PROSPECTUS
December 1, 1998
INVESCO SMALL COMPANY VALUE FUND
INVESCO Small Company Value 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. (the "Company"), a
diversified, managed no-load mutual fund, consisting of this single portfolio of
investments. 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, 1998, has been filed with the Securities and
Exchange Commission, and is incorporated by reference into this Prospectus. To
request 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
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..................................................10
HOW TO BUY SHARES...........................................................10
FUND SERVICES...............................................................13
HOW TO SELL SHARES..........................................................13
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS....................................15
ADDITIONAL INFORMATION......................................................16
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ESSENTIAL INFORMATION
Investment Goal And Strategy. The Fund 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" and
"Investment Policies And Risks."
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 various ^ individual retirement accounts ("IRAs"), 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. Its returns on
foreign investments may be influenced by currency fluctuations and other risks
of investing overseas. The Fund may experience rapid portfolio turnover, which
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 their 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 a series of the Company. The Fund
is owned by its shareholders. It employs INVESCO Funds Group, Inc. ("INVESCO"),
founded in 1932, to serve as investment adviser, administrator and transfer
agent. INVESCO Management and Research, Inc. ("IMR") serves as sub-adviser.
Together, INVESCO and IMR constitute "Fund Management." INVESCO Distributors,
Inc. ("IDI"), founded in 1997 as a wholly-owned subsidiary of INVESCO, is the
Fund's distributor.
The Fund's investments are selected by Bob Slotpole. See "The Fund And Its
Management."
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INVESCO, IMR and IDI are indirect, wholly-owned subsidiaries of AMVESCAP
PLC, an international investment management company that managed approximately ^
$241 billion in assets as of ^ September 30, 1998. AMVESCAP PLC is based in
London with money managers located in Europe, North America, South America and
the Far East.
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. Effective June 1, 1998, the Fund is authorized to pay a Rule 12b-1
distribution fee of one quarter of one percent of the Fund's New Assets (new
sales of shares, exchanges into the Fund and reinvestments of dividends and
capital gain distributions) each year. (See "How To Buy Shares - Distribution
Expenses.")
Like any company, the Fund has operating expenses -- such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts, and other expenses. These expenses are paid from the Fund's assets.
Lower expenses therefore benefit investors by increasing the Fund's total
return.
We calculate annual operating expenses as a percentage of the Fund's
average annual net assets. To keep expenses competitive, INVESCO and IMR
voluntarily reimburse the Fund for certain expenses in excess of 1.25%
(excluding excess amounts that have been offset by the expense offset
arrangements described below) of the Fund's average net assets.
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Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.75%
12b-1 Fees 0.01%
Other Expenses(1),(2) 0.50%
Total Fund Operating Expenses(1),(2) 1.26%
(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 were reduced
under an expense offset arrangement. However, as a result of an SEC requirement,
the figures shown above do not reflect these reductions. In comparing expenses
for different years, please note that the Ratios of Expenses to Average Net
Assets shown under "Financial Highlights" do reflect any reductions for periods
prior to the fiscal year ended July 31, 1996. See "The Fund And Its Management."
(2)Certain expenses of the Fund are being absorbed voluntarily by INVESCO
and IMR. In the absence of such absorbed expenses, the Fund's "Other Expenses"
and "Total Fund Operating Expenses" would have been 0.62% and 1.38%,
respectively, based on the Fund's actual expenses for the fiscal year ended July
31, 1998.
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 $70 $153
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."
Because the Fund pays a distribution fee, investors who own Fund shares
for a long period of time may pay more than the economic equivalent of the
maximum front-end sales charge permitted for mutual funds by the National
Association of Securities Dealers, Inc.
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FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers 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 1998 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number on
the cover of this Prospectus. The Annual Report also contains more information
about the Fund's performance.
<TABLE>
<CAPTION>
Period
Ended
Year Ended July 31 July 31
--------------------------------------------------- --------
1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $14.94 $12.19 $11.77 $9.76 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06 0.09 0.08 0.05 0.06
Net Gains or (Losses) on
Securities (Both Realized
and Unrealized) (0.30) 4.10 0.68 2.05 (0.28)
--------------------------------------------------- --------
Total from Investment Operations (0.24) 4.19 0.76 2.10 (0.22)
LESS DISTRIBUTIONS
Dividends from Net Investment
Income 0.05 0.09 0.08 0.09 0.02
Distributions from Capital Gains 3.63 1.35 0.26 0.00 0.00
--------------------------------------------------- --------
Total Distributions 3.68 1.44 0.34 0.09 0.02
--------------------------------------------------- --------
Net Asset Value - End of Period $11.02 $14.94 $12.19 $11.77 $9.76
=================================================== ========
TOTAL RETURN (2.12%) 36.97% 6.47% 21.64% (2.21%)(b)
<PAGE>
RATIOS
Net Assets - End of Period
($000 Omitted) $53,497 $58,549 $46,693 $40,071 $13,474
Ratio of Expenses to Average
Net Assets(c) 1.26%(d) 1.25%(d) 1.09%(d) 1.00% 1.00%(e)
Ratio of Net Investment Income
to Average Net Assets(c) 0.36% 0.75% 0.61% 0.84% 1.20%(e)
Portfolio Turnover Rate 132% 147% 156% 73% 55%(b)
</TABLE>
(a) From December 1, 1993, commencement of investment operations, to
July 31, 1994.
(b) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(c) Various expenses of the Fund were voluntarily absorbed by ^ INVESCO and
IMR for the years ended July 31, 1998, 1997, 1996 and 1995 and the period
ended July 31, 1994. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 1.38%, 1.35%,
1.09%, 1.32% and 1.64% (annualized), respectively, and ratio of net
investment income to average net assets would have been 0.24%, 0.65%,
0.61%, 0.52% and 0.56% (annualized), respectively.
(d) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
(e) Annualized
<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."
<PAGE>
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.
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 the price per share and income
levels of the Fund vary with movements in the stock market, changes in economic
conditions and other factors. The Fund invests in many different securities and
industries; this diversification may help reduce the Fund's exposure to
particular investment and market risks, but cannot eliminate these risks.
Year 2000 Computer Issue. Due to the fact that many computer systems in
use today cannot recognize the Year 2000, but will, unless corrected, revert to
1900 or 1980 or cease to function at that time, the markets for securities in
which the Fund invests may be detrimentally affected by computer failures
affecting portfolio investments or trading of securities beginning January 1,
2000. Improperly functioning trading systems may result in settlement problems
and liquidity issues. In addition, corporate and governmental data processing
errors may result in production issues for individual companies and overall
economic uncertainties. Earnings of individual issuers will be affected by
remediation costs, which may be substantial. The Fund's investments may be
adversely affected.
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
<PAGE>
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 equity and corporate debt
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. 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.
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
-investment income on certain foreign securities 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 that the Fund may experience difficulties in pursuing legal
remedies and collecting judgments.
<PAGE>
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.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands, Portugal and Spain are presently members of the European Economic
and Monetary Union (the "EMU"). The EMU intends to establish a common European
currency for EMU countries which will be known as the "euro." Each participating
country presently plans to adopt the euro as its currency on January 1, 1999.
The old national currencies will be sub-currencies of the euro until July 1,
2002, at which time the old currencies will disappear entirely. Other European
countries may be permitted to join the EMU in the future.
The planned introduction of the euro presents some uncertainties and
possible risks, including whether the payment and operational systems of banks
and other financial institutions will be ready by January 1, 1999; the
establishment of exchange rates for existing currencies and the euro; and the
creation of suitable clearing and settlement systems for the euro. These and
other factors may cause market disruptions before or after January 1, 1999 and
could adversely affect the value of securities held by the Fund.
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 invest in restricted securities that are not
registered for sale to the general public but that may be resold to
institutional investors, known as "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. No interest is payable to the Fund prior to settlement.
