior to the
establishment of such a plan.
HOW TO REDEEM SHARES
Normally, payments for shares redeemed will be mailed within seven days
following receipt of the required documents as described in the section of the
Fund's Prospectus entitled "How to Redeem Shares." The right of redemption may
be suspended and payment postponed when: (a) the New York Stock Exchange is
closed for other than customary weekends and holidays; (b) trading on that
exchange is restricted; (c) an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable, or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets; or (d) the Securities and Exchange Commission by order so permits.
It is possible that in the future conditions may exist which would, in the
opinion of the Company's investment adviser, make it undesirable for the Fund to
pay for redeemed shares in cash. In such cases, the investment adviser may
authorize payment to be made in portfolio securities or other property of the
Fund. However, the Company has obligated itself under the Investment Company Act
of 1940 to redeem for cash all shares of the Fund presented for redemption by
any one shareholder having a value up to $250,000 (or 1% of the Fund's net
assets if that is less) in any 90-day period. Securities delivered in payment of
redemptions are selected entirely by the investment adviser based on what is in
the best interests of the Fund and its shareholders, and are valued at the value
assigned to them in computing the Fund's net asset value per share. Shareholders
receiving such securities are likely to incur brokerage costs on their
subsequent sales of the securities.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
The Fund intends to continue to conduct its business and satisfy the
applicable diversification of assets and source of income requirements to
qualify as a regulated investment company
<PAGE>
under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund
so qualified for the fiscal year ended July 31, 1995 and intends to continue to
qualify during its current fiscal year. As a result, it is anticipated that the
Fund will pay no federal income or excise taxes and will be accorded conduit or
"pass through" treatment for federal income tax purposes.
Dividends paid by the Fund from net investment income, as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
the Fund sends shareholders information regarding the amount and character of
dividends paid in the year, information on foreign source income and foreign
taxes, and the dividends eligible for the dividends-received deduction for
corporations. Such amounts will be limited to the aggregate amount of qualifying
dividends which the Fund derives from its portfolio investments.
Distributions by the Fund of net capital gain (the excess of net long-term
capital gain over net short-term capital loss) are, for federal income tax
purposes, taxable to the shareholder as long-term capital gains regardless of
how long a shareholder has held shares of the Fund. Such distributions are
identified as such and are not eligible for the dividends-received deduction.
All dividends and other distributions are regarded as taxable to the
investor, whether or not such dividends and distributions are reinvested in
additional shares. If the net asset value of shares of the Fund should be
reduced below a shareholder's cost as a result of a distribution, such
distribution would be taxable to the shareholder although a portion would be, in
effect, a return of invested capital. The net asset value of shares of the Fund
reflects accrued net investment income and undistributed realized capital and
foreign currency gains; therefore, when a distribution is made, the net asset
value is reduced by the amount of the distribution. If shares are purchased
shortly before a distribution, the full price for the shares will be paid and
some portion of the price may then be returned to the shareholder as a taxable
dividend or capital gain. However, the net asset value per share will be reduced
by the amount of the distribution, which would reduce any gain (or increase any
loss) for tax purposes on any subsequent redemption of shares.
INVESCO may provide Fund shareholders with information concerning the
average cost basis of their shares in order to help them prepare their tax
returns. This information is intended as a convenience to shareholders, and will
not be reported to the Internal Revenue Service (the "IRS"). The IRS permits the
use of several methods to determine the cost basis of mutual fund shares. The
cost basis information provided by INVESCO will be computed using the
single-category average cost method, although neither INVESCO nor the Fund
recommends any particular method of determining cost basis. Other methods may
result in different tax
<PAGE>
consequences. If a shareholder has reported gains or losses for the Fund in
past years, the shareholder must continue to use the method previously used,
unless the shareholder applies to the IRS for permission to change methods.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
The Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
Dividends and interest received by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
The Fund may invest in the stock of "passive foreign investment companies"
(PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain on disposition of the stock (collectively "PFIC
income"), plus interest thereon, even if the Fund distributes the PFIC income as
a taxable dividend to its shareholders. The balance of the PFIC income will be
included in the Fund's investment company taxable income and, accordingly, will
not be taxable to it to the extent that income is distributed to its
shareholders.
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders.
<PAGE>
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and capital gain
distributions will generally be subject to applicable state and local taxes.
Qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended for income tax purposes does not entail government
supervision of management or investment policies.
