PROSPECTUS
December 1, 1997
INVESCO SMALL COMPANY VALUE FUND
INVESCO Small Company Value Fund (formerly, the INVESCO Small Company
Fund) (the "Fund") seeks long-term capital growth. Using a value-oriented
strategy, the Fund invests primarily in the equity securities of U.S. companies
with market capitalizations below those of the 1,000 largest U.S. firms ("Small
Companies"). The Fund also has the flexibility to invest in other types of
securities.
The Fund is a series of INVESCO Diversified Funds, Inc., a diversified,
managed no-load mutual fund consisting of this single portfolio. Additional
funds 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 December 1, 1997, has been filed with the Securities and
Exchange Commission, and is incorporated by reference into this Prospectus. To
obtain a free copy, write to INVESCO Distributors, Inc., P.O. Box 173706,
Denver, Colorado 80217-3706; call 1-800-525-8085; or visit our web site at
http://www.invesco.com.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE 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
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ESSENTIAL INFORMATION........................................................2
ANNUAL FUND EXPENSES.........................................................3
FINANCIAL HIGHLIGHTS.........................................................4
INVESTMENT OBJECTIVE AND STRATEGY............................................5
INVESTMENT POLICIES AND RISKS................................................5
THE FUND AND ITS MANAGEMENT..................................................8
FUND PRICE AND PERFORMANCE...................................................9
HOW TO BUY SHARES...........................................................10
FUND SERVICES...............................................................10
HOW TO SELL SHARES..........................................................12
TAXES, DIVIDENDS AND ^ OTHER DISTRIBUTIONS..................................13
ADDITIONAL INFORMATION......................................................14
<PAGE>
ESSENTIAL INFORMATION
Investment Goal And Strategy. INVESCO Small Company Value Fund is a
diversified mutual fund that seeks long-term capital growth. It invests
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"). There is no guarantee that the Fund will
meet its objective. See "Investment Objective And Strategy."
Designed For: Investors seeking capital growth over the long-term. While
not intended as a complete investment program, the Fund may be a valuable
element of your investment portfolio. You also may wish to consider the Fund as
part of a Uniform ^ Gifts/Transfers To Minors Act Account or systematic
investing strategy. The Fund may be a suitable investment for many types of
retirement programs, including ^ Individual Retirement Accounts ("IRAs"),
SEP-IRA, SIMPLE IRA, 401(k), Profit Sharing, Money Purchase Pension, and 403(b)
plans.
Time Horizon. Potential shareholders should consider this a long-term
investment due to the volatility of the securities held by the Fund.
Risks. The Fund uses an investment strategy which at times may include
holdings in foreign securities and rapid portfolio turnover. The returns on
foreign investments may be influenced by currency fluctuations and other risks
of investing overseas. Rapid portfolio turnover may result in higher brokerage
commissions and the acceleration of taxable capital gains. Investors should
consider whether these policies make the Fund unsuitable for that portion of
your savings dedicated to current income or preservation of capital over the
short-term. See "Investment Objective And Strategy" and "Investment Policies And
Risks."
Organization and Management.^ The Fund is owned by its shareholders. It
employs INVESCO Funds Group, Inc. ("IFG"), founded in 1932, to serve as
investment adviser, administrator and transfer agent. INVESCO Management and
Research, Inc. ("IMR") serves as sub-adviser. Together, IFG and IMR constitute
"Fund Management." Prior to September ^ 30, 1997, IFG served as the Fund's
distributor. Effective September ^ 30, 1997, INVESCO Distributors, Inc. ("IDI"),
founded in 1997 as a wholly-owned subsidiary of IFG, became the Fund's
distributor.
The Fund's investments are selected by Bob Slotpole, who has managed the
Fund since 1994. He earned a BS from the State University of New York at Buffalo
and his MBA from Stanford University. See "The Fund And Its Management."
IFG, IMR and IDI are subsidiaries of AMVESCAP PLC, an international
investment management company, that manages approximately ^ $177.5 billion in
assets. AMVESCAP PLC is based in London with money managers located in Europe,
North America and the Far East.
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This Fund offers all of the following services at no charge:
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
Regular investment plans, such as EasiVest (the Fund's automatic monthly
investment program), Direct Payroll Purchase, and Automatic Monthly Exchange
Periodic withdrawal plans
See "How To Buy Shares" and "How To Sell Shares."
Minimum Initial Investment: $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans.
Minimum Subsequent Investment: $50 (Minimums are lower for certain
retirement plans.)
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares nor any ongoing marketing ("12b-1") expenses. (See "How To Buy Shares --
Distribution Expenses.")
Like any company, the Fund has operating expenses -- such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts, and other expenses. These expenses are paid from the Fund's assets.
Lower expenses therefore benefit investors by increasing the Fund's total
return.
We calculate annual operating expenses as a percentage of the Fund's
average annual net assets. To keep expenses competitive, the Fund's adviser and
sub-adviser voluntarily reimburse the Fund for amounts in excess of 1.25% of
average net assets.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.75%
12b-1 Fees None
Other Expenses(1),(2) 0.60%
Total Fund Operating Expenses(1),(2) 1.35%
(1)It should be noted that the Fund's actual total operating expenses were
lower than the figures shown, because the Fund's custodian fees and pricing
expenses were reduced under an expense offset ^ arrangements. However, as a
result of an SEC requirement for mutual funds to state their total operating
expenses without crediting any such expense offset arrangement, the figures
shown above do not reflect these reductions. In comparing expenses for different
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years, please note that the Ratios of Expenses to Average Net Assets shown
under "Financial Highlights" do reflect reductions for expense offset
arrangements for periods including and prior to the fiscal year ended July 31,
1995. See "The Fund And Its Management."
(2)Certain expenses of the Fund are being absorbed voluntarily by IFG and
IMR. In the absence of such absorbed expenses, the Fund's "Other Expenses" and
"Total Fund Operating Expenses" would have been 0.34% and 1.35%, respectively,
based on the Fund's actual expenses for the fiscal year ended July 31, 1997.
Example
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming a hypothetical 5% annual return and redemption at
the end of each time period. (Of course, actual operating expenses are paid from
the Fund's assets, and are deducted from the amount of income available for
distribution to shareholders; they are not charged directly to shareholder
accounts.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$13 $40 $69 $152
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE, AND ACTUAL
ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For more
information on the Fund's expenses, see "The Fund And Its Management" and "How
To Buy Shares -- Distribution Expenses."
<PAGE>
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 Company's 1997 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting ^ IDI at the address or telephone number
^ shown below. The Annual Report also contains more information about the Fund's
performance.
<TABLE>
<CAPTION>
Period
Ended
Year Ended July 31 July 31
------------------------------------- ---------
1997 1996 1995 1994^
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $12.19 $11.77 $9.76 $10.00
------------------------------------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.09 0.08 0.05 0.06
------------------------------------- ---------
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 4.10 0.68 2.05 (0.28)
------------------------------------- ---------
Total from Investment Operations 4.19 0.76 2.10 (0.22)
------------------------------------- ---------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.09 0.08 0.09 0.02
Distributions from Capital Gains 1.35 0.26 0.00 0.00
------------------------------------- ---------
Total Distributions 1.44 0.34 0.09 0.02
------------------------------------- ---------
Net Asset Value - End of Period $14.94 $12.19 $11.77 $9.76
===================================== =========
TOTAL RETURN 36.97% 6.47% 21.64% (2.21%)*
RATIOS
<PAGE>
Net Assets - End of Period
($000 Omitted) $58,549 $46,693 $40,071 $13,474
Ratio of Expenses to Average
Net Assets# 1.25%@ 1.09%@ 1.00% 1.00%~
Ratio of Net Investment Income to
Average Net Assets# 0.75% 0.61% 0.84% 1.20%~
Portfolio Turnover Rate 147% 156% 73% 55%*
Average Commission Rate Paid^^ $0.0582 - - -
</TABLE>
^ From December 1, 1993, commencement of investment operations, to July 31,
1994.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG and IMR for the
years ended July 31, 1997, 1996 and 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 1.35%^ (prior to any expense offset
arrangement), 1.09% (prior to any expense offset arrangement), 1.32% and 1.64%
(annualized), respectively, and ratio of net investment income to average net
assets would have been 0.65%, 0.61%, 0.52% and 0.56% (annualized), respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold which is required to be disclosed for
fiscal years beginning September 1, 1995 and thereafter.
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 Distributors, Inc., P.O. Box 173706, Denver, Colorado 80217-3706
or by calling 1-800-525-8085.
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
The Fund seeks long-term capital growth. This investment objective is
fundamental and may not be changed without the approval of the Fund's
shareholders. Normally, the Fund seeks to achieve this objective by investing
65% or more of its assets in Small Companies -- those with market
capitalizations below those of the 1,000 largest U.S. companies. As to the 65%
limitation, the Fund will not invest in companies whose equity capitalizations
exceed one billion dollars at the time of initial purchase. 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.
The equity securities in which the Fund may invest include common and preferred
stocks, convertible bonds and convertible preferred stocks, and other securities
having equity characteristics such as warrants and rights. There is no assurance
that the Fund's investment objective will be met.
In selecting investments, Fund Management is primarily seeking to identify
stocks of Small Companies which will produce an annual total return higher than
the annual return of the Russell 2000 Small Stock Index ("Russell 2000") over a
full market cycle. The Russell 2000 is an unmanaged index comprised of the
common stocks of 2,000 U.S. companies having market capitalizations that are
smaller than those of the 1,000 largest U.S. companies. Those 1,000 U.S.
companies having the highest market capitalization are included in the Russell
1000 Large Cap Stock Index. Companies included in the indices are readjusted
annually and are compiled by Frank Russell Company. Fund Management employs a
value-oriented approach using both quantitative and traditional stock analysis
to uncover the best possible values from a broad universe, typically 2,500 or
more Small Companies. Among other factors, we review earnings-to-price and book
value-to-price ratios, earnings estimate revision momentum, relative market
strength compared to competitors, inventory/sales trends, and financial
leverage. A stock's expected return is then estimated and, when combined with
proprietary estimates of trading costs, a risk-controlled optimal portfolio is
generated. Finally, traditional fundamental analysis is used for final review
before Fund holdings are selected.