<PAGE>
Repurchase Agreements. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price 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 the repurchase
agreement will be maintained with the Fund's custodian in an amount at least
equal to the repurchase price under the agreement (including accrued interest).
These agreements are entered into only with member banks of the Federal Reserve
System, registered broker-dealers and registered U.S. government securities
dealers that are deemed creditworthy under standards established by the
Company's board of directors.
Securities Lending. The Fund may seek to earn additional income by lending
securities to qualified brokers, dealers, banks, or other financial
institutions, on a fully collateralized basis. For further information on this
policy, see "Investment Policies And Restrictions" in the Statement of
Additional Information.
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
<PAGE>
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.
Investment Restrictions. Certain restrictions, which are identified 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, and to 25% the portion of its total assets that may be invested
in any one industry.
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.
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as an open-end, diversified, management investment company.
It was incorporated on April 2, 1993, under the laws of Maryland.
<PAGE>
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, INVESCO, 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.
INVESCO, 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. INVESCO
and IMR continued to operate under their existing names. AMVESCAP PLC had
approximately ^ $241 billion in assets under management as of ^ September 30,
1998. INVESCO was established in 1932 and, as of July 31, 1998, managed 14
mutual funds, consisting of 49 separate portfolios, with combined assets of
approximately $19.6 billion on behalf of 884,099 shareholders.
Bob Slotpole has been the lead portfolio manager of the Fund since 1994 and
is primarily responsible for the day-to-day management of the Fund's holdings.
Mr. Slotpole is also portfolio manager of INVESCO Multi-Asset Allocation Fund.
Mr. Slotpole was previously employed in the proprietary options department at
Lehman Brothers (1983 to 1984) and developed the program trading department at
First Boston (1985 to 1992) before joining IMR as a portfolio manager (since
1993). Mr. Slotpole received an M.B.A. from Stanford University and a B.S. from
the State University of New York at Buffalo.
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 INVESCO 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, 1998, investment management fees paid by the Fund
amounted to 0.75% of the Fund's average net assets.
<PAGE>
Out of ^ the fee, INVESCO paid to IMR as a sub-advisory fee an amount equal
to 0.33% of the Fund's average net assets. No fee is paid by the Fund to IMR.
Under a Distribution Agreement, IDI provides services relating to the
distribution and sale of the Fund's shares. IDI, established in 1997, is a
registered broker-dealer that acts as distributor for all retail funds advised
by INVESCO. Prior to September 30, 1997, INVESCO served as the Fund's
distributor.
Under a Transfer Agency Agreement, INVESCO 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
INVESCO, may provide equivalent services to the Fund. In these cases, INVESCO
may pay, out of the fee it receives from the Fund, an annual sub-transfer agency
fee or recordkeeping fee to the third party.
Under an Administrative Services Agreement, INVESCO handles additional
administrative, recordkeeping and internal sub-accounting services for the Fund.
For the fiscal year ended July 31, 1998, the Fund paid INVESCO a fee equal to
0.03% of the Fund's average net assets.
The management and custodial services provided to the Fund by INVESCO and
the Fund's custodian, and the services provided to shareholders by INVESCO and
IDI, depend on the continued functioning of their computer systems. Many
computer systems in use today cannot recognize the Year 2000, but will revert to
1900 or 1980 or will cease to function due to the manner in which dates were
encoded and are calculated. That failure could have a negative impact on the
handling of the Fund's securities trades, its share pricing and account
services. The Fund and its service providers have been actively working on
necessary changes to their computer systems to deal with the Year 2000 issue and
expect that their systems will be adapted before that date, but there can be no
assurance that they will be successful. Furthermore, services may be impaired at
that time as a result of the interaction of their systems with the noncomplying
computer systems of others. INVESCO plans to test as many such interactions as
practicable prior to December 31, 1999 and to develop contingency plans for
reasonably anticipated failures.
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 arrangements) for the fiscal year ended July 31, 1998, including
<PAGE>
investment advisory fees (but excluding brokerage commissions, which are a
cost of acquiring securities), amounted to 1.26% of the Fund's average net
assets. Certain Fund expenses were absorbed voluntarily by INVESCO and IMR
pursuant to a commitment to the Fund to ensure that the Fund's total operating
expenses (after expense offset arrangements) 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 brokers' and dealers' financial responsibility coupled with their ability
to effect transactions at the best available prices. As discussed under "How To
Buy Shares Distribution Expenses," the Fund may market its shares through
intermediary brokers or dealers that have entered into Dealer Agreements with
INVESCO or IDI, as the Fund's distributor. The Fund may place orders for
portfolio transactions with qualified brokers and 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.
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"). INVESCO
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; subtracting liabilities, including
accrued expenses; and dividing that dollar amount by the total number of Fund
shares outstanding.
Performance Data. To keep shareholders and potential investors informed,
we will occasionally advertise the Fund's total return for one-, five-, and
ten-year periods (or since inception). 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 the periods cited.
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
<PAGE>
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 back cover of this Prospectus.
When we quote mutual fund rankings published by Lipper Analytical
Services, Inc., we may compare the Fund to others in its category of Small
Company Growth Funds, as well as the broad-based Lipper general fund groupings.
These rankings allow you to compare the Fund to its peers. Other independent
financial media also produce performance- or service-related comparisons, which
you may see in our promotional materials. For more information see "Fund
Performance" in the Statement of Additional Information.
Performance figures are based on historical investment results and are not
intended to suggest future performance.
HOW TO BUY SHARES
The chart on page 21 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 INVESCO. However, if you
invest in the Fund through a securities broker, you may be charged a commission
or transaction fee. INVESCO may from time to time make payments from its
revenues to securities dealers and other financial institutions that provide
distribution-related and/or administrative services for the Fund. For all new
accounts, please send a completed application form.
<PAGE>
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) In order to prevent abuse of this policy to the disadvantage
of other shareholders, the Fund reserves the right to
temporarily or permanently terminate the exchange option of any
shareholder who requests more than four exchanges in a year, or
at any time the Fund determines the actions of the
shareholder are detrimental to Fund performance and
shareholders. The Fund will determine whether to do so
based on a consideration of both the number of exchanges any
<PAGE>
particular shareholder, or group of shareholders, has requested
and the time period over which those exchange requests have been
made, together with the level of expense to the Fund which
will result from effecting additional exchange requests. The
Fund is intended to be a long-term investment vehicle and is not
designed to provide investors the means of speculation on
short-term market movements.
5) Notice of all modifications or terminations that would affect all
Fund shareholders will be given at least 60 days prior to the
effective date of the change in policy, except in unusual
circumstances (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 suspended).
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 each subsequent the Fund or INVESCO
80217-3706. 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.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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 INVESCO incurs. If
INVESCO for you are already a
instructions). shareholder in the
INVESCO funds, the Fund
may seek reimbursement
from your existing
account(s) for any loss
incurred.
- --------------------------------------------------------------------------------
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 INVESCO. 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.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
By PAL
Your "Personal $1,000; $250 for an Be sure to write
Account Line" is IRA. 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
INVESCO 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.
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy," page 12.
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 INVESCO
for further details
and the correct form.
================================================================================
Distribution Expenses. The Fund is authorized under a Plan and Agreement
of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Plan") to use its assets to finance certain activities relating to the
distribution of its shares to investors. The Plan applies to New Assets (new
sales of shares, exchanges into the Fund and reinvestments of dividends and
<PAGE>
capital gain distributions) of the Fund made on or after June 1, 1998. Under the
Plan, monthly payments may be made by the Fund to IDI to permit IDI, at its
discretion, to engage in certain activities and provide certain services
approved by the board of directors of the Company in connection with the
distribution of the Fund's shares to investors. These activities and services
may include the payment of compensation (including incentive compensation and/or
continuing compensation based on the amount of customer assets maintained in the
Fund) to securities dealers and other financial institutions and organizations,
which may include INVESCO- and IDI-affiliated companies, to obtain various
distribution-related and/or administrative services for the Fund. Such services
may include, among other things, processing new shareholder account
applications, preparing and transmitting electronically to the Fund's transfer
agent computer-processable tapes of all transactions by customers and serving as
the primary source of information to customers in answering questions concerning
the Fund and their transactions with the Fund.