INVESTMENT PRACTICES
Portfolio Turnover. There are no fixed limitations regarding the portfolio
turnover for the Fund. The rate of portfolio turnover can fluctuate under
constantly changing economic conditions and market circumstances. Securities
initially satisfying the basic policies and objectives of the Fund may be
disposed of when they are no longer suitable. Brokerage costs to the Fund are
commensurate with the rate of portfolio activity. The portfolio turnover rates
for the fiscal year ended July 31, 1995 and the period ended July 31, 1994, were
73% and 55%, respectively. In computing the portfolio turnover rate, all
investments with maturities or expiration dates at the time of acquisition of
one year or less are excluded. Subject to this exclusion, the turnover rate is
calculated by dividing (A) the lesser of purchases or sales of portfolio
securities for the fiscal year by (B) the monthly average of the value of
portfolio securities owned by the Fund during the fiscal year.
Placement of Portfolio Brokerage. INVESCO, as the Company's investment
adviser, and INVESCO Management, as the Company's sub-adviser, place orders for
the purchase and sale of securities with brokers and dealers based upon
INVESCO's or INVESCO Management's evaluation of their financial responsibility
subject to their ability to effect transactions at the best available prices.
INVESCO or INVESCO Management evaluates the overall reasonableness of brokerage
commissions or underwriting discounts (the difference between the full
acquisition price to acquire the new offering and the discount offered to
members of the underwriting syndicate) paid by reviewing the quality of
executions obtained on portfolio transactions of the Fund, viewed in terms of
the size of transactions, prevailing market conditions in the security purchased
or sold, and general economic and market conditions. In seeking to ensure that
the commissions or discounts charged the Fund are consistent with prevailing and
reasonable commissions or discounts, INVESCO or INVESCO Management also
endeavors to monitor brokerage industry practices with regard to the commissions
or discounts charged by brokers and dealers on transactions effected for other
comparable institutional investors. While INVESCO or INVESCO Management seeks
reasonably competitive rates, the Fund does not necessarily pay the lowest
commission, discount, or spread available.
<PAGE>
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, INVESCO or INVESCO Management may select brokers that
provide research services to effect such transactions. Research services consist
of statistical and analytical reports relating to issuers, industries,
securities and economic factors and trends, which may be of assistance or value
to INVESCO or INVESCO Management in making informed investment decisions.
Research services prepared and furnished by brokers through which the Fund
effects securities transactions may be used by INVESCO or INVESCO Management in
servicing all of their respective accounts and not all such services may be used
by INVESCO or INVESCO Management in connection with the Fund.
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, INVESCO or INVESCO Management, consistent
with the standard of seeking to obtain competitive execution on portfolio
transactions, may place orders with such brokers for the execution of
transactions for the Fund on which the commissions or discounts are in excess of
those which other brokers might have charged for effecting the same
transactions.
Fund transactions may be effected through qualified broker/dealers who
recommend the Fund to their clients, or who act as agent in the purchase of the
Fund's shares for their clients. When a number of brokers and dealers can
provide comparable price and execution on a particular transaction, the
Company's adviser may consider the sale of Fund shares by a broker or dealer in
selecting among qualified broker/dealers.
The aggregate dollar amount of brokerage commissions paid by the Fund for
the fiscal year ended July 31, 1995 and the period ended July 31, 1994 were
$111,650 and $39,290, respectively. The higher level of brokerage commissions
paid by the Fund for the year ended July 31, 1995, was principally due to the
increased size of the Fund and the fact that the fiscal 1995 figure represents a
full year of operations. During the fiscal year ended July 31, 1995, brokers
providing research received $10,677 in commissions on portfolio transactions
effected for the Fund. The aggregate dollar amount of such portfolio
transactions was $3,681,278. Commissions of $0 were allocated to certain brokers
in recognition of their sales of shares of the Fund during the fiscal year ended
July 31, 1995.
At July 31, 1995, the Fund held securities of its regular brokers or
dealers, or their parents, as follows:
Value of Securities
Broker or Dealer at 7/31/95
- ---------------- -------------------
State Street Bank & Trust Company $5,810,000
Neither INVESCO nor INVESCO Management receives any brokerage commissions
on portfolio transactions effected on behalf of the Fund, and there is no
affiliation between INVESCO or INVESCO Management, or any person affiliated with
INVESCO, INVESCO Management, or the Fund and any broker or dealer that executes
transactions for the Fund.