The majority of the Fund's holdings consist of common stocks traded
"over-the-counter" although the Fund may also buy stocks traded on the national
and regional exchanges. The Fund also has the flexibility to invest in other
U.S. and foreign securities, including debt securities. The risks of investing
in debt securities are discussed below under "Investment Policies And Risks."
^
The Fund's investment portfolio is actively traded. Securities may be
bought and sold relatively quickly during certain market or economic conditions
thus at times causing the Fund's portfolio turnover rate to exceed 100%. This
may cause higher-than-normal turnover rates, resulting in greater brokerage
commissions and acceleration of capital gains which are taxable when distributed
to shareholders. The Statement of Additional Information includes an expanded
discussion of the Fund's portfolio turnover rate, its brokerage practices and
certain federal income tax matters.
<PAGE>
When we believe market or economic conditions are unfavorable, the Fund
may assume a defensive position by temporarily investing up to 100% of its
assets in high quality money market instruments, such as short-term U.S.
government obligations, commercial paper or repurchase agreements, seeking to
protect its assets until conditions stabilize.
INVESTMENT POLICIES AND RISKS
Investors generally should expect to see their price per share vary with
movements in the stock market, changes in economic conditions and other factors.
The Fund invests in many different companies in a variety of industries; this
diversification reduces the Fund's overall exposure to investment and market
risks, but cannot eliminate these risks.
Equity Securities. The Fund invests in equity securities of Small
Companies as previously defined. Fund Management seeks to reduce the risks
associated with investments in equity securities through diversification and
consideration of factors affecting the value of securities it considers
relevant. The ability of Fund Management to select equity securities which it
believes will increase in market value is the primary factor in determining
whether the Fund will be able to achieve its investment objective. The companies
represented in the Fund's investment portfolio (particularly those trading
"over-the-counter") may be in the early stages of development; have limited
product lines, markets or financial resources; and/or lack management depth.
These factors may expose these companies to more intense competitive pressures,
greater volatility in earnings, and relative illiquidity or erratic price
movements for the companies' securities, compared to larger, more established
companies or the market averages in general.
^
Foreign Securities. Up to 25% of the Fund's total assets, measured at the
time of purchase, may be invested directly in foreign securities. Securities of
Canadian issuers and sponsored American Depository Receipts ("ADRs") are not
subject to this 25% limitation. ADRs are receipts representing shares of a
foreign corporation held by a U.S. bank that entitle the holder to all dividends
and capital gains on the underlying shares. ADRs are denominated in U.S. dollars
and trade in the U.S. securities markets.
For U.S. investors, the returns on foreign securities are influenced not
only by the returns on the foreign investments themselves, but also by currency
fluctuations. That is, when the U.S. dollar generally rises against a foreign
currency, returns for a U.S. investor on foreign securities denominated in that
foreign currency may decrease. By contrast, in a period when the U.S. dollar
generally declines, those returns may increase.
<PAGE>
Other aspects of international investing to consider include:
-less publicly available information than is generally available about U.S.
issuers;
-differences in accounting, auditing and financial reporting standards;
-generally higher commission rates on foreign portfolio transactions and
longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility; and
-investments in certain countries may be subject to foreign withholding
taxes, which may reduce dividend income or capital gains payable to
shareholders.
There is also the possibility of expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations; political
instability; potential restrictions on the flow of international capital; and
the possibility of the Fund experiencing difficulties in pursuing legal remedies
and collecting judgments.
ADRs are subject to some of the same risks as direct investments in
foreign securities, including the risk that material information about the
issuer may not be disclosed in the United States and the risk that currency
fluctuations may adversely affect the value of the ADR.
Illiquid and Rule 144A Securities. The Fund may invest up to 15% of its
net assets in illiquid securities, including securities that are subject to
restrictions on resale and securities that are not readily marketable.
Investments in illiquid securities are subject to the risk that the Fund may not
be able to dispose of a security at the time desired or at a reasonable price,
or may have to bear the expense and delay of registering the security in order
to resell it. The Fund may also purchase certain securities that are not
registered for sale to the general public, but that can be resold to
institutional investors ("Rule 144A Securities"), without regard to the
foregoing 15% limitation, if a liquid trading market exists. For more
information concerning illiquid and Rule 144A Securities, see "Investment
Policies and Restrictions" in the Statement of Additional Information.
Delayed Delivery or When-Issued Securities. Up to 10% of the value of the
Fund's total assets may be committed to the purchase or sale of securities on a
when-issued or delayed-delivery basis -- that is, with settlement taking place
in the future. The payment obligation and the interest rate received on the
securities generally are fixed at the time the Fund enters into the commitment.
Between the date of purchase and the settlement date, the market value of the
securities may vary, and no interest is payable to the Fund prior to settlement.
<PAGE>
Futures and Options. A futures contract is an agreement to buy or sell a
specific amount of a financial instrument or commodity at a particular price on
a particular date. The Fund will use futures contracts only to hedge against
price changes in the value of its 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, at least in 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, at least in
part, by gains on futures contracts purchased by the Fund. Brokerage fees are
paid to trade futures contracts, and the Fund is required to maintain margin
deposits.
Put and call options on futures contracts or securities may be traded by
the Fund in order to protect against declines in the value of portfolio
securities or against increases in the cost of securities to be acquired. The
purchaser of an option purchases the right to effect a transaction in the
underlying future or security at a specified price (the "strike price") before a
specified date (the "expiration date"). In exchange for the right, the purchaser
pays a "premium" to the seller, which represents the price of the right to buy
or to sell the underlying instrument. In exchange for the premium, the seller of
the option becomes obligated to effect a transaction in the underlying future or
security, at the strike price, at any time prior to the expiration date, should
the buyer choose to exercise the option. A call option contract grants the
purchaser the right to buy the underlying future or security, at the strike
price, before the expiration date. A put option contract grants the purchaser
the right to sell the underlying future or security, at the strike price, before
the expiration date. Purchases of options on futures contracts may present less
dollar risk in hedging the Fund's portfolio 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 or liquidation of the option, and, unless the
price of the underlying futures contract or security changes sufficiently, the
option may expire without value to the Fund.
Although the Fund will enter into futures contracts and options on futures
contracts and securities solely for hedging or other nonspeculative purposes,
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 a
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 and Appendix
B therein.
Repurchase Agreements. ^ For cash management, the Fund may invest money,
for as short a time as overnight, using repurchase agreements ("repos"). With a
repo, the Fund buys a debt instrument, agreeing simultaneously to sell it back
<PAGE>
to the prior owner at an agreed-upon price and date. The Fund could incur costs
or delays in seeking to sell the security if the prior owner defaults on its
repurchase obligation. To reduce that risk, the securities that are the subject
of each repurchase agreement will be maintained with the Fund's custodian in an
amount at least equal to the repurchase price under the agreement (including
accrued interest). These agreements are entered into only with member banks of
the Federal Reserve System, registered broker-dealers, and registered U.S.
government securities dealers that are deemed creditworthy under standards
established by the Company's board of directors.
^
For a further discussion of risks associated with an investment in the
Fund, see "Investment Policies and Restrictions" and "Investment Practices" in
the Statement of Additional Information.
Investment Restrictions. Certain restrictions, which are set forth in the
Statement of Additional Information, may not be altered without the approval of
the Fund's shareholders. For example, with respect to 75% of its total assets,
the Fund limits to 5% the portion of its total assets that may be invested in
any one issuer, nor will the Fund invest more than 25% of its total assets in
any one industry.
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as a diversified, open-end, management investment ^ company.
It was incorporated on April 2, 1993, under the laws of Maryland.
The Company's board of directors has responsibility for overall
supervision of the Fund and reviews the services provided by the adviser and
sub-adviser. Under an agreement with the Company, IFG, 7800 E. Union Avenue,
Denver, Colorado 80237, serves as the Fund's investment adviser; it is primarily
responsible for providing the Fund with various administrative services. IMR is
the Fund's sub-adviser and is primarily responsible for managing the Fund's
investments.
Bob Slotpole has served as portfolio manager for the Fund since 1994 and
is primarily responsible for the day-to-day management of the Fund's holdings.
He began his investment career in 1975 and is now a portfolio manager for IMR
(since 1993). His recent career includes these highlights: lead portfolio
manager of INVESCO Multi-Asset Allocation Fund; formerly employed in the
proprietary options department at Lehman Brothers (1983-1984); and developed the
program trading department at First Boston (1985- 1992). He earned a BS from the
State University of New York at Buffalo and his MBA from Stanford University.
<PAGE>
Fund Management permits investment and other personnel to purchase and
sell securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires Fund Management's personnel to conduct
their personal investment activities in a manner that Fund Management believes
is not detrimental to the Fund or Fund Management's other advisory clients. See
the Statement of Additional Information for more detailed information.
The Fund pays IFG a monthly management fee which is based upon a
percentage of the Fund's average net assets determined daily. The management fee
is computed at the annual rate of 0.75% of the Fund's average net assets. For
the fiscal year ended July 31, 1997, investment management fees paid by the Fund
amounted to 0.75% of the Fund's average net assets. Out of this fee, IFG paid to
IMR as a sub-advisory fee an amount equal to 0.375% of the Fund's average net
assets. No fee is paid by the Fund to IMR.
Under a Distribution Agreement effective September 30, 1997, IDI became
the Fund's distributor. IDI, established in 1997, is a registered broker-dealer
that acts as distributor for all retail mutual funds advised by IFG.
Under a Transfer Agency Agreement, IFG acts as registrar, transfer agent,
and dividend disbursing agent for the Fund. The Fund pays an annual fee of
$20.00 per shareholder account or, where applicable, per participant in an
omnibus account^. Registered broker-dealers, third party administrators of
tax-qualified retirement plans and other entities, including affiliates of IFG,
may provide equivalent services to the Fund. In these cases, IFG may pay, out of
the fee it receives from the Fund, an annual sub- transfer agency or
recordkeeping fee to the third party.