In addition, other permissible activities and services include
advertising, preparation, printing and distribution of sales literature,
printing and distribution of prospectuses to prospective investors and such
other services and promotional activities for the Fund as may from time to time
be agreed upon by the Company and its board of directors, including public
relations efforts and marketing programs to communicate with investors and
prospective investors. These services and activities may be conducted by the
staff of INVESCO, IDI or their affiliates or by third parties.
Under the Plan, the ^ Company's payments to IDI are limited to an amount
computed at an annual rate of 0.25% of the Fund's New Assets. IDI is not
entitled to payment for overhead expenses under the Plan, but may be paid for
all or a portion of the compensation paid for salaries and other employee
benefits for the personnel of INVESCO or IDI whose primary responsibilities
involve marketing shares of the INVESCO Mutual Funds, including the Fund.
Payment amounts by the Fund under the Plan, for any month, may be made to
compensate IDI for permissible activities engaged in and services provided by
IDI during the rolling 12-month period in which that month falls. Therefore, any
obligations incurred by IDI in excess of the limitations described above will
not be paid by the Fund under the Plan, and will be borne by IDI. In addition,
IDI and its affiliates may from time to time make additional payments from their
revenues to securities dealers, financial advisers and other financial
institutions that provide distribution-related and/or administrative services
for the Fund. No further payments will be made by the Fund under the Plan in the
event of the Plan's termination. Payments made by the Fund may not be used to
<PAGE>
finance directly the distribution of shares of any other Fund of the
Company or other mutual funds advised by INVESCO and distributed by IDI.
However, payments received by IDI which are not used to finance the distribution
of shares of the Fund become part of IDI's revenues and may be used by IDI for
activities that promote the distribution of any of the mutual funds advised by
INVESCO. Subject to review by the Company's directors, payments made by the Fund
under the Plan for compensation of marketing personnel, as noted above, are
based on an allocation formula designed to ensure that all such payments are
appropriate. IDI will bear any distribution-and service-related expenses in
excess of the amounts which are compensated pursuant to the Plan. The Plan also
authorizes any financing of distribution which may result from ^ INVESCO's or
IDI's use of fees received from the Fund for services rendered by INVESCO,
providing that such fees are legitimate and not excessive. For more information
see "How Shares Can Be Purchased -Distribution Plan" in the Statement of
Additional Information.
FUND SERVICES
Shareholder Accounts. INVESCO 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 reinvested in additional Fund shares at the NAV on the
ex-dividend or ex-distribution date, unless you choose to have dividends and/or
other 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
<PAGE>
sending written transaction confirmations, it will not be liable for following
telephoned instructions that it believes to be genuine. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions.
Retirement Plans and IRAs. Fund shares may be purchased for IRAs and many
types of tax-deferred retirement plans. INVESCO 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.
<PAGE>
HOW TO SELL SHARES
================================================================================
Method Minimum Redemption Please Remember
- --------------------------------------------------------------------------------
By Telephone
Call us toll-free $250 (or, if less, These telephone
at 1-800-525-8085. full liquidation of redemption
the account) for a privileges may be
redemption check; modified or
$1,000 for a wire terminated in the
to bank of record. future at INVESCO's
The maximum amount discretion.
which may be
redeemed by
telephone is
generally $25,000.
- --------------------------------------------------------------------------------
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 account owners. the certificates
80217-3706. You may Payment will be must be sent to
also send your mailed to your INVESCO.
request by address of record,
overnight courier or to a
to 7800 E. Union pre-designated
Ave., Denver, CO bank.
80237.
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy," page 12.
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 INVESCO
for further details
and the correct
form.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Periodic Withdrawal
Plan
You may call us to $100 per payment on You must have at
request the a monthly or least $10,000 total
appropriate form quarterly basis. invested with the
and more The redemption INVESCO funds, with
information at check may be made at least $5,000 of
1-800-525-8085. payable to any that total invested
party you in the fund from
designate. which withdrawals
will be made.
- --------------------------------------------------------------------------------
Payment To Third
Party
Mail your request Any amount. All registered
to INVESCO Funds account owners must
Group, Inc., P.O. sign the request,
Box 173706 with a signature
Denver, CO guarantee from an
80217-3706. 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 involuntarily 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.
<PAGE>
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders all of its net
investment income, net capital gains and net gains from foreign currency
transactions, if any. Distribution of substantially all net investment income to
shareholders allows the Fund to maintain its tax status as a regulated
investment company. The Fund does not expect to pay any federal income or excise
taxes because of its distribution policy and tax status as a regulated
investment company.
Shareholders must include all dividends and other distributions as taxable
income for federal, state and local income tax purposes, unless ^ their accounts
are exempt from income taxes. Dividends and other distributions are taxable
whether they are received in cash or automatically reinvested in shares of the
Fund or another fund in the INVESCO group.
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. ^ During 1997, the Taxpayer Relief Act established a new
maximum capital gains tax rate of 20%. Depending on the holding period of the
asset giving rise to the gain, a capital gain was taxable at a maximum rate of ^
either 20% or 28%. Beginning January 1, 1998, ^ all long-term gains realized ^
on the sale of securities held ^ more than 12 months will be taxable at a
maximum rate of 20%. ^ In addition, legislation signed in October of 1998
provides that all capital gain distributions from a mutual fund paid to
shareholders during 1998 will be taxed at a maximum rate of 20%. Accordingly,
capital gain distributions paid in 1998 will be taxable at a maximum 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 adviser as to the effect of distributions by the Fund.
Shareholders 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 they
will be subject to federal income tax at the rates indicated above.
The Fund may be subject to withholding of foreign taxes on dividends or
interest it receives on foreign securities. Foreign taxes withheld may be
treated as an expense of the Fund.
<PAGE>
Individuals and certain other non-corporate shareholders may be subject to
backup withholding of 31% on dividends, capital gains and other distributions
and redemption proceeds. You can avoid backup withholding on your account by
ensuring that we have a correct, certified tax identification number, unless you
are subject to backup withholding for other reasons.
We encourage you to consult a tax adviser with respect to these matters.
For further information, see "Dividends, Other Distributions And Taxes" in the
Statement of Additional Information.
Dividends and Other Distributions. The Fund earns ordinary or net
investment income in the form of interest and dividends on investments.
Dividends paid by the Fund will be based solely on the net investment income
earned by it. The Fund's policy is to distribute substantially all of this
income, less 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 or derivatives for more or less than it paid. If total gains on sales
exceed total losses (including losses carried forward from previous years), the
Fund has a net realized capital gain. Net realized capital gains, if any,
together with gains realized on certain foreign currency transactions, if any,
are distributed to shareholders at least annually, usually in December. Capital
gain distributions are automatically reinvested in additional shares of the Fund
at the net asset value on the payable date unless otherwise requested.
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 by the shareholder. 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 the distribution, the
shareholder will, in effect, have "bought" the distribution by paying full
purchase price, a portion of which is then returned in the form of a taxable
distribution.
<PAGE>
ADDITIONAL INFORMATION
Voting Rights. All shares of the Company 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 Fund 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.
Master/Feeder Option. As a matter of fundamental policy, the Company may,
in the future, seek to achieve the Fund's investment objective by investing all
of the Fund's assets in another investment company having substantially the same
fundamental investment objective, policies and limitations. It is expected that
any such investment company would be managed by INVESCO in substantially the
same manner as the Fund. If permitted by applicable law, any such investment may
be made in the sole discretion of the Company's board of directors without a
vote of the Fund's shareholders. However, shareholders will be given at least 30
days prior notice of any such investment. Such an investment would be made only
if the board of directors determines it to be in the best interests of the Fund
and its shareholders based on potential cost savings, operational efficiencies
or other factors. No assurance can be given that costs would be materially
reduced if this option were implemented.