<PAGE>
ADDITIONAL INFORMATION
Common Stock. The Company was incorporated with 100 million authorized
shares of common stock with a par value of $0.01 per share. As of July 31, 1995,
3,403,624 shares of the INVESCO Small Company Fund were outstanding. All shares
currently outstanding and being offered are of one class with equal rights as to
voting, dividends and liquidation. All shares offered hereby, when issued, will
be fully paid and nonassessable. Shares have no preemptive rights and are fully
tradeable on the books of the Fund. The board of directors has the authority to
designate additional classes of common stock without seeking the approval of
shareholders and may classify and reclassify any authorized but unissued shares.
All shares have equal voting rights. Company shares have noncumulative
voting rights, which means that the holders of a majority of the shares voting
for the election of directors of the Company can elect 100% of the directors if
they choose to do so. In such event, the holders of the remaining shares voting
for the election of directors will not be able to elect any person or persons to
the board of directors. After they have been elected by shareholders, the
directors will continue to serve until their successors are elected and have
qualified or they are removed from office, in either case by a shareholder vote,
or until death, resignation, or retirement. Directors may appoint their own
successors, provided that at least two-thirds of the directors have been elected
by the Company's shareholders. It is the intention of the Company not to hold
annual meetings of shareholders. The directors will call annual or special
meetings of shareholders for action by shareholder vote as may be required by
the 1940 Act or the Company's Articles of Incorporation, or at their discretion.
Principal Shareholders. As of October 30, 1995, the following persons held
more than 5% of the Fund's outstanding equity securities.
Name and Address
of Beneficial Owner Number of Shares Percent of Class
- ------------------- ---------------- ----------------
INVESCO Small Company
Fund
H. Al Ward TR 692,184.827 20.206
Salvation Army
Board Designated
1424 Northeast Expressway
Atlanta, GA 30329
<PAGE>
H. Al Ward TR 550,951.695 16.083
Salvation Army
Board Total
1424 Northeast Expressway
Atlanta, GA 30329
Mac & Co. 227,260.134 8.094
Acct. #860-611
Mellon Bank NA
Mutual Funds Dept.
P.O. Box 320
Pittsburgh, PA 15230
Eastern Michigan University 220,111.232 6.426
Foundation
Vicky Engelbert
Society Bank of Michigan
P.O. Box 94871
Cleveland, OH 44101
Charles Schwab & Co. Inc. 198,370.355 5.791
Reinvest Account
Attn: Mutual Fund Dept.
101 Montgomery St.
San Francisco, CA 94104
Kenneth Dike TR 180,183.068 5.260
Colorado School of Mines
Foundation Inc.
923 16th Street
P.O. Box 4005
Golden, CO 80401
Independent Accountants. Price Waterhouse LLP, 950 Seventeenth Street,
Denver, Colorado, has been selected as the independent accountants of the
Company. The independent accountants are responsible for auditing the financial
statements of the Company.
Custodian. State Street Bank and Trust Company, P.O. Box 351, Boston,
Massachusetts, has been designated as custodian of the cash and investment
securities of the Fund. The bank is also responsible for, among other things,
receipt and delivery of the investment securities of the Company's Fund in
accordance with procedures and conditions specified in the custody agreement.
Under its contract with the Fund, the custodian is authorized to establish
separate accounts in foreign currencies and to cause foreign securities owned by
the Fund to be held outside the United States in branches of U.S. banks and, to
the extent permitted by applicable regulations, in certain foreign banks and
securities depositories.
<PAGE>
Transfer Agent. The Company is provided with transfer agent, registrar, and
dividend disbursing agent services by INVESCO Funds Group, Inc., 7800 E. Union
Ave., Denver, CO 80237, pursuant to the Transfer Agency Agreement described
herein. Such services include the issuance, cancellation and transfer of shares
of the Fund, and the maintenance of records regarding the ownership of such
shares.
Reports to Shareholders. The Company's fiscal year ends on July 31. The
Company distributes reports at least semiannually to its shareholders. Financial
statements regarding the Company, audited by the independent accountants, are
sent to shareholders annually.
Legal Counsel. The firm of Kirkpatrick & Lockhart LLP, Washington, D.C., is
legal counsel for the Company. The firm of Moye, Giles, O'Keefe, Vermeire &
Gorrell, Denver, Colorado, acts as special counsel to the Company.
Financial Statements. The Company's audited financial statements and the
notes thereto for the fiscal year ended July 31, 1995, and the report of Price
Waterhouse LLP with respect to such financial statements are incorporated herein
by reference from the Company's Annual Report to Shareholders for the fiscal
year ended July 31, 1995.