In addition, under an Administrative Services Agreement, IFG handles
additional administrative, recordkeeping, and internal sub- accounting services
for the Fund. For such services, IFG was paid for the fiscal year ended July 31,
1997, a fee equal to ^ 0.03% of the Fund's average net assets.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. Total expenses of the Fund (prior to any
expense offset arrangement) for the fiscal year ended July 31, 1997, including
investment management fees (but excluding brokerage commissions, which are a
cost of acquiring securities), amounted to 1.35% of the Fund's average net
assets. Certain Fund expenses were absorbed voluntarily by IFG and IMR pursuant
to a commitment to the Fund to ensure that the Fund's total operating expenses
did not exceed 1.25% of the Fund's average net assets. This commitment may be
changed following consultation with the Company's board of directors.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of ^
such broker-dealers' financial responsibility coupled with their ability to
effect transactions at the best available prices. The Fund may place orders for
<PAGE>
portfolio transactions with qualified broker-dealers ^ that recommend the Fund,
or sell shares of the Fund, to clients, or act as agent in the purchase of Fund
shares for clients, if Fund Management believes that the quality of the
execution of the transaction and level of commission are comparable to those
available from other qualified brokerage firms. For further information, see
"Investment Practices - Placement of Portfolio Brokerage" in the Statement of
Additional Information.
IFG, IMR and IDI are indirect wholly-owned subsidiaries of AMVESCAP PLC.
AMVESCAP PLC is a publicly-traded holding company that, through its
subsidiaries, engages in the business of investment management on an
international basis. INVESCO PLC changed its name to AMVESCO PLC on March 3,
1997 and to AMVESCAP PLC on May 8, 1997, as part of a merger between a direct
subsidiary of INVESCO PLC and A I M Management Group, Inc., that created one of
the largest independent investment management businesses in the world. IFG and
IMR ^ continued to operate under their existing names. AMVESCAP PLC has
approximately ^ $177.5 billion in assets under management. IFG was established
in 1932 and, as of July 31, 1997, managed 14 mutual funds, consisting of 45
separate portfolios, with combined assets of approximately $16.4 billion on
behalf of over ^ 858,051 shareholders. IMR served as adviser or sub-adviser to 4
portfolios as of July 31, 1997. IMR provides investment services to U.S.
institutions and wealthy individuals.^
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the Fund will vary
daily. The price per share is also known as the Net Asset Value ("NAV"). IFG
prices the Fund every day that the New York Stock Exchange is open, as of the
close of regular trading ^(generally, 4:00 p.m. New York time). NAV is
calculated by adding together the current market value of all of the Fund's
assets, including accrued interest and dividends; then subtracting liabilities,
including accrued expenses; and finally dividing that dollar amount by the total
number of Fund shares outstanding.
Performance Data. To keep shareholders and potential investors informed,
we will occasionally advertise the Fund's total return. Total return figures
show the average annual rate of return on a $1,000 investment in the Fund,
assuming reinvestment of all dividends and capital gain distributions for one-,
five- and ten-year periods (or since inception). Cumulative total return shows
the actual rate of return on an investment for the periods cited; average annual
total return represents the average annual percentage change in the value of an
investment. Both cumulative and average annual total returns tend to "smooth
out" fluctuations in the Fund's investment results because they do not show
interim variations in performance that occur over the periods cited. More
information about the Fund's recent and historical performance is contained in
the Company's Annual Report to Shareholders. You can get a free copy by calling
or writing to IDI using the phone number or address on the ^ cover of this
Prospectus.
<PAGE>
When we quote mutual fund rankings published by Lipper Analytical
Services, Inc., we may compare the Fund to others in its category of Small
Company Growth Funds, as well as the broad-based Lipper general fund groupings.
These rankings allow you to compare the Fund to its peers. Other independent
financial media also produce performance- or service-related comparisons, which
you may see in our promotional materials. For more information see "Fund
Performance" in the Statement of Additional Information.
Performance figures are based on historical earnings and are not intended
to suggest future performance.
HOW TO BUY SHARES
The following chart shows several convenient ways to invest in the Fund.
Your new Fund shares will be priced at the NAV next determined after your order
is received in proper form. There is no charge to invest, exchange, or redeem
shares when you make transactions directly through IDI. However, if you invest
in the Fund through a securities broker, you may be charged a commission or
transaction fee. For all new accounts, please send a completed application form.
Please specify which fund's shares you wish to purchase.
Fund Management reserves the right to increase, reduce, or waive the
minimum investment requirements in its sole discretion, when it determines this
action is in the best interests of the Fund. Further, Fund Management reserves
the right in its sole discretion to reject any order for the purchase of Fund
shares (including purchases by exchange) when, in its judgment, such rejection
is in the Fund's best interests.
Exchange Policy. You may exchange your shares in this Fund for those in
another INVESCO fund on the basis of their respective net asset values at the
time of the exchange. Before making any exchange, be sure to review the
prospectuses of the funds involved and consider their differences.
Please note these policies regarding exchanges of fund shares:
1) The fund accounts must be identically registered.
2) You may make up to four exchanges out of each fund during
each calendar year.
3) An exchange is the redemption of shares from one fund followed by the
purchase of shares in another. Therefore, any gain or loss realized on the
exchange is recognizable for federal income tax purposes (unless, of course,
your account is tax-deferred).
4) The Fund reserves the right to reject any exchange request, or to
modify or terminate the exchange policy, in the best interests of the Fund and
its shareholders. Notice of all such modifications or termination will be given
at least 60 days prior to the effective date of the change in privilege, except
in unusual instances (such as when redemptions of the exchanged shares are
suspended under Section 22(e) of the Investment Company Act of 1940, or when
sales of the fund into which you are exchanging are temporarily stopped).
<PAGE>
HOW TO BUY SHARES
================================================================================
Method Investment Minimum Please Remember
- --------------------------------------------------------------------------------
By Check
Mail to: $1,000 for regular If your check does
INVESCO Funds account; not clear, you will
Group, Inc. $250 for an ^ IRA; be responsible for
P.O. Box 173706 $50 minimum for any related loss
Denver, CO 80217- each subsequent the Fund or IFG
3706. investment. incurs. If you are
Or you may send already a
your check by shareholder in the
overnight courier INVESCO funds, the
to: 7800 E. Union Fund may seek
Ave., Denver, CO reimbursement from
80237. your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
By Telephone or
Wire
Call 1-800-525-8085 $1,000. Payment must be
to request your received within 3
purchase. Then send business days, or
your check by the transaction may
overnight courier be canceled. If a
to our street purchase is
address: canceled due to
7800 E. Union Ave., nonpayment, you
Denver, CO 80237. will be responsible
Or you may transmit for any related
your payment by loss the Fund or
bank wire (call IFG IFG incurs. If you
for instructions). are already a
shareholder in the
INVESCO funds, the Fund
may seek reimbursement
from your existing
account(s) for any loss
incurred.
- --------------------------------------------------------------------------------
<PAGE>
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With EasiVest or
Direct Payroll
Purchase
You may enroll on $50 per month for Like all regular
the fund EasiVest; $50 per investment plans,
application, or pay period for neither EasiVest
call us for the Direct Payroll nor Direct Payroll
correct form and Purchase. You may Purchase ensures a
more details. start or stop your profit or protects
Investing the same regular investment against loss in a
amount on a monthly plan at any time, falling market.
basis allows you to with two weeks' Because you'll
buy more shares notice to IFG. invest continually,
when prices are low regardless of
and fewer shares varying price
when prices are levels, consider
high. This your financial
"dollar-cost ability to keep
averaging" may help buying through low
offset market price levels. And
fluctuations. Over remember that you
a period of time, will lose money if
your average cost you redeem your
per share may be shares when the
less than the market value of all
actual average your shares is less
price per share. than their cost.
- --------------------------------------------------------------------------------
By PAL
Your "Personal $1,000. Be sure to write
Account Line" is down the
available for confirmation number
subsequent provided by PAL.
purchases and Payment must be
exchanges 24 hours received within 3
a day. Simply call business days, or
1-800-424-8085. the transaction may
be cancelled. If a
purchase is cancelled due
to nonpayment, you will
be responsible for any
related loss the Fund or
IFG incurs. If you are
already a shareholder in
the INVESCO funds, the
Fund may seek
reimbursement from your
existing account(s) for
any loss incurred.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy" above.
INVESCO funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an (The exchange
Automatic Monthly minimum is $250 for
Exchange service exchanges requested
between two INVESCO by telephone.)
funds; call IFG for
further details and
the correct form.
================================================================================
FUND SERVICES
Shareholder Accounts. IFG will maintain a share account that reflects your
current holdings. Share certificates will be issued only upon specific request.
You will have greater flexibility to conduct transactions if you do not request
certificates.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges, and redemptions. If you choose certain
recurring transaction plans (for instance, EasiVest), your transactions will be
confirmed on your quarterly Investment Summary.
Investment Summaries. Each calendar quarter, shareholders receive a
written statement which consolidates and summarizes account activity and value
at the beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and capital gain distributions
are automatically invested in additional Fund shares at the NAV on the
ex-dividend or ex-distribution date, unless you choose to have dividends and/or
capital gain distributions automatically reinvested in another INVESCO fund or
paid by check (minimum of $10.00).
Telephone Transactions. All shareholders may exchange and redeem Fund
shares by telephone, unless they expressly decline these privileges. By signing
the new account Application, a Telephone Transaction Authorization Form, or
otherwise using these privileges, the investor has agreed that, if the Fund has
followed reasonable procedures, such as recording telephone instructions and
sending written transaction confirmations, it will not be liable for following
telephoned instructions that it believes to be genuine. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions.
<PAGE>
Retirement Plans and IRAs. Fund shares may be purchased for Individual
Retirement Accounts ("IRAs") and many types of tax-deferred retirement plans.
IFG can supply you with information and forms to establish or transfer your
existing plan or account.
HOW TO SELL SHARES
The following chart shows several convenient ways to redeem your Fund
shares. Shares of the Fund may be redeemed at any time at their current NAV next
determined after a request in proper form is received at the Fund's office. The
NAV at the time of the redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the Fund's investment
performance.
Please specify from which fund you wish to redeem shares. Shareholders
have a separate account for each fund in which they invest.
While the Fund will attempt to process telephone redemptions promptly,
there may be times -- particularly in periods of severe economic or market
disruption -- when you may experience delays in redeeming shares by phone.
HOW TO SELL SHARES
================================================================================
Method Minimum Redemption Please Remember
================================================================================
By Telephone
Call us toll-free $250 (or, if less, This option is not
at 1-800-525-8085. full liquidation of available for
the account) for a shares held in
redemption check; IRAs.