<PAGE>
INVESCO DIVERSIFIED FUNDS, INC.
INVESCO Small Company Value Fund
A no-load mutual fund seeking
long-term capital growth from
small-capitalization stocks.
PROSPECTUS
December 1, 1998
INVESCO FUNDS
INVESCO Distributors, Inc.(sm)
Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
1-800-525-8085
PAL(R): 1-800-424-8085
http://www.invesco.com
In Denver, visit one of
our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street;
Denver Tech Center
7800 East Union Avenue
Lobby Level
In addition, all documents
filed by the 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, 1998
INVESCO DIVERSIFIED FUNDS, INC.
INVESCO Small Company Value Fund
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 no-load, open-end,
diversified, management investment company currently consisting of one portfolio
of investments, the INVESCO Small Company Value Fund (the "Fund"). Additional
funds may be added in the future.
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, 1998 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 31
HOW SHARES ARE VALUED 35
FUND PERFORMANCE 36
SERVICES PROVIDED BY THE FUND 39
TAX-DEFERRED RETIREMENT PLANS 40
HOW TO REDEEM SHARES 40
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES 41
INVESTMENT PRACTICES 44
ADDITIONAL INFORMATION 47
APPENDIX A 51
APPENDIX B 53
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
As discussed in the Fund's Prospectus in the sections entitled "Investment
Objective And Strategy" and "Investment Policies And Risks," the Fund may invest
in a variety of securities and employ a broad range of investment techniques in
seeking to achieve its investment objective. Such securities and techniques
include the following:
Equity Securities. As described in the Prospectus, equity securities which
may be purchased by the Fund consist of common, preferred and convertible
preferred stocks, and securities having equity characteristics such as rights,
warrants and convertible debt securities. Common stocks and preferred stocks
represent equity ownership interests in a corporation and participate in the
corporation's earnings through dividends which may be declared by the
corporation. Unlike common stocks, preferred stocks are entitled to stated
dividends payable from the corporation's earnings, which in some cases may be
"cumulative" if prior stated dividends have not been paid. Dividends payable on
preferred stock have priority over distributions to holders of common stock, and
preferred stocks generally have preferences on the distribution of assets in the
event of the corporation's liquidation. Preferred stocks may be "participating"
which means that they may be entitled to dividends in excess of the stated
dividend in certain cases. The rights of common and preferred stocks are
generally subordinate to rights associated with a corporation's debt securities.
Rights and warrants are securities which entitle the holder to purchase the
securities of a company (generally, its common stock) at a specified price
during a specified time period. Because of this feature, the values of rights
and warrants are affected by factors similar to those which determine the prices
of common stocks and exhibit similar behavior (although often more volatile
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 security 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
<PAGE>
value", which is their worth in market value if the securities were
exchanged for their underlying equity securities. 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 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 appreciation. 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 would limit the Fund's
investments in debt securities to securities it believes are not highly
speculative, both kinds of risk are increased by investing in debt securities
rated BBB or lower by Standard & Poor's, a division of The McGraw-Hill Company,
Inc. ("S&P"), Baa or lower by Moody's Investors Service, Inc. ("Moody's") or, if
unrated, securities determined by Fund Management to be of equivalent quality.
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 or 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 ("Fannie Mae"), Federal Home
<PAGE>
Loan Banks, 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 S&P or Baa
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 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
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.
<PAGE>
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 ^
economies of individual countries may differ favorably or unfavorably from the
United States' economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payment position.
The dividends and interest payable on certain of the Fund's foreign
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to the Fund's shareholders.
Illiquid and 144A Securities.^ As discussed in the section of the Fund's
Prospectus entitled "Investment Policies And Risks," the Fund may invest in
securities that are illiquid because they are subject to restrictions on their
resale ("restricted securities") or because, based upon their nature or the
market for such securities, they are not readily marketable. However, the Fund
will not purchase any such security if the purchase would cause the Fund to
invest more than 15% of its net assets, measured at the time of purchase, in
illiquid securities. Repurchase agreements maturing in more than seven days will
be considered as illiquid for purposes of this restriction. Investments in
illiquid securities involve certain risks to the extent that the Fund may be
unable to dispose of such securities 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.
<PAGE>
The Fund also may invest in restricted securities that can be resold to
institutional investors pursuant to Rule 144A under the Securities Act of 1933
(the "1933 Act") (hereinafter referred to as "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.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for Rule 144A Securities
may provide both readily ascertainable values for Rule 144A Securities and the
ability to liquidate an investment in order to satisfy share redemption orders.
An insufficient number of qualified institutional buyers interested in
purchasing a Rule 144A Security held by 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.
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
<PAGE>
into, but in no event later than 90 days after the transaction date. No
payment or delivery is made by the Fund until it receives delivery or payment
from the other party to the transaction. However, when the Fund purchases a
security on a when-issued or delayed delivery basis, it assumes the risk that
the market price of the security may fluctuate between the date of purchase and
the date of delivery.
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 Policies And Risks," the Fund may invest in
repurchase agreements with respect to debt instruments eligible for investment
by the Fund with member banks of the Federal Reserve System, registered
broker-dealers and registered U.S. government securities dealers, ^ that 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 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.
<PAGE>
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, 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.
Securities Lending. As ^ discussed in the section of the Fund's Prospectus
entitled "Investment Policies And Risks," the Fund may lend its portfolio
securities to qualified 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, letters of credit 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 income 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, plus accrued interest and dividends), 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 ^ discussed 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
<PAGE>
guidelines of the Commodity Futures Trading Commission as conditions for
exemption of a mutual fund, or investment advisers thereto, from registration as
a commodity pool operator. The Fund will not, as to any positions, whether long,
short or a combination thereof, enter into futures and options thereon for which
the aggregate initial margins and premiums exceed 5% of the fair market value of
its assets after taking into account unrealized profits and losses on options it
has entered into. In the case of an option that is "in-the-money," as defined in
the Commodity Exchange Act (the "CEA"), the in-the-money amount may be excluded
in computing such 5%. (In general a call option on a future is "in-the-money" if
the value of the future exceeds the exercise ("strike") price of the call; a put
option on a future is "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) currently in a
minimum amount of $15,000. This is called "initial margin." Such initial margin
is in the nature of a performance bond or good faith deposit on the contract.
However, because 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,
<PAGE>
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,
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; options are also included in the types
of instruments sometimes known as derivatives. 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
<PAGE>
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.
Investment Restrictions. As ^ discussed in the section of the Fund's
Prospectus entitled "Investment Policies And Risks," the Fund operates under
certain investment restrictions. 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.
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 of
the outstanding voting securities of the Fund, as defined in the Investment
Company Act of 1940, as amended, (the "1940 Act"). Under these 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
<PAGE>
Fund to have more than 5% of the value of its total assets invested
in the securities of such issuer or to own more than 10% of the
outstanding voting securities of such issuer;
(2) Borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) and may enter
into reverse repurchase agreements in an aggregate amount not
exceeding 33 1/3% of the value of its total assets (including the
amount borrowed) less liabilities (other than borrowings). Any
borrowings that come to exceed 33 1/3% of the value of the Fund's
total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the
33 1/3% limitation. This restriction shall not prohibit deposits of
assets to margin or guarantee positions in futures, options, swaps, or
forward contracts, or the segregation of assets in connection with
such contracts.
(3) Invest more than 25% of the value of its assets in any particular
industry (other than Government securities).
(4) Invest directly in real estate or interests in real estate; however,
the Fund may own debt or equity securities issued by companies engaged
in those businesses.