Prospectus. The Company will furnish, without charge, a copy of the
Prospectus for the Fund upon request. Such requests should be made to the
Company at the mailing address or telephone number set forth on the first page
of this Statement of Additional Information.
Registration Statement. This Statement of Additional Information and the
Prospectus do not contain all of the information set forth in the Registration
Statement the Company has filed with the Securities and Exchange Commission. The
complete Registration Statement may be obtained from the Securities and Exchange
Commission upon payment of the fee prescribed by the rules and regulations of
the Commission.
<PAGE>
APPENDIX A
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS
Options on Securities
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price, in the case of a put option. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such as
the Chicago Board of Options Exchange and the New York Stock Exchange, which are
regulated by the Securities and Exchange Commission. The Options Clearing
Corporation guarantees the performance of each party to an exchange-traded
option, by in effect taking the opposite side of each such option. A holder or
writer may engage in transactions in exchange-traded options on securities and
options on indices of securities only through a registered broker/dealer which
is a member of the exchange on which the option is traded.
An option position in an exchange-traded option may be closed out only on
an exchange which provides a secondary market for an option of the same series.
Although 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
<PAGE>
transactions in a particular option with the result that this Fund would
have to exercise the option in order to realize any profit. This would result in
this 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 these Funds as
covered call option writers are unable to effect a closing purchase transaction
in a secondary market, unless the Funds are required to deliver the securities
pursuant to the assignment of an exercise notice, they will not be able to sell
the underlying security until the option expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities: (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or particular class or series of options) in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange which had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at a particular time, render certain of the facilities of any of the
clearing corporations inadequate and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders. However, the Options Clearing Corporation, based on forecasts
provided by the U.S. exchanges, believes that its facilities are adequate to
handle the volume of reasonably anticipated options transactions, and such
exchanges have advised such clearing corporation that they believe their
facilities will also be adequate to handle reasonably anticipated volume.
In addition, options on securities may be traded over-the-counter through
financial institutions dealing in such options as well as the underlying
instruments. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the Fund.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. If the transacting dealer fails
to make or take delivery of the securities underlying an option it has written,
in accordance with the terms of that option as written, the Fund would lose the
premium paid for the option as well as any anticipated benefit of the
transaction.
<PAGE>
The Fund will engage in OTC option transactions only with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York.
Futures Contracts
A Futures Contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future, for a fixed price. By its terms, a Futures Contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that they are bilateral agreements,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, Futures Contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their term.
The purchase or sale of a Futures Contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalent, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index or instrument underlying the Futures Contract fluctuates, making positions
in the Futures Contract more or less valuable, a process known as "marking to
the market."
A Futures Contract may be purchased or sold only on an exchange, known as
a "contract market," designated by the Commodity Futures Trading Commission for
the trading of such contract, and only through a registered futures commission
merchant which is a member of such contract market. A commission must be paid on
each completed purchase and sale transaction. The contract market clearing house
guarantees the performance of each party to a Futures Contract, by in effect
taking the opposite side of such Contract. At any time prior to the expiration
of a Futures Contract, a trader may elect to close out its position by taking an
opposite position on the contract market on which the position was entered into,
subject to the availability of a secondary market, which will operate to
terminate the initial position. At that time, a final determination of variation
margin is made and any loss experienced by the trader is required to be paid to
the contract market clearing house while any profit due to the trader must be
delivered to it.
<PAGE>
Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities, U.S. Treasury Bills, bank certificates of deposit and commercial
paper. In addition, interest rate futures contracts include contracts on indices
of municipal securities. Foreign currency futures contracts currently are traded
on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German
mark and on Eurodollar deposits.
Options on Futures Contracts
An Option on a Futures Contract provides the holder with the right to
enter into a "long" position in the underlying Futures Contract, in the case of
a call option, or a "short" position in the underlying Futures Contract, in the
case of a put option, at a fixed exercise price to a stated expiration date.
Upon exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of Futures Contracts, such as payment
of variation margin deposits. In addition, the writer of an Option on a Futures
contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a Futures Contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
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APPENDIX B
BOND RATINGS
The following is a description of Standard & Poor's ("S&P") and Moody's
Investors Service, Inc. ("Moody's") bond rating categories:
Moody's Investors Service, Inc. Corporate Bond Ratings
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any longer period of time may be small.
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Caa - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Standard & Poor's Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to
default and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal.