$1,000 for a wire
to bank of record.
The maximum amount
which may be
redeemed by
telephone is
generally $25,000.
These telephone
redemption
privileges may be
modified or
terminated in the
future at IFG's
discretion.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
In Writing
Mail your request Any amount. The If the shares to be
to INVESCO Funds redemption request redeemed are
Group, Inc., P.O. must be signed by represented by
Box 173706 all registered stock certificates,
Denver, CO 80217- owners of the the certificates
3706. You may also account. Payment must be sent to
send your request will be mailed to IFG.
by overnight your address of
courier to 7800 E. record, or to a
Union Ave., Denver, designated bank.
CO 80237.
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy" page 10.
INVESCO funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an (The exchange
automatic monthly minimum is $250 for
exchange service exchanges requested
between two INVESCO by telephone.)
funds; call IFG for
further details and
the correct form.
- --------------------------------------------------------------------------------
Periodic Withdrawal
Plan
You may call us to $100 per payment on You must have at
request the a monthly or least $10,000 total
appropriate form quarterly basis. invested with the
and more The redemption INVESCO funds, with
information at 1- check may be made at least $5,000 of
800-525-8085. payable to any that total invested
party you in the fund from
designate. which withdrawals
will be made.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Payment To Third
Party
Mail your request Any amount. All registered
to INVESCO Funds owners of the
Group, Inc., P.O. account must sign
Box 173706 the request, with a
Denver, CO 80217- signature guarantee
3706. from an eligible
guarantor financial
institution, such as a
commercial bank or a
recognized national or
regional securities firm.
================================================================================
Payments of redemption proceeds will be mailed within seven days following
receipt of the redemption request in proper form. However, payment may be
postponed under unusual circumstances --for instance, if normal trading is not
taking place on the New York Stock Exchange, or during an emergency as defined
by the Securities and Exchange Commission. If your shares were purchased by a
check which has not yet cleared, payment will be made promptly upon clearance of
the purchase check (which will take up to 15 days).
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate any
further EasiVest purchases unless you instruct us otherwise.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to redeem all shares in such account, in
which case the account would be involuntarily liquidated and the proceeds
forwarded to the shareholder. Prior to any such redemption, a shareholder will
be notified and given 60 days to increase the value of the account to $250 or
more.
TAXES, DIVIDENDS AND ^ OTHER DISTRIBUTIONS
Taxes. 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 ^ other distributions in taxable income for federal, state, and
local income tax purposes. Dividends and other distributions are taxable whether
they are received in cash or automatically invested in shares of the Fund or
another fund in the INVESCO group.
<PAGE>
^ Net realized capital gains of the Fund are classified as short-term^ and
long-term gains depending ^ upon how long the Fund held the security ^ that gave
rise to the gains. Short-term capital gains are included in income from
dividends and interest as ordinary income and are taxed at the taxpayer's
marginal tax rate. The Taxpayer Relief Act of 1997 (the "Tax Act"), enacted in
August 1997, changed the taxation of long-term capital gains for individuals by
applying different capital gains rates depending on the taxpayer's holding
period and marginal rate of federal income tax.
Long-term gains realized on the sale of securities held for more than one
year but not for more than 18 months are taxable at a rate of 28%. This category
of long-term gains is often referred to as "mid-term" gains but is technically
termed "28% rate gains." Long-term gains realized on the sale of securities held
for more than 18 months are taxable at a rate of 20%. At the end of each year,
information regarding the tax status of dividends and other distributions is
provided to shareholders. Shareholders should consult their tax advisers as to
the effect of the Tax Act on distribuitons by the Fund of net capital gain.
Shareholders also may realize capital gains or losses when they sell their
Fund shares at more or less than the price originally paid. Capital gains on
shares held for more than one year will be long-term capital gains, in which
event it will be subject to federal income tax at the rates indicated above. ^
The Fund may be subject to the withholding of foreign taxes on dividends
or interest ^ received on foreign securities. Foreign taxes withheld will be
treated as an expense of the Fund ^.
Individuals and certain other non-corporate shareholders may be subject to
backup withholding of 31% on dividends, capital gain and other distributions and
redemption proceeds. Unless you are subject to backup withholding for other
reasons, you can avoid backup withholding on your Fund account by ensuring that
we have a correct, certified tax identification number.
We encourage you to consult a tax adviser with respect to these matters.
For further information, see "Dividends, ^ Other Distributions and Taxes" in the
Statement of Additional Information.
Dividends and ^ Other Distributions. The Fund earns ordinary or net
investment income, in the form of dividends and interest on its investments.
Dividends paid by the Fund will be based soley on the income earned by it. The
Fund's policy is to distribute substantially all of this income, less Fund
expenses, to shareholders on an annual or semiannual basis, at the discretion of
the Company's board of directors. Dividends are automatically reinvested in
additional shares of the Fund at the net asset value on the payable date unless
otherwise requested.
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, togehter with
gains, if any, realized on foreign currency transactions, are distributed to
shareholders at least annually, usually in December. Capital gain distributions
are automatically reinvested in shares of the Fund at the net asset value on the
payable date unless otherwise requested.
<PAGE>
Dividends and other ^ distributions are paid to shareholders who hold
shares on the record date of the distribution regardless of how long the shares
have been held. The Fund's share price will then drop by the amount of the
distribution on the ex-dividend or ex-distribution date. If a shareholder
purchases shares immediately prior to such date, the shareholder will, in
effect, have "bought" the dividend by paying full purchase price, a portion of
which is then returned in the form of a distribution, some or all of which may
be taxable.
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, 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 board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Fund. The Fund will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
<PAGE>
PROSPECTUS
December 1, 1997
INVESCO Small Company Value Fund
A no-load mutual fund seeking long-
term capital growth from small-
capitalization stocks.
^ INVESCO FUNDS
INVESCO Distributors, Inc.
Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
1-800-525-8085
PAL(R): 1-800-424-8085
http://www.invesco.com
^ In Denver, visit one of our
convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
Lobby Level
In addition, all documents
filed by the Company with the
Securities ^ & Exchange Commission
can be located on a ^ Web site
maintained by the Commission at
http://www.sec.gov.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1997
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 ^
mutual fund company currently consisting of one portfolio of investments, the
INVESCO Small Company Value Fund (formerly, INVESCO Small Company Fund) (the
"Fund"). Additional funds may be offered in the future.
INVESCO SMALL COMPANY VALUE FUND
The Fund seeks long-term capital growth. The 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 December 1, 1997 which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from INVESCO Distributors, Inc., Post Office Box 173706, Denver,
Colorado 80217-3706. This Statement of Additional Information is not a
Prospectus, but contains information in addition to and more detailed than that
set forth in the Prospectus. It is intended to provide additional information
regarding the activities and operations of the Fund and should be read in
conjunction with the Prospectus.
Investment Adviser: INVESCO FUNDS GROUP, INC.
Distributor: INVESCO DISTRIBUTORS, INC.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT POLICIES AND RESTRICTIONS 3
THE FUND AND ITS MANAGEMENT 16
HOW SHARES CAN BE PURCHASED 28
HOW SHARES ARE VALUED 28
FUND PERFORMANCE 30
SERVICES PROVIDED BY THE FUND 31
TAX-DEFERRED RETIREMENT PLANS 32
HOW TO REDEEM SHARES 32
DIVIDENDS, ^ OTHER DISTRIBUTIONS AND TAXES 33
INVESTMENT PRACTICES 36
ADDITIONAL INFORMATION 37
APPENDIX A 41
APPENDIX B 43
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
Reference is made to the section entitled "Investment Objective and
Strategy" 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.
Types of Equity Securities
As described in the Prospectus, equity securities which may be purchased
by the Fund consist of common, preferred and convertible preferred stocks, and
securities having equity characteristics such as rights, warrants and
convertible debt securities. Common stocks and preferred stocks represent equity
ownership interests in a corporation and participate in the corporation's
earnings through dividends which may be declared by the corporation. Unlike
common stocks, preferred stocks are entitled to stated dividends payable from
the corporation's earnings, which in some cases may be "cumulative" if prior
stated dividends have not been paid. Dividends payable on preferred stock have
priority over distributions to holders of common stock, and preferred stocks
generally have preferences on the distribution of assets in the event of the
corporation's liquidation. Preferred stocks may be "participating" which means
that they may be entitled to dividends in excess of the stated dividend in
certain cases. The rights of common and preferred stocks are generally
subordinate to rights associated with a corporation's debt securities. Rights
and warrants are securities which entitle the holder to purchase the securities
of a company (generally, its common stock) at a specified price during a
specified time period. Because of this feature, the values of rights and
warrants are affected by factors among others similar to those which determine
the prices of common stocks and exhibit similar behavior. Rights and warrants
may be purchased directly or acquired in connection with a corporate
reorganization or exchange offer.
Convertible securities which may be purchased by the Fund include
convertible debt obligations and convertible preferred stock. A convertible
security entitles the holder to exchange it for a fixed number of shares of
common stock (or other equity security), usually at a fixed price within a
specified period of time. Until conversion, the holder receives the interest
paid on a convertible bond or the dividend preference of a preferred stock.
Convertible securities have an "investment value" which is the theoretical
value determined by the yield they provide in comparison with similar securities
without the conversion feature. Investment value changes are based upon
prevailing interest rates and other factors. They also have a "conversion value"
which is the worth in market value if the security were exchanged for the
underlying equity security. Conversion value fluctuates directly with the price
of the underlying security. If conversion value is substantially below
investment value, the price of the convertible security is governed principally
by its investment value. If the conversion value is near or above investment
value, the price of the convertible security generally will rise above
investment value and may represent a premium over conversion value due to the
combination of the convertible security's right to interest (or dividend
preference) and the possibility of capital appreciation from the conversion
feature. A convertible security's price, when price is influenced primarily by
<PAGE>
its conversion value, generally will yield less than a senior non-convertible
security of comparable investment value. Convertible securities may be purchased
at varying price levels above their investment values or conversion values.
However, there is no assurance that any premium above investment value or
conversion value will be recovered because prices change and, as a result, the
ability to achieve capital appreciation through conversion may be eliminated.