(5) Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this shall
not prevent the Fund from purchasing or selling options, futures, and
forward contracts or from investing in securities or other instruments
backed by physical commodities).
(6) Lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties (but this
limitation does not apply to purchases of commercial paper, debt
securities or to repurchase agreements.)
(7) Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund.
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.
<PAGE>
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 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
<PAGE>
Rule 144A under the 1933 Act, or any successor to such rule, and whether or
not such securities are subject to the non-fundamental restriction (8) above.
Under guidelines established by the board of directors, the adviser will
consider the following factors, among others, in making this determination: (1)
the unregistered nature of a Rule 144A security, (2) the frequency of trades and
quotes for the security; (3) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (4) dealer
undertakings to make a market in the security; and (5) the nature of the
security and the nature of marketplace trades (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics of transfer).
THE FUND AND ITS MANAGEMENT
The Company. The Company was incorporated on April 2, 1993, under the laws
of Maryland.
The Investment Adviser. INVESCO Funds Group, Inc., a Delaware corporation
("INVESCO"), is employed as the Company's investment adviser. INVESCO was
established in 1932 and also serves as an investment adviser to INVESCO ^ Bond
Funds, Inc. (formerly, INVESCO ^ Income Funds, Inc.), INVESCO ^ Combination
Stock & Bond Funds, Inc. (formerly, INVESCO ^ Flexible Funds, Inc.), INVESCO ^
Emerging Opportunity Funds, Inc., INVESCO Growth Funds, Inc. (formerly, INVESCO
Growth Fund, Inc.), INVESCO Industrial Income Fund, Inc., INVESCO International
Funds, Inc., INVESCO Money Market Funds, Inc., INVESCO Sector Funds, Inc.
(formerly, INVESCO Strategic Portfolios, Inc.), INVESCO Specialty Funds, Inc.,
INVESCO ^ Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.), INVESCO
Tax-Free Income Funds, Inc., INVESCO Value Trust, and INVESCO Variable
Investment Funds, Inc.
The Investment Sub-Adviser. INVESCO, 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. IMR is a
wholly-owned subsidiary of INVESCO North American Holdings, Inc. ("INAH"), which
is also the parent company of INVESCO.
The Distributor. ^ INVESCO Distributors, Inc. ("IDI") is the Fund's
distributor. IDI, established in 1997, is a registered broker-dealer that acts
as distributor for all retail mutual funds advised by INVESCO. Prior to
September 30, 1997, INVESCO served as the Fund's distributor.
<PAGE>
INVESCO, IMR and IDI are indirect wholly-owned subsidiaries of AMVESCAP
PLC, a publicly-traded holding company that, through its subsidiaries, engages
in the business of investment management on an international basis. INVESCO PLC
changed its name to AMVESCO PLC on March 3, 1997 and to AMVESCAP PLC on May 8,
1997, as part of a merger between a direct subsidiary of INVESCO PLC and A I M
Management Group, Inc. that created one of the largest investment management
businesses in the world with approximately ^ $241 billion in assets under
management as of ^ September 30, 1998. INVESCO was established in 1932 and as of
July 31, 1998, managed 14 mutual funds, consisting of 49 separate portfolios, on
behalf of 884,099 shareholders.
AMVESCAP PLC's other North American subsidiaries include the following:
--INVESCO Retirement and Benefit Services, Inc. ("IRBS") of Alanta,
Georgia, develops and provides domestic and international defined contribution
retirement plan services to sponsors, institutional plan providers and foreign
governments.
--INVESCO Retirement Plan Services ("IRPS") of Atlanta, Georgia, a dvision
of IRBS, provides recordkeeping and investment selection services to defined
contribution plan sponsors of plans with between $2 million and $200 million in
assets. Additionally, IRPS provides investment consulting services to
institutions seeking to provide INVESCO products and services in their
retirement plan products and services.
--Institutional Trust Company ^ doing business as INVESCO Trust Company
("ITC") of Denver, Colorado, a division of IRBS, provides retirement account
custodian and/or trust services for individual retirement accounts ("IRAs") and
other retirement plan accounts. This includes services such as recordkeeping,
tax reporting and compliance. ITC acts as trustee or custodian to these plans.
ITC accepts contributions and provides, through INVESCO, complete transfer
agency functions: correspondence, subaccounting, telephone communications and
processing of distributions.
--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 one registered investment ^ company.
--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.
<PAGE>
--INVESCO Realty Advisors, Inc. of Dallas, Texas is responsible for
providing advisory services in the U.S. real estate markets for pension plans
and public pension funds, as well as endowment and foundation accounts.
--INVESCO (NY), Inc., New York, is an investment adviser for separately
managed accounts, such as corporate and municipal pension plans, Taft-Hartley
Plans, insurance companies, charitable institutions and private individuals.
INVESCO NY also offers the opportunity for its clients to invest both directly
and indirectly through partnerships in primarily private investments or
privately negotiated transactions. INVESCO NY further serves as investment
adviser to several closed-end investment companies, and as subadviser with
respect to certain commingled employee benefit trusts. INVESCO NY specializes in
the fundamental research investment approach, with the help of quantitative
tools.
--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 ^
insurance companies that issue variable annuity and/or variable life contracts.
--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, INVESCO 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 INVESCO, IMR and their North American affiliates. The
policy requires officers, inside directors, investment and other personnel of
INVESCO, 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.
<PAGE>
In addition to the pre-clearance requirement described above, the policy
subjects officers, inside directors, investment and other personnel of INVESCO,
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 INVESCO.
Investment Advisory Agreement. INVESCO serves as investment adviser to the
Fund 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, including a majority of the directors who are not "interested persons"
of the Company or INVESCO at a meeting called for such purpose. The Agreement
was approved by the Fund's shareholders on January 31, 1997, for an initial term
expiring February 28, 1999. On May 13, 1998, this period was extended by the
Company's board of directors to May 15, 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 INVESCO shall manage the investment portfolio
of the Fund in conformity with the Fund's investment policies (either directly
or by delegation to a sub-adviser which may be affiliated with INVESCO).
Further, INVESCO shall perform all administrative, internal accounting
(including computation of net asset value), clerical, statistical, secretarial
and all other services necessary or incidental to the administration of the
affairs of the Fund excluding, however, those services which are the subject of
separate agreement between the Company and INVESCO or any affiliate thereof,
including the distribution and sale of Fund shares and provision of transfer
agency, dividend disbursing agency, and registrar services, and services
furnished under an Administrative Services Agreement with INVESCO discussed
below. Services provided under the Agreement include, but are not limited to:
supplying the Company with officers, clerical staff and other employees, if any,
<PAGE>
who are necessary in connection with the Fund's operation; furnishing
office space, facilities, equipment, and supplies; providing personnel and
facilities required to respond to inquiries related to shareholder accounts;
conducting periodic compliance reviews of the Fund's operations; preparation and
review of required documents, reports and filings by INVESCO's in-house legal
and accounting staff (including the prospectus, statement of additional
information, proxy statements, shareholder reports, tax returns, reports to the
SEC, and other corporate documents of the Fund), except insofar as the
assistance of independent accountants or attorneys is necessary or desirable;
supplying basic telephone service and other utilities; and preparing and
maintaining certain of the books and records required to be prepared and
maintained by the Fund under the 1940 Act. Expenses not assumed by INVESCO are
borne by the Fund.
As full compensation for its advisory services provided to the Company,
INVESCO 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,
1998, 1997 and 1996, the Fund incurred advisory fees in the amount of $494,071,
$375,830 and $409,030, respectively, prior to the voluntary absorption of
certain Fund expenses by INVESCO and IMR.