Debt Securities. Although the Fund historically has not done so, the Fund
may invest in debt securities when Fund Management believes that there is a
potential for capital apprciation. The Fund's investments in debt securities
generally are subject to both credit risk and market risk. Credit risk relates
to the ability of the issuer to meet interest or principal payments, or both, as
they come due. Market risk relates to the fact that the market values of the
debt securities generally will be affected by changes in the level of interest
rates. An increase in interest rates will tend to reduce the market values of
outstanding debt securities, whereas a decline in interest rates will tend to
increase their values. Although Fund Management limits the Fund's investments in
debt securities to securities it believes are not highly speculative, both kinds
of risk are increased by investing in debt securities rated BBB or lower by S&P,
Baa or lower by Moody's or, if unrated, securities determined by Fund Management
to be of equivalent quality.
The Fund may invest in debt securities if the potential for capital
appreciation is believed to be present. Investments in debt securities include
U.S. government and corporate debt securities. Investments in U.S. government
securities may consist of securities issued or guaranteed by the U.S. government
and any agency or instrumentality of the U.S. government. In some cases, these
securities are direct obligations of the U.S. government, such as U.S. Treasury
bills, notes and bonds. In other cases, these securities are obligations
guaranteed by the U.S. government, consisting of Government National Mortgage
Association obligations, or obligations of U.S. government authorities, agencies
or instrumentalities, including the Federal National Mortgage Association,
Federal Home Loan Bank, Federal Financing Bank and Federal Farm Credit Bank,
which are supported only by the assets of the issuer. The Fund may invest in
both investment grade and lower-rated corporate debt securities. However, the
Fund will not invest more than 15% of its total assets (measured at the time of
purchase) in corporate debt securities that are rated below BBB by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") or Baa by Moody's
Investors Service, Inc. ("Moody's") or, if unrated, are judged by Fund
Management to be equivalent in quality to debt securities having such ratings.
In no event will the Fund invest in a debt security rated below BB by S&P or Ba
by Moody's. The risks of investing in debt securities are discussed below under
"Risk Factors." For a description of each corporate bond rating category, please
refer to Appendix A to the Statement of Additional Information.
The short-term investments of the Fund may consist of U.S. government and
agency securities, domestic bank certificates of deposit and bankers'
acceptances, and commercial paper rated A-1 by S&P or P-1 by Moody's, as well as
repurchase agreements with banks and registered broker-dealers and registered
government securities dealers with respect to the foregoing securities. The
Fund's assets invested in U.S. government securities and short-term investments
will be used to meet current cash requirements, such as to satisfy requests to
<PAGE>
redeem shares of the Fund and to preserve investment flexibility. A commercial
paper rating of A-1 by S&P or P-1 by Moody's is the highest rating category
assigned by such rating organizations and indicates that the issuer has a very
strong capacity to make timely payments of principal and interest on its
commercial paper obligations. All bank certificates of deposit and bankers'
acceptances at the time of purchase by the Fund must be issued by domestic banks
(i) which are members of the Federal Reserve System having total assets in
excess of $5 billion, (ii) have received at least a B ranking from Thomson 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.
Foreign Securities
As discussed in the Fund's Prospectus ^, the Fund may invest up to 25% of
its total assets, measured at the time of purchase, in foreign securities.
Securities of Canadian issuers and securities purchased by means of sponsored
American Depository Receipts ("ADRs") are not subject to this 25% limitation.
There is generally less publicly available information, reports and ratings
about foreign companies and other foreign issuers than that which is available
about companies and issuers in the United States. Foreign issuers are also
generally subject to fewer uniform accounting and auditing and financial
reporting standards, practices, and requirements as compared to those applicable
to United States issuers.
The Fund's investment adviser 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 markets 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.
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.
<PAGE>
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.
Illiquid and 144A Securities
As discussed in the section of the Fund's Prospectus entitled "Investment
Objective and Policies," the Fund may invest in illiquid securities, including
restricted securities and other investments which are not readily marketable.
Restricted securities are securities which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933 (the
"1933 Act"). These limitations on resale and marketability may have the effect
of preventing the Fund from disposing of such a security at the time desired or
at a reasonable price. In addition, in order to resell a restricted security,
the Fund might have to bear the expense and incur the delays associated with
effecting registration. In purchasing restricted securities, the Fund does not
intend to engage in underwriting activities, except to the extent the Fund may
be deemed to be a statutory underwriter under the 1933 Act in disposing of such
securities. Restricted securities will be purchased for investment purposes only
and not for the purpose of exercising control or management of other companies.
The Fund also may invest in restricted securities that can be resold to
institutional investors pursuant to Rule 144A under the 1933 Act ("Rule 144A
Securities"). In recent years, a large institutional market has developed for
Rule 144A Securities. Institutional investors generally will not seek to sell
these instruments to the general public, but instead will often depend on an
efficient institutional market in which Rule 144A Securities can readily be
resold or on an issuer's ability to honor a demand for repayment. Therefore, the
fact that there are contractual or legal restrictions on resale to the general
public or certain institutions is not dispositive of the liquidity of such
investments. Institutional markets for Rule 144A Securities may provide both
readily ascertainable values for Rule 144A Securities and the ability to
liquidate an investment in order to satisfy share redemption orders. An
insufficient number of qualified institutional buyers interested in purchasing a
Rule 144A Security held by the Fund, however, could adversely affect the
marketability of such security, and the Fund might be unable to dispose of such
security promptly or at reasonable prices.
The board of directors has delegated to Fund Management the authority to
determine whether a liquid market exists for securities eligible for resale
pursuant to Rule 144A under the 1933 Act, or any successor to such rule, and
whether such securities are subject to the Fund's restriction against investing
more than 15% of its net assets in illiquid securities. Under guidelines
established by the board of directors, Fund Management will consider the
following factors, among others, in making this determination: (1) the
unregistered nature of a Rule 144A security, (2) the frequency of trades and
quotes for the security; (3) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (4) dealer
undertakings to make a market in the security; and (5) the nature of the
security and the nature of marketplace trades (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics of transfer).
<PAGE>
When-Issued and Delayed Delivery Securities
As discussed in the section of the Fund's Prospectus entitled "Investment
Policies and Risks," the Fund may purchase and sell securities on a when-issued
or delayed delivery basis. When-issued or delayed delivery transactions arise
when securities (normally, equity obligations of issuers eligible for investment
by the Fund) are purchased or sold by the Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield. However, the yield on a comparable security available when
delivery takes place may vary from the yield on the security at the time that
the when-issued or delayed delivery transaction was entered into. When the Fund
engages in when-issued and delayed delivery transactions, it relies on the
seller or buyer, as the case may be, to consummate the sale. Failure to do so
may result in the Fund missing the opportunity of obtaining a price or yield
considered to be advantageous. When-issued and delayed delivery transactions
generally may be expected to settle within one month from the date the
transactions are entered into, but will not be entered into for delivery later
than 90 days after the transaction date. However, no payment or delivery is made
by the Fund until it receives delivery or payment from the other party to the
transaction.
To the extent that the Fund remains substantially fully invested at the
same time that it has purchased when-issued securities, as it would normally
expect to do, there may be greater fluctuations in its net assets than if the
Fund set aside cash to satisfy its purchase commitments.
When the Fund purchases securities on a when-issued basis, it will
maintain in a segregated account cash or liquid securities having an aggregate
value equal to the amount of such purchase commitments, until payment is made.
If necessary, additional assets will be placed in the account daily so that the
value of the account will equal or exceed the amount of the Fund's purchase
commitments.
Repurchase Agreements
As discussed in the section of the Fund's Prospectus entitled "Investment
Objective and Policies," the Fund may invest in repurchase agreements with
commercial banks, registered brokers or registered government securities
dealers, which are believed to be creditworthy under standards established by
the Company's board of directors. A repurchase agreement is an agreement under
which the Fund acquires a debt instrument (generally a security issued by the
U.S. government or an agency thereof, a banker's acceptance or a certificate of
deposit) from a commercial bank, broker or dealer, subject to resale to the
seller at an agreed upon price and date (normally, the next business day). A
repurchase agreement may be considered a loan collateralized by securities. The
resale price reflects an agreed-upon interest rate effective for the period the
instrument is held by the Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the securities acquired by the
Fund (including accrued interest earned thereon) must have a total value at
least equal to the value of the repurchase agreement, and are held as collateral
by the Fund's custodian bank until the repurchase agreement is completed. In
<PAGE>
addition, the Company's board of directors monitors the Fund's repurchase
agreement transactions and has established guidelines and standards for review
by the investment adviser of the creditworthiness of any bank, broker or dealer
party to a repurchase agreement with the Fund. The Fund will not enter into
repurchase agreements maturing in more than seven days if as a result more than
15% of its 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, the Fund may experience costs and
delays in realizing on the collateral. Finally, it is possible that the Fund may
not be able to substantiate its interest in the underlying security and may be
deemed an unsecured creditor of the other party to the agreement. While the
Fund's management acknowledges these risks, it is expected that they can be
controlled through careful monitoring procedures.
Lending of Securities. As described in the Fund's Prospectus, the Fund may
lend its portfolio securities to brokers, dealers, banks 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
<PAGE>
pool operator. ^ The Fund will not, as to any positions, whether long, short
or a combination thereof, enter into futures and options thereon for which the
the aggregate initial margins and premiums exceed 5% of the fair market value of
its assets after taking into account unrealized profits and losses on options it
has entered into. In the case of an option that is "in-the-money," as defined in
the Commodity Exchange Act (the "CEA"), the in-the-money amount may be excluded
in computing such 5%. (In general a call option on a future is "in-the-money" if
the value of the future exceeds the exercise ("strike") price of the call; a put
option on a future is "in-the-money" if the value of the future which is the
subject of the put is exceeded by the strike price of the put.) 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.^
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)^. 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
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,
<PAGE>
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
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 changes 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.
<PAGE>
Investment Restrictions. As described in the section of the Fund's
Prospectus entitled "Investment Policies and Risks," the Fund operates under
investment restrictions. ^ The following restrictions 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.
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.)
<PAGE>
(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.
In applying the industry concentration investment restriction (no. 3
above), the Fund uses an industry classification system based on ^ a modified
S&P industry code classification schema which uses various sources to classify
securities.
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 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
<PAGE>
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 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
("IFG"), is employed as the Company's investment adviser. IFG was established in
1932 and also serves as an investment adviser to INVESCO Capital Appreciation
Funds, Inc. (formerly, INVESCO Dynamics Fund, Inc.), INVESCO 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. IFG, as investment adviser, has contracted with INVESCO
Management & Research, Inc. ("IMR") to provide investment advisory and research
services to the Fund. IMR has the primary responsibility for providing portfolio
investment management services to the Fund. INVESCO Trust, a trust company
founded in 1969, is a wholly-owned subsidiary of IFG.
The Distributor. Effective September 30, 1997, INVESCO Distributors, Inc.
("IDI") became the Funds' distributors. IDI, established in 1997, is a
registered broker-dealer that acts as distributor for all retail mutual funds
advised by IFG. Prior to September 30, 1997, IFG served as the Funds'
distributor.
IFG and IMR are indirect wholly owned subsidiaries of AMVESCAP PLC, a
publicly-traded holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. INVESCO PLC changed
its name to AMVESCO PLC on March 3, 1997 and to AMVESCAP PLC on May 8, 1997, as
part of a merger between a direct subsidiary of INVESCO PLC and A I M Management
Group, Inc. that created one of the largest ^ investment management businesses
in the world with approximately $165 billion in assets under management. IFG was
established in 1932 and as of July 31, 1997, managed 14 mutual funds, consisting
of 45 separate portfolios, on behalf of over ^ 858,051 shareholders. AMVESCAP
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.
<PAGE>
--INVESCO Management & Research, Inc. of Boston, Massachusetts primarily
manages pension and endowment accounts.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
--INVESCO Realty Advisors, Inc. of Dallas, Texas is responsible for
providing advisory services in the U.S. real estate markets for pension plans
and public pension funds, as well as endowment and foundation accounts.
--A I M Advisors, Inc. of Houston, Texas provides investment advisory and
administrative services for retail and institutional mutual funds.
--A I M Capital Management, Inc. of Houston, Texas provides investment
advisory services to individuals, corporations, pension plans and other private
investment advisory accounts and also serves as a sub-adviser to certain retail
and institutional mutual funds, one Canadian mutual fund and one portfolio of an
open-end registered investment company that is offered to separate accounts of
variable insurance companies.
--A I M Distributors, Inc. and Fund Management Company of Houston, Texas
are registered broker-dealers that act as the principal underwriters for retail
and institutional mutual funds.
The corporate headquarters of AMVESCAP PLC are located at 11 Devonshire
Square, London, EC2M4YR, England.
As indicated in the Fund's Prospectus, IFG and IMR 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 IFG, IMR and their North American affiliates. The
policy requires officers, inside directors, investment and other personnel of
IFG, IMR 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 IFG, IMR
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 IFG or IMR.
Investment Advisory Agreement. IFG serves as investment adviser pursuant
to an investment advisory agreement dated February 28, 1997 (the "Agreement")
with the Company which was approved by the board of directors on November 6,
1996, by a vote cast in person by a majority of the directors of the Company,
<PAGE>
including a majority of the directors who are not "interested persons" of the
Company or IFG at a meeting called for such purpose. The Agreement was approved
by the Fund's shareholders on January 31, 1997, for an initial term expiring
February 28, 1999. 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 such continuance. The Agreement may be terminated at any time
without penalty by either party or the Fund upon sixty (60) days' written notice
and terminates automatically in the event of an assignment to the extent
required by the 1940 Act and the rules thereunder.
The Agreement provides that IFG shall manage the investment 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 IFG). Further, IFG
shall perform all administrative, internal accounting (including computation of
net asset value), clerical, statistical, secretarial and all other services
necessary or incidental to the administration of the affairs of the Fund
excluding, however, those services which are the subject of separate agreement
between the Company and IFG or any affiliate thereof, including the distribution
and sale of Fund shares and provision of transfer agency, dividend disbursing
agency, and registrar services, and services furnished under an Administrative
Services Agreement with IFG discussed below. 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 IFG's in-house legal and accounting staff (including the prospectus,
statement of additional information, proxy statements, shareholder reports, tax
returns, reports to the SEC, and other corporate documents of the Fund), 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
IFG are borne by the Fund.
As full compensation for its advisory services provided to the Company,
IFG receives a monthly fee. The fee is calculated daily at an annual rate of
0.75% of the Fund's average net assets. For the fiscal years ended July 31,
1997, 1996 and 1995, the Fund incurred advisory fees in the amount of $375,830,
$409,030 and $135,262, respectively, prior to the voluntary absorption of
certain Fund expenses by IFG.
Sub-Advisory Agreement. IMR serves as sub-adviser to the Fund pursuant to
a sub-advisory agreement dated February 28, 1997 (the "Sub-Agreement") with IFG
which was approved by the board of directors on November 6, 1996 by a vote cast
in person by a majority of the directors of the Company, including a majority of
<PAGE>
the directors who are not "interested persons" of the Company, IFG, or IMR at a
meeting called for such purpose. Shareholders of the Fund approved the
Sub-Advisory Agreement on January 31, 1997, for an initial term expiring
February 28, 1999. 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 IMR, subject to the supervision of IFG,
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 sold
for the Fund, unless otherwise directed by the directors of the Company or IFG,
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, IMR
shall receive from IFG, at the end of each month, a fee based on the average
daily value of the Fund's net assets at the annual rate of 0.375% of the Fund's
average net assets. The Sub-Advisory fee is paid by IFG, NOT the Fund.
Administrative Services Agreement. IFG, either directly or through
affiliated companies, provides certain administrative, sub-accounting, and
recordkeeping services to the Fund pursuant to an Administrative Services
Agreement dated February 28, 1997 (the "Administrative Agreement"). The
Administrative Agreement was approved by the board of directors on November 6,
1996, 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 IFG at a
meeting called for such purpose. The Administrative Agreement is for an initial
<PAGE>
term expiring February 28, 1998, and has been continued by action of the board
of directors until May 15, 1998. 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 IFG 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 IFG shall provide the following
services to the Fund: (A) such sub-accounting and recordkeeping services and
functions as are reasonably necessary for the operation of the Fund; and (B)
such sub-accounting, recordkeeping, and administrative services and functions,
which may be provided by affiliates of IFG, 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 IFG consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
monthly at an annual rate of 0.015% per year of the average net assets of the
Fund.
During the fiscal years ended July 31, 1997, 1996 and 1995, the Fund paid ^
IFG administrative services fees (prior to the voluntary absorption of certain
Fund expenses by IFG and IMR) in the amount of $17,517, $18,180 and $12,705,
respectively.
Transfer Agency Agreement. IFG also performs transfer agent, dividend
disbursing agent, and registrar services for the Fund pursuant to a Transfer
Agency Agreement dated February 28, 1997, which was approved by the board of
directors of 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 November 6, 1996, for an initial term expiring February 28, 1998
and has been extended by action of the board of directors until May 15, 1998.
Thereafter, the Transfer Agency Agreement 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.
<PAGE>
The Transfer Agency Agreement provides that the Fund shall pay to IFG an
annual fee of $20.00 per shareholder account or, where applicable, per
participant in an omnibus account. This fee is paid monthly at a rate of 1/12 of
the annual fee and is based upon the number of shareholder accounts and omnibus
account participants in existence at any time during each month.
During the fiscal years ended July 31, 1997, 1996 and 1995, the Fund paid
IFG transfer agency fees (prior to the voluntary absorption of certain Fund
expenses by IFG and IMR) in the amount of $131,681, $47,778 and $14,764,
respectively.
Officers and Directors of the Company. The overall direction and
supervision of the Company is the responsibility of the board of directors,
which has the primary duty of seeing that the general investment policies and
programs of the Fund are carried out and that the Fund's portfolio is properly
administered. The officers of the Company, all of whom are officers and
employees of, and are paid by, IFG, 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
IFG.
All of the officers and directors of the Company hold comparable positions
with INVESCO Capital Appreciation Funds (formerly, 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 also serve as trustees of INVESCO Value Trust. In
addition, all of the directors of the Company with the exception of Mr. Hesser,
serve as trustees of INVESCO Treasurer's Series Trust. All of the officers of
the Company also hold comparable positions with INVESCO Value Trust. Set forth
below is information with respect to each of the Company's officers and
directors. Unless otherwise indicated, the address of the directors and officers
is Post Office Box 173706, Denver, Colorado 80217-3706. Their affiliations
represent their principal occupations during the past five years.
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive Officer and
Director of AMVESCAP PLC, London, England, and of various subsidiaries thereof.
Chairman of the Board of INVESCO Treasurer's Series Trust. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. Vice Chairman of INVESCO
Treasurer's Series Trust. Trustee of INVESCO Global Health Sciences Fund.
Formerly, Chairman of the Executive Committee and Chairman of the Board of
Security Life of Denver Insurance Company, Denver, Colorado; Director of ING
America Life Insurance Company, Urbaine Life Insurance Company and Midwestern
United Life Insurance Company. Address: Security Life Center, 1290 Broadway,
Denver, Colorado. Born: January 12, 1928.
<PAGE>
DAN J. HESSER,+* President, CEO and Director. Chairman of the Board,
President, and Chief Executive Officer of INVESCO Funds Group, Inc. and INVESCO
Distributors, Inc; President and Director of INVESCO Trust Company; President
and Chief Operating Officer of INVESCO Global Health Sciences Fund. Born:
December 27, 1939.
VICTOR L. ANDREWS,** Director. Professor Emeritus, Chairman Emeritus and
Chairman of the CFO Roundtable of the Department of Finance at Georgia State
University, Atlanta, Georgia; President, Andrews Financial Associates, Inc.
(consulting firm); since October 1984, Director of the Center for the Study of
Regulated Industry at Georgia State University; formerly, member of the
faculties of the Harvard Business School and the Sloan School of Management of
MIT. Dr. Andrews is also a Director of the Southeastern Thrift and Bank Fund,
Inc. and The Sheffield Funds, Inc. Address: 4625 Jettridge Drive, Atlanta,
Georgia. Born: June 23, 1930.
BOB R. BAKER,+** Director. President and Chief Executive Officer of AMC
Cancer Research Center, Denver, Colorado, since January 1989; until mid-December
1988, Vice Chairman of the Board of First Columbia Financial Corporation (a
financial institution), Englewood, Colorado. Formerly, Chairman of the Board and
Chief Executive Officer of First Columbia Financial Corporation. Address: 1775
Sherman Street, #1000, Denver, Colorado. Born: August 7, 1936.