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
INVESCO 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 the directors who are not "interested persons" of the Company,
INVESCO, 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. On May 13, 1998, this period was extended by the
Company's board of directors to May 15, 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. Any 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 INVESCO,
shall manage the investment portfolio of the Fund in conformity with the
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
<PAGE>
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
INVESCO, and executing transactions accordingly; (d) providing the Fund the
benefit of all of the investment analysis and research, the reviews of current
economic conditions and trends, and the consideration of long-range investment
policy now or hereafter generally available to investment advisory customers of
the Sub-Adviser; (e) determining what portion of the Fund should be invested in
the various types of securities authorized for purchase by the Fund; and (f)
making recommendations as to the manner in which voting rights, rights to
consent to Company action and any other rights pertaining to the portfolio
securities of the Fund shall be exercised.
The Sub-Agreement provides that as compensation for its services, IMR
shall receive from INVESCO, at the end of each month, a fee based on the average
daily value of the Fund's net assets at the following annual rates: prior to
January 1, 1998, 0.375% of the Fund's average net assets; and effective January
1, 1998, 0.30% of the Fund's average net assets. The Sub-Advisory fee is paid by
INVESCO, NOT the Fund.
Administrative Services Agreement. INVESCO, either directly or through
affiliated companies, also provides certain administrative, sub-accounting, and
recordkeeping services to the Fund pursuant to an Administrative Services
Agreement dated February 28, 1997 (the "Administrative Agreement"). The
Administrative Agreement was approved 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 INVESCO
at a meeting called for such purpose. The Administrative Agreement is for an
initial term expiring February 28, 1998, and has been continued by action of the
board of directors until May 15, 1999. The Administrative Agreement may be
continued from year to year as long as each such continuance is specifically
approved by the board of directors of the Company, including a majority of the
directors who are not parties to the Administrative Agreement or interested
persons (as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such continuance. The Administrative
Agreement may be terminated at any time without penalty by INVESCO on sixty (60)
days' written notice, or by the Company upon thirty (30) days' written notice,
and terminates automatically in the event of an assignment unless the Company's
board of directors approves such assignment.
The Administrative Agreement provides that INVESCO shall provide the
following services to the Fund: (a) such sub-accounting and recordkeeping
services and functions as are reasonably necessary for the operation of the
Fund; and (b) such sub-accounting, recordkeeping, and administrative services
and functions, which may be provided by affiliates of INVESCO, as are reasonably
necessary for the operation of Fund shareholder accounts maintained by certain
retirement plans and employee benefit plans for the benefit of participants in
such plans.
As full compensation for services provided under the Administrative
Agreement, the Fund pays a monthly fee to INVESCO consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
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, 1998, 1997 and 1996, the Fund paid
INVESCO administrative services fees (prior to the voluntary absorption of
certain Fund expenses by INVESCO and IMR) in the amount of $19,881, $17,517 and
$18,180, respectively.
<PAGE>
Transfer Agency Agreement. INVESCO 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,
which has been extended by action of the board of directors until May 15, 1999.
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.
The Transfer Agency Agreement provides that the Fund will pay to INVESCO
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. For the fiscal
years ended July 31, 1998, 1997 and 1996, the Fund paid INVESCO transfer agency
fees (prior to the voluntary absorption of certain Fund expenses by INVESCO and
IMR) in the amount of $208,312, $131,681 and $47,778, respectively.
Officers and Directors of the Company. The overall direction and
supervision of the Company is the responsibility of the board of directors,
which has the primary duty of seeing that the general investment policies and
programs of the Fund are carried out and that the Fund is properly administered.
The officers of the Company, all of whom are officers and employees of, and are
paid by, INVESCO, are responsible for the day-to-day administration of the
Company and the Fund. The investment adviser for the Fund has the primary
responsibility for making investment decisions on behalf of the Fund. These
investment decisions are reviewed by the investment committee of INVESCO.
All of the officers and directors of the Company hold comparable positions
with INVESCO ^ Bonds Funds, Inc. (formerly, INVESCO ^ Flexible Funds, Inc.),
INVESCO ^ Combination Stock & Bond Funds, Inc. (formerly, INVESCO Flexible
Funds, Inc.), INVESCO Emerging Opportunity Funds, Inc., INVESCO ^ Growth Funds,
Inc. (formerly, ^ INVESCO Growth Fund, ^ Inc.), INVESCO Industrial Income Fund,
Inc., INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc.,
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.),
INVESCO Specialty Funds, Inc., INVESCO ^ Stock Funds, Inc. (formerly, INVESCO
Equity Funds, Inc.), INVESCO Tax-Free Income Funds, Inc., and INVESCO Variable
Investment Funds, Inc. All of the directors and officers of the Company also
serve as trustees of ^ INVESCO Value Trust and INVESCO Treasurer's Series 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 Global Health Sciences Fund. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: May 11, 1935.
<PAGE>
FRED A. DEERING,+# Vice Chairman of the Board. 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. Address: Security Life Center,
1290 Broadway, Denver, Colorado. Born: January 12, 1928.
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: 34 Seawatch Drive, Savannah,
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: ^ 1600
Pierce Street, ^ Lakewood, 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.
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, 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.
<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. 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. Retired. 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 ISI Pharmaceuticals, Inc., Trustee of INVESCO
Global Health Sciences Fund. Address: 345 Poorman Road, Boulder, Colorado. Born:
April 26, 1942.
MARK H. WILLIAMSON,+* President, CEO and Director. President, CEO and
Director of IDI; President, CEO and Director of INVESCO and President of INVESCO
Global Health Sciences Fund. Formerly, Chairman and CEO of NationsBanc Advisors,
Inc. (1995 to 1997) and Chairman of NationsBanc Investments, Inc. (1997 to
1998). Born: May 24, 1951.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995), General
Counsel (since 1989) and Secretary (since 1989) of INVESCO and Senior Vice
President, General Counsel and Secretary of IDI (since 1997); Vice President
(May 1989 to April 1995) of INVESCO; Senior Vice President, (since 1995),
General Counsel (since 1989) and Secretary (1989 to 1998) of ITC. 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
(since 1988). Senior Vice President and Treasurer of IDI (since 1997). Senior
Vice President and Treasurer of ITC (1988 to 1998) Born: October 1, 1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO (since 1995) and of IDI (since 1997) and Trust Officer of ITC (1995 to
1998); and formerly (August 1992 to July 1995) Vice President of INVESCO.
Formerly, Vice President of 440 Financial Group from June 1990 to August 1992
and Assistant Vice President of Putnam Companies from November 1986 to June
1990. Born: August 21, 1956.
<PAGE>
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO Funds Group,
Inc. (since 1984). Formerly, Trust Officer of ITC. 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). Formerly,
Trust Officer of ITC. Born: February 3, 1948.
*These directors are "interested persons" of the Company as defined in the
Investment Company Act of 1940.
#Member of the audit committee of the ^ Company.
@Member of the derivatives committee of the ^ Company.
@@Member of the soft dollar brokerage 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.
**Member of the management liaison committee of the Company.
As of September 16, 1998, 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, 1998:
the compensation paid by the Fund to its independent directors for services
rendered in their capacities as directors of the Company; the benefits accrued
as Company expenses with respect to the Defined Benefit Deferred Compensation
Plan discussed below; and the estimated annual benefits to be received by these
<PAGE>
directors upon retirement as a result of their service to the Company. In
addition, the table sets forth the total compensation paid by all of the mutual
funds distributed by IDI and advised by INVESCO (including the Company), 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, 1997. As
of December 31, 1997, there were 49 funds in the INVESCO Complex.
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, $1,158 $ 192 $123 $113,350
Vice Chairman of
the Board
Victor L. Andrews 1,149 182 143 92,700
Bob R. Baker 1,164 162 191 96,050
Lawrence H. Budner 1,140 182 143 91,000
Daniel D. Chabris(4) 1,150 196 107 89,350
Wendy L. Gramm 1,123 0 0 39,000
Kenneth T. King 1,126 200 112 94,350
John W. McIntyre 1,132 0 0 104,000
Larry Soll 1,132 0 0 78,000
------ ------ ---- --------
Total $10,274 $1,114 $819 $797,800
% of Net Assets 0.0191%5 0.0021%5 0.0046%6
(1)The vice chairman of the board, the chairmen of the audit, management
liaison, derivatives, soft dollar brokerage and compensation committees, the
members of the executive and valuation committees each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors.