LAWRENCE H. BUDNER,# Director. Trust Consultant; prior to June 30, 1987,
Senior Vice President and Senior Trust Officer of InterFirst Bank, Dallas,
Texas. Address: 7608 Glen Albens Circle, Dallas, Texas. Born: July 25, 1930.
DANIEL D. CHABRIS,+# Director. Financial Consultant; Assistant Treasurer of
Colt Industries Inc., New York, New York, from 1966 to 1988. Address: 19
Kingsbridge Way, Madison Connecticut. Born: August 1, 1923.
WENDY L. GRAMM, Ph.D.,** ^ Director. Self-employed (since 1993); Professor
of Economics and Public Administration, University of Texas at Arlington.
Formerly, Chairman, Commodity Futures Trading Commission from 1988 to 1993,
administrator for Information and Regulatory Affairs at the Office of Management
and Budget from 1985 to 1988, Executive Director of the Presidential Task Force
on Regulatory Relief and Director of the Federal Trade Commission's Bureau of
Economics. Dr. Gramm is also a director of the Chicago Mercantile Exchange,
Enron Corporation, IBP, Inc., State Farm Insurance Company, State Farm Life
Insurance Company, Kinetic Concepts, Inc., Independant Women's Forum,
International Republic Institute, and the Republican Women's Federal Forum. Dr.
Gramm is also a member of the Board of Visitors, College of Business
Administration, University of Iowa, and a member of the Board of Visitors,
Center for Study of Public Choice, George Mason University. Address: 4201 Yuma
Street, N.W., Washington, D.C. Born: January 10, 1945.
HUBERT L. HARRIS, JR.,* Director. Chairman (since 1996) and President
(January 1990 to May 1996) of INVESCO Services, Inc.; Chief Executive Officer of
INVESCO Individual Services Group. Member of the Executive Committee of the
Alumni Board of Trustees of Georgia Institute of Technology. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: July 15, 1943.
<PAGE>
KENNETH T. KING,^# Director. Formerly, Chairman of the Board of The Capitol
Life Insurance Company, Providence Washington Insurance Company, and Director of
numerous subsidiaries thereof in the U.S. Formerly, Chairman of the Board of The
Providence Capitol Companies in the United Kingdom and Guernsey. Chairman of the
Board of the Symbion Corporation (a high technology company) until 1987.
Address: 4080 North Circulo Manzanillo, Tucson, Arizona. Born: November 16,
1925.
JOHN W. MCINTYRE,# Director. Retired. Formerly, Vice Chairman of the Board
of Directors of the Citizens and Southern Corporation and Chairman of the Board
and Chief Executive Officer of the Citizens and Southern Georgia Corporation and
Citizens and Southern National Bank. Director of Golden Poultry Co., Inc.
Trustee of INVESCO Global Health Sciences Fund and Gables Residential Trust.
Address: 7 Piedmont Center, Suite 100, Atlanta, Georgia. Born: September 14,
1930.
LARRY SOLL, Ph.D., Director.^** Formerly, Chairman of the Board (1987 to
1994), Chief Executive Officer (1982 to 1989 and 1993 to 1994) and President
(1982 to 1989) of Synergen Corp. Director of Synergen since incorporation in
1982. Director of ISD Pharmaceuticals, Inc., Trustee of INVESCO Global Health
Sciences Fund. Address: 345 Poorman Road, Boulder, Colorado. Born: April 26,
1942.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995), General
Counsel and Secretary of INVESCO Funds Group, Inc. and INVESCO Trust Company and
INVESCO Distributors, Inc. (since 1997); Vice President (May 1989 to April
1995), Secretary and General Counsel of INVESCO Funds Group, Inc.; formerly,
employee of a U.S. regulatory agency, Washington, D.C., (June 1973 through May
1989). Born: September 25, 1947.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
Funds Group, Inc. and INVESCO Trust Company (since 1988). Senior Vice President
and Treasurer of INVESCO Distributors, Inc. (since 1997). Born: October 1, 1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO Funds Group, Inc. (since 1995) and of INVESCO Distributors, Inc. (since
1997) and Trust Officer of INVESCO Trust Company (since July 1995) and formerly
(August 1992 to July 1995), Vice President of INVESCO Funds Group, Inc. and
Trust Officer of INVESCO Trust Company. Formerly, Vice President of 440
Financial Group from June 1990 to August 1992; Assistant Vice President of
Putnam Companies from November 1986 to June 1990. Born: August 21, 1956.
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO Funds Group,
Inc. (since 1984) and of INVESCO Distributors, Inc. (since 1997) and Trust
Officer of INVESCO Trust Company. Born: September 14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO Funds Group,
Inc. (since 1984) and of INVESCO Distributors, Inc. (since 1997) and Trust
Officer of INVESCO Trust Company. Born: February 3, 1948.
<PAGE>
#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 September 18, 1997, officers and directors of the Company, as a
group, beneficially owned less than 1% of the Company's outstanding shares and
less than 1% of the Fund's outstanding shares.
Director Compensation
The following table sets forth, for the fiscal year ended July 31, 1997:
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 ^ IDI (including the Fund), INVESCO Advisor
Funds, Inc., INVESCO Treasurer's Series Trust and INVESCO Global Health Sciences
Fund (collectively, the "INVESCO Complex") to these directors for services
rendered in their capacities as directors or trustees during the year ended
December 31, 1996. As of December 31, 1996, there were 49 funds in the INVESCO
Complex. Dr. Soll became an independent director of the Company effective May
15, 1997. Dr. Gramm became an independent director of the Company effective July
29, 1997 and is not included in the table below.
<PAGE>
Total
Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
tion From Company Upon Paid To
Company(1) Expenses(2) Retirement(3) Directors(1)
Fred A.Deering, $1,165 $ 95 $ 92 $98,850
Vice Chairman of
the Board
Victor L. Andrews 1,150 89 107 84,350
Bob R. Baker 1,162 80 143 84,850
Lawrence H. Budner 1,142 89 107 80,350
Daniel D. Chabris 1,157 102 76 84,850
A. D. Frazier(4) 554 0 0 81,500
Kenneth T. King 1,112 98 84 71,350
John W. McIntyre 1,139 0 0 90,350
Larry Soll 261 0 0 17,500
------ ---- ---- --------
Total $8,842 $553 $609 $693,950
% of Net Assets 0.0150%(5) 0.0009%(5) 0.0045%(6)
(1)The vice chairman of the board, the chairmen of the audit, management
liaison and compensation committees, ^ the members of the executive and
valuation committees and the members of specially appointed task forces of the
board of directors each receive compensation for serving in such capacities in
addition to the compensation paid to all independent directors.
(2)Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the election
of the directors.
(3)These figures represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding INVESCO Global Health
Sciences Fund which does not participate in any retirement plan) upon the
directors' retirement, calculated using the current method of allocating
director compensation among the funds in the INVESCO Complex. These estimated
<PAGE>
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. With the exception of Messrs. Frazier and McIntyre and Drs. Gramm
and Soll, each of these directors has served as a director of one or more of the
funds in the INVESCO Complex for the minimum five-year period required to be
eligible to participate in the Defined Benefit Deferred Compensation Plan.
(4)Effective February 28, 1997, Mr. Frazier resigned as a director of the
Company. Effective November 1, 1996, Mr. Frazier was employed by INVESCO PLC
(the predecessor to AMVESCAP PLC), a company affiliated with IFG, and did not
receive any director's fees or other compensation from the Company or other
funds in the INVESCO Complex for his service as a director.
(5)Total as a percentage of the Fund's net assets as of July 31, 1997.
(6)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1996.
Messrs. Brady, Harris and Hesser, as "interested persons" of the Company
and other funds in the INVESCO Complex, receive compensation as officers or
employees of IFG 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 IFG and
INVESCO Treasurer's Series Trust have adopted a Defined Benefit Deferred
Compensation Plan for the non-interested directors and trustees of the funds.
Under this plan, each director or trustee who is not an interested person of the
funds (as defined in the 1940 Act) and who has served for at least five years (a
"qualified director") is entitled to receive, upon retiring from the boards at
the 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 40% of the basic retainer. These payments will continue for the
remainder of the qualified director's life or ten years, whichever is longer
(the "reduced retainer payments"). If a qualified director dies or becomes
disabled after age 72 and before age 74 while still a director of the funds, the
first year retirement benefit and the reduced retainer payments will be made to
^ him/her or to ^ his/her beneficiary or estate. If a qualified director becomes
<PAGE>
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/her beneficiary or estate. The plan is administered by a committee of
three directors who are also participants in the plan and one director who is
not a plan participant. The cost of the plan will be allocated among the INVESCO
and Treasurer's Series Trust Funds in a manner determined to be fair and
equitable by the committee. The 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 ^ that is comprised of five 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 IFG 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 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."
IDI 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 To Buy
Shares," the net asset value of shares of the Fund is computed once each day
that the New York Stock Exchange is open as of the close of regular trading on
that Exchange (generally 4:00 p.m., New York time) and applies to purchase and
redemption orders received prior to that time. Net asset value per share is also
computed on any other day on which there is a sufficient degree of trading in
the securities held by 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, Martin
<PAGE>
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving, and Christmas. The net asset value per share of
the Fund is calculated by dividing the value of all securities held by the Fund
plus 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 ^ value of securities held by the ^ Fund and other assets used in
computing net asset value generally ^ is 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 section of the Fund's Prospectus entitled "Fund Price
and Performance," the Company advertises the total return performance of the
Fund. The average annual total return performance for the fiscal year ended July
31, 1997 and the period ended December 1, 1993 (inception) through July 31, 1997
was 36.97% and 16.21%, respectively. 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:
<PAGE>
P(1 + T) exponent n = ERV
where: P = initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
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
United Mutual Fund Selector
USA Today
Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
<PAGE>
SERVICES PROVIDED BY THE FUND
Periodic Withdrawal Plan. As described in the section of the Fund's
Prospectus entitled "How To Sell Shares," the Fund offers a Periodic Withdrawal
Plan. All dividends and distributions on shares owned by shareholders
participating in this Plan are reinvested in additional shares. Because
withdrawal payments represent the proceeds from sales of shares, the amount of
shareholders' investments in the Fund will be reduced to the extent that
withdrawal payments exceed dividends and other distributions paid and
reinvested. Any gain or loss on such redemptions must be reported for tax
purposes. In each case, shares will be redeemed at the close of business on or
about the 20th day of each month preceding payment and payments will be mailed
within five business days thereafter.
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.
Participation in the Periodic Withdrawal Plan may be terminated at any
time by sending a written request to IFG. Upon termination, all future dividends
and capital gain distributions will be reinvested in additional shares unless a
shareholder requests otherwise.
Exchange Policy. As discussed in the section of the Fund's Prospectus
entitled "How To Buy Shares -- Exchange Policy," the Fund offers shareholders
the ability to exchange shares of the Fund for shares of another fund or for
shares of certain other mutual funds advised by IFG. Exchange requests may be
made either by telephone or by written request to IFG using the telephone number
or address on the cover of this Statement of Additional Information. Exchanges
made by telephone must be in an amount of at least $250, if the exchange is
being made into an existing account of one of the INVESCO funds. All exchanges
that establish a new account must meet the fund's applicable minimum initial
investment requirements. Written exchange requests into an existing account have
no minimum requirements other than the fund's applicable minimum subsequent
investment requirements. Any gain or loss realized on such an exchange is
recognized for federal income tax purposes. This privilege is not an option or
right to purchase securities, but is a revocable privilege permitted under the
present policies of each of the funds and is not available in any state or other
jurisdiction where the shares of the mutual fund into which transfer is to be
made are not qualified for sale, or when the net asset value of the shares
presented for exchange is less than the minimum dollar purchase required by the
appropriate prospectus.
TAX-DEFERRED RETIREMENT PLANS
As described in the section of the Prospectus entitled "How To Buy Shares
- -- Retirement Plans and IRAs," 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 IFG will be provided with prototype
documents and other supporting information regarding the type of plan requested.
Each of these plans involves a long-term commitment of assets and is subject to
possible regulatory penalties for excess contributions, premature distributions
<PAGE>
or for insufficient distributions after age 70-1/2. The legal and tax
implications may vary according to the circumstances of the individual investor.
Therefore, the investor is urged to consult with an attorney or tax adviser
prior to the establishment of such a plan.
HOW TO REDEEM SHARES
Normally, payments for shares redeemed will be mailed within seven (7)
days following receipt of the required documents as described in the section of
the Fund's Prospectus entitled "How to Sell Shares." The right of redemption may
be suspended and payment postponed when: (a) the New York Stock Exchange is
closed for other than customary weekends and holidays; (b) trading on that
exchange is restricted; (c) an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable, or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets; or (d) the SEC by order so permits.
It is possible that in the future conditions may exist which would, in the
opinion of the Company's investment adviser, make it undesirable for the Fund to
pay for redeemed shares in cash. In such cases, the investment adviser may
authorize payment to be made in portfolio securities or other property of the
Fund. However, the Company is obligated under the 1940 Act to redeem for cash
all shares of the Fund presented for redemption by any one shareholder having a
value up to $250,000 (or 1% of the Fund's net assets if that is less) in any
90-day period. Securities delivered in payment of redemptions are selected
entirely by the investment adviser based on what is in the best interests of the
Fund and its shareholders, and are valued at the value assigned to them in
computing the Fund's net asset value per share. Shareholders receiving such
securities are likely to incur brokerage costs on their subsequent sales of the
securities.
DIVIDENDS, ^ OTHER DISTRIBUTIONS AND TAXES
The Fund intends to continue to conduct its business and satisfy the
applicable diversification of assets and source of income requirements to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The Fund so qualified for the ^
taxable year ended July 31, 1997 and intends to continue to qualify during its
current ^ taxable year. As a result, because the Fund intends to distribute all
of its income and recognized gains, 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,
<PAGE>
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
and mid-term capital gains 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. ^ The Taxpayer
Relief Act of 1997 (the "Tax Act"), enacted in August 1997, changed the taxation
of long-term capital gains for individuals by applying different capital gains
rates depending on the taxpayer's holding period and marginal rate of federal
income tax. Long-term gains realized on the sale of securities held for more
than one year, but not for more than 18 months are taxable at a rate of 28%.
This category of long-term gains is often referred to as "mid-term" gains but is
technically termed "28% rate gains." Long-term gains realized on the sale of
securities held for more than 18 months are taxable at a rate of 20%. At the end
of each year, information regarding the tax status of dividends and other
distributions is provided to shareholders. Shareholders should consult their tax
advisers as to the effect of the Tax Act on distributions by the Fund of net
capital gains.
All dividends and other distributions are regarded as taxable to the
investor, regardless whether ^ such dividends and distributions are reinvested
in additional shares of the Fund. The net asset value of Fund shares reflects
accrued net investment income and undistributed realized capital and foreign
currency gains; therefore, when a distribution is made, the net asset value is
reduced by the amount of the distribution. If the net asset value of Fund shares
^ were reduced below a shareholder's cost as a result of a distribution, such
distribution would be taxable to the shareholder although a portion would be, in
effect, a return of invested capital. ^ 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 by
the shareholders.
IFG may provide Fund shareholders with information concerning the average
cost basis of their shares in order to help them prepare their tax returns. This
information is intended as a convenience to shareholders and will not be
reported to the Internal Revenue Service (the "IRS"). The IRS permits the use of
several methods to determine the cost basis of mutual fund shares. The cost
basis information provided by IFG will be computed using the single-category
average cost method, although neither IFG nor the Fund recommends any particular
method of determining cost basis. Other methods may result in different tax
consequences. If a shareholder has reported gains or losses with respect to
shares of 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 the method.
<PAGE>
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as a 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 net capital ^ gains 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 (other than a controlled foreign
corporation) that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, 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.
The Fund may elect to "mark-to-market" its stock in any PFIC.
Marking-to-market, in this context, means including in ordinary income for each
taxable year the excess, if any, of the fair market value of the PFIC stock over
the Fund's adjusted tax basis therein as of the end of that year. Once the
election has been made, the Fund also will be allowed to deduct from ordinary
income the excess, if any, of its adjusted basis in the PFIC stock over the fair
market value thereof as of the end of the year, but only to the extent of any
net mark-to-market gains with respect to that PFIC stock included by the Fund
for prior taxable years. A Fund's adjusted tax basis in each PFIC's stock with
respect to which it makes this election will be adjusted to reflect the amounts
of income included and deductions taken under the election.
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
<PAGE>
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and ^ other
distributions ^ generally will be subject to applicable state and local taxes.
Qualification as a regulated investment company under the ^ Code 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. During the fiscal years ended
July 31, 1997, 1996 and 1995, the Fund's portfolio turnover rates were 147%,
156% and 73%, respectively. In computing the portfolio turnover rate, all
investments with maturities or expiration dates at the time of acquisition of
one year or less are excluded. Subject to this exclusion, the turnover rate is
calculated by dividing (A) the lesser of purchases or sales of portfolio
securities for the fiscal year by (B) the monthly average of the value of
portfolio securities owned by the Fund during the fiscal year.
Placement of Portfolio Brokerage. Either IFG, as the Company's investment
adviser, or IMR, as the Company's sub-adviser, places orders for the purchase
and sale of securities with brokers and dealers based upon IFG's or IMR's
evaluation of their financial responsibility subject to their ability to effect
transactions at the best available prices. IFG or IMR 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 any commissions charged the Fund are consistent with
prevailing and reasonable commissions or discounts, IFG or IMR 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 IFG or IMR 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, IFG or IMR may select brokers that provide research
services to effect such transactions. Research services consist of statistical
and analytical reports relating to issuers, industries, securities and economic
factors and trends, which may be of assistance or value to IFG or IMR in making
informed investment decisions. Research services prepared and furnished by
brokers through which the Fund effects securities transactions may be used by
IFG or IMR in servicing all of their respective accounts and not all such
services may be used by IFG or IMR in connection with the Fund.
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, IFG or IMR, 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.
Portfolio transactions may be effected through qualified broker-dealers
who recommend the Fund to their clients, or who act as agent in the purchase of
the Fund's shares for their clients. When a number of brokers and dealers can
provide comparable 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 years ended July 31, 1997, 1996 and 1995 were $273,980, $386,415 and
$111,650, respectively. During the fiscal year ended July 31, 1997, brokers
providing research received $0 in commissions on portfolio transactions effected
for the Fund. The aggregate dollar amount of such portfolio transactions was $0.
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, 1997.
At July 31, 1997, the Fund did not hold securities of its regular brokers
or dealers, or their parents.
Neither IFG nor IMR receives any brokerage commissions on portfolio
transactions effected on behalf of the Fund, and there is no affiliation between
IFG or IMR, or any person affiliated with IFG, IMR, or the Fund and any broker
or dealer that executes transactions for the Fund.
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, all of which has
been allocated to the Fund. As of July 31, 1997, 3,918,379 shares of the 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.
<PAGE>
All Fund 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 August 31, 1997, the following persons held
more than 5% of the Fund's outstanding equity securities.
Name and Address Percent
of Beneficial Owner Number of Shares of Class
- ------------------- ---------------- --------
INVESCO Small Company
Value Fund
Turtle & Co. 306,869.3980 7.709%
S1-RR
P.O. Box 9242
Boston, MA 02209
Mac & Co. 306,530.4260 7.701%
Mellon Bank NA
P.O. Box 320
Pittsburgh, PA 15230
Charles Schwab & Co., Inc. 222,662.8310 5.594%
Special Custody Acct. For
The Exclusive Benefit of
Customers
101 Montgomery St.
San Francisco, CA 94104
Independent Accountants. Price Waterhouse LLP, 950 Seventeenth Street,
Denver, Colorado, has been selected as the independent accountants of the
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.
<PAGE>
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.
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, 1997, 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, 1997.
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 SEC. The complete Registration
Statement may be obtained from the SEC upon payment of the fee prescribed by the
rules and regulations of the SEC.
<PAGE>
APPENDIX A
BOND RATINGS
The following is a description of the S&P and Moody's bond rating
categories:
Moody's Corporate Bond Ratings
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any longer period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
S&P Corporate Bond Ratings
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
<PAGE>
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.
<PAGE>
APPENDIX B
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
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
<PAGE>
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. 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
<PAGE>
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.
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.
<PAGE>
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.