(2)Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the election
of the directors.
<PAGE>
(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 this retirement plan) upon the
directors' retirement, calculated using the current method of allocating
director compensation among the funds in the INVESCO Complex. These estimated
benefits assume retirement at age 72 and that the basic retainer payable to the
directors will be adjusted periodically for inflation, for increases in the
number of funds in the INVESCO Complex, and for other reasons during the period
in which retirement benefits are accrued on behalf of the respective directors.
This results in lower estimated benefits for directors who are closer to
retirement and higher estimated benefits for directors who are further from
retirement. With the exception of Mr. 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)Mr. Chabris retired as a director effective September 30, 1998.
(5)Total as a percentage of the Fund's net assets as of July 31, 1998.
(6)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1997.
Messrs. Brady and Williamson, as "interested persons" of the Company, the
Fund and other funds in the INVESCO Complex, receive compensation as officers or
employees of INVESCO or its affiliated companies, and do not receive any
director's fees or other compensation from the Company or other funds in the
INVESCO Complex for their services as directors.
The boards of directors/trustees of the mutual funds managed by INVESCO
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 termination of service as a
director (normally 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 and annualized board meeting
fees payable by the funds to the qualified director at the time of his or her
retirement (the "basic retainer"). Commencing with any such director's second
<PAGE>
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
50% of the basic retainer and annualized board meeting fees. These payments will
continue for the remainder of the qualified director's life or ten years,
whichever is longer (the "reduced 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 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 began making
payments to Mr. Chabris on October 1, 1998. 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 independent directors have contributed to a deferred compensation
plan, pursuant to which they have deferred receipt of a portion of the
compensation which they would otherwise have been paid as directors of the
INVESCO and Treasurer's Series Trust Funds. The deferred amounts are being
invested in the shares of all of the INVESCO and Treasurer's Series Trust Funds.
Each independent director is, therefore, an indirect owner of shares of each
INVESCO and Treasurer's Series Trust Funds.
The Company has an audit committee that is comprised of four of the
directors who are not interested persons of the Company. The committee meets
periodically with the Company's independent accountants and officers to review
accounting principles used by the Company, the adequacy of internal controls,
the responsibilities and fees of the independent accountants, and other matters.
The Company has a management liaison committee which meets quarterly with
various management personnel of INVESCO in order (a) to facilitate better
understanding of management and operations of the Company, and (b) to review
legal and operational matters which have been assigned to the committee by the
board of directors, in furtherance of the board of directors' overall duty of
supervision.
The Company has a soft dollar brokerage committee. The committee meets
periodically to review soft dollar brokerage transactions by the mutual funds
managed by INVESCO, and to review policies and procedures of the Fund's
adviser with respect to soft dollar brokerage transactions. It reports on these
matters to the Company's board of directors.
<PAGE>
The Company has a derivatives committee. The committee meets periodically
to review derivatives investments made by the Fund. It monitors derivatives
usage by the Fund and the procedures utilized by the Fund's adviser to ensure
that the use of such instruments follows the policies on such instruments
adopted by the board of directors. It reports on these matters to the Company's
board of directors.
HOW SHARES CAN BE PURCHASED
The shares of the Fund are sold on a continuous basis at the net asset
value per share of the Fund next calculated after receipt of a purchase order in
good form. The net asset value per share for the Fund is computed separately and
is determined once each day that the New York Stock Exchange is open as of the
close of regular trading on that Exchange, but may also be computed at other
times. See "How Shares Are Valued."
The Company has authorized one or more brokers to accept purchase orders
on the Fund's behalf. Such brokers are authorized to designate other
intermediaries to accept purchase orders on the Fund's behalf. The Fund will be
deemed to have received a purchase order when an authorized broker or, if
applicable, a broker's authorized designee, accepts the order. A purchase order
will be priced at a Fund's net asset value next calculated after the order has
been accepted by an authorized broker or the broker's authorized designee.
IDI acts as the Fund's distributor under a distribution agreement with the
^ Company 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.
Distribution Plan. As discussed under "How To Buy Shares -Distribution
Expenses" in the Prospectus, the Company adopted a Plan and Agreement of
Distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act effective
June 1, 1998. The Plan provides that the Fund may make monthly payments to IDI
of amounts computed at an annual rate no greater than 0.25% of the Fund's new
sales of shares, exchanges into the Fund and reinvestments of dividends and
capital gain distributions made on or after June 1, 1998, to permit IDI, at its
discretion, to engage in certain activities and provide services in connection
with the distribution of the Fund's shares to investors. Payment by the Fund
under the Plan, for any month, may be made to compensate IDI for permissible
activities engaged in and services provided by IDI during the rolling 12-month
<PAGE>
period in which that month falls. For the fiscal year ended July 31, 1998,
the Fund made payments to INVESCO (the predecessor of IDI as distributor of
shares of the Fund) and IDI under the 12b-1 Plan in the amount of $1,106, prior
to the voluntary absorption of certain Fund expenses by INVESCO and IMR. In
addition, as of July 31, 1998 $4,067 of additional distribution accruals had
been incurred under the Plan for the Fund and will be paid during the fiscal
year ending July 31, 1999. As noted in the Prospectus, one type of expenditure
is the payment of compensation to securities companies and other financial
institutions and organizations, which may include INVESCO-affiliated companies,
in order to obtain various distribution-related and/or administrative services
for the Fund. The Fund is authorized by the Plan to use its assets to finance
the payments made to obtain those services. Payments will be made by IDI to
broker-dealers who sell shares of the Fund and may be made to banks, savings and
loan associations and other depository institutions. Although the Glass-Steagall
Act limits the ability of certain banks to act as underwriters of mutual fund
shares, the Company does not believe that these limitations would affect the
ability of such banks to enter into arrangements with IDI but can give no
assurance in this regard. However, to the extent it is determined otherwise in
the future, arrangements with banks might have to be modified or terminated,
and, in that case, the size of the Fund possibly could decrease to the extent
that the banks would no longer invest customer assets in the Fund. Neither the
Company nor its investment adviser will give any preference to banks or other
depository institutions which enter into such arrangements when selecting
investments to be made by the Fund.
The Plan was not implemented until June 1, 1998. Therefore, the following
amounts reflect payments made for the period June 1, 1998 through July 31, 1998.
For the fiscal year ended July 31, 1998, allocation of 12b-1 amounts paid by the
Fund for the following categories of expenses were: advertising -- $77; sales
literature, printing and postage -- $148; direct mail -- $26; public
relations/promotion -- $286; compensation to securities dealers and other
organizations -- $0; marketing personnel -- $569.
The nature and scope of services which are provided by securities dealers
and other organizations may vary by dealer but include, among other things,
processing new stockholder account applications, preparing and transmitting to
the Company's Transfer Agent computer-processable tapes of the Fund's
transactions by customers, serving as the primary source of information to
customers in answering questions concerning the Fund and assisting in other
customer transactions with the Fund.
The Plan was approved on February 3, 1998, at a meeting called for such
purpose, by a majority of the directors of the Company, including a majority of
the directors who neither are "interested persons" of the Company nor have any
financial interest in the operation of the Plan ("independent directors"). The
Plan was approved by shareholders of the Fund on May 6, 1998.
<PAGE>
The Plan provides that it shall continue in effect with respect to the
Fund for so long as such continuance is approved at least annually by the vote
of the board of directors of the Company^ cast in person at a meeting called for
the purpose of voting on such continuance. The Plan can also be terminated at
any time with respect to the Fund, without penalty, if a majority of the
independent directors, or shareholders of the Fund, vote to terminate the Plan.
The Company may, in its absolute discretion, suspend, discontinue or limit the
offering of the shares of the Fund at any time. In determining whether any such
action should be taken, the board of directors intends to consider all relevant
factors including, without limitation, the size of the Fund, the investment
climate for the Fund, general market conditions and the volume of sales and
redemptions of Fund shares. The Plan may continue in effect and payments may be
made under the Plan following any such temporary suspension or limitation of the
offering of the Fund's shares; however, the Company is not contractually
obligated to continue the Plan for any particular period of time. Suspension of
the offering of the Fund's shares would not, of course, affect a shareholder's
ability to redeem his shares. So long as the Plan is in effect, the selection
and nomination of persons to serve as independent directors of the Company shall
be committed to the independent directors then in office at the time of such
selection or nomination. The Plan may not be amended to increase the amount of
the Fund's payments thereunder without approval of the shareholders of the Fund,
and all material amendments to the Plan must be approved by the board of
directors of the Company, including a majority of the independent directors.
Under the agreement implementing the Plan, IDI or the Fund, the latter by vote
of a majority of the independent directors or of the holders of a majority of
the Fund's outstanding voting securities, may terminate such agreement without
penalty upon 30 days' written notice to the other party. No further payments
will be made by the Fund under the Plan in the event of its termination as to
the Fund.
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it shall remain in effect as such, so
as to authorize the use of the Fund's assets in the amounts and for the purposes
set forth therein, notwithstanding the occurrence of an assignment, as
defined by the 1940 Act and rules thereunder. To the extent it constitutes an
agreement pursuant to a plan, the Fund's obligation to make payments to IDI
shall terminate automatically in the event of such "assignment," in which case
the Fund may continue to make payments, pursuant to the Plan, to IDI or another
organization only upon the approval of new arrangements, which may or may not be
with IDI, regarding the use of the amounts authorized to be paid by it under the
Plan, by the directors, including a majority of the independent directors, by a
vote cast in person at a meeting called for such purpose.
<PAGE>
Information regarding the services rendered under the Plan and the amounts
paid therefor by the Fund are provided to, and reviewed by, the directors on a
quarterly basis. On an annual basis, the directors consider the continued
appropriateness of the Plan at the level of compensation provided therein.
The only directors or interested persons, as that term is defined in
Section 2(a)(19) of the 1940 Act, of the Company who have a direct or indirect
financial interest in the operation of the Plan are the officers and directors
of the Company listed herein under the section entitled "The Fund And Its
Management -Officers And Directors of the Company" who are also officers either
of IDI or companies affiliated with IDI. The benefits which the Company believes
will be reasonably likely to flow to the Fund and its shareholders under the
Plan include the following:
(1) Enhanced marketing efforts, if successful, should result in an
increase in net assets through the sale of additional shares and
afford greater resources with which to pursue the investment
objective of the Fund;
(2) The sale of additional shares reduces the likelihood that redemption
of shares will require the liquidation of securities of the Fund in
amounts and at times that are disadvantageous for investment
purposes;
(3) The positive effect which increased Fund assets will have on its
revenues could allow INVESCO and its affiliated companies:
(a) To have greater resources to make the financial commitments
necessary to improve the quality and level of the Fund's
shareholder services (in both systems and personnel),
(b) To increase the number and type of mutual funds available to
investors from INVESCO and its affiliated companies (and
support them in their infancy) and thereby expand the
investment choices available to all shareholders, and
(c) To acquire and retain talented employees who desire to be
associated with a growing organization; and
<PAGE>
(4) Increased Fund assets may result in reducing each investor's share
of certain expenses through economies of scale (e.g., exceeding
established breakpoints in the advisory fee schedule and allocating
fixed expenses over a larger asset base), thereby partially
offsetting the costs of the Plan.
HOW SHARES ARE VALUED
As ^ discussed in the section of the Fund's Prospectus entitled "Fund
Price And Performance" 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 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 or other assets 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
<PAGE>
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 and other assets held by the Fund and other assets
used in computing net asset value generally are determined as of the time
regular trading in such securities or assets is completed each day. Because
regular trading in most foreign securities markets is completed simultaneously
with, or prior to, the close of regular trading on the New York Stock Exchange,
closing prices for foreign securities usually are available for purposes of
computing the Fund's net asset value. However, in the event that the closing
price of a foreign security is not available in time to calculate the Fund's net
asset value on a particular day, the Company's board of directors has authorized
the use of the market price for the security obtained from an approved pricing
service at an established time during the day which may be prior to the close of
regular trading in the security. The value of all assets and liabilities
initially expressed in foreign currencies will be converted into U.S. dollars at
the spot rate of such currencies against U.S. dollars provided by an approved
pricing service.
FUND PERFORMANCE
As ^ discussed in the 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, 1998 and the period ended December 1, 1993 (inception) through July 31,
1998 was -2.12% and 12.01%, 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:
P(1 + T)exponent n = ERV
where: P = initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown above were
determined by solving the above formula for "T" for each time period shown.
<PAGE>
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.
In conjunction with performance reports and/or analyses of shareholder
service for the Fund, comparative data between the Fund's performance for a
given period and recognized indices of investment results for the same period,
and/or assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company,
Standard & Poor's, Lipper Analytical Services, Inc., Lehman Brothers, National
Association of Securities Dealers Automated Quotations, Frank Russell Company,
Value Line Investment Survey, the American Stock Exchange, Morgan Stanley
Capital International, Wilshire Associates, the Financial Times Stock Exchange,
the New York Stock Exchange, the Nikkei Stock Average and Deutcher Aktienindex,
all of which are unmanaged market indicators. In addition, rankings, ratings and
comparisons of investment performance and/or assessments of the quality of
shareholder service made by independent sources may be used in advertisements,
sales literature or shareholder reports, including reprints of, or selections
from, editorials or articles about the Fund. These sources utilize information
compiled (i) internally; (ii) by Lipper Analytical Services, Inc.; or (iii) by
other recognized analytical services. The Lipper Analytical Services, Inc.
mutual fund rankings and comparisons which may be used by the Small Company
Value Fund in performance reports will be drawn from the Small Cap Funds mutual
fund groupings in addition to the broad-based Lipper general fund groupings.
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 ^ discussed in the section of the Fund's
Prospectus entitled "How To Sell Shares," the Fund offers a Periodic Withdrawal
Plan. All dividends and other 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 INVESCO. 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 INVESCO. Exchange requests may be made
either by telephone or by written request to INVESCO 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 ability is not an option or
right to purchase securities^ 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.
<PAGE>
TAX-DEFERRED RETIREMENT PLANS
As described in the section of the Fund's 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 INVESCO will be provided with prototype
documents and other supporting information regarding the type of plan requested.
Each of these plans involves a long-term commitment of assets and is subject to
possible regulatory penalties for excess contributions, premature distributions
or for insufficient distributions after age 70-1/2. The legal and tax
implications may vary according to the circumstances of the individual investor.
Therefore, the investor is urged to consult with an attorney or tax adviser
prior to the establishment of such a plan.
HOW TO REDEEM SHARES
Normally, payments for shares redeemed will be mailed within seven days
following receipt of the required documents as described in the section of the
Fund's Prospectus entitled "How To 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.
The Company has authorized one or more brokers to accept ^ redemption
orders on the Fund's behalf. Such brokers are authorized to designate other
intermediaries to accept ^ redemption orders on the Fund's behalf. The Fund will
be deemed to have received a ^ redemption order when an authorized broker, or,
if applicable, a broker's authorized designee, accepts the order. A ^ redemption
order will be priced at the Fund's Net Asset Value next calculated after the
order has been accepted by an authorized broker or the broker's authorized
designee.
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
<PAGE>
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 ^ Company intends ^ to conduct its business and satisfy the applicable
diversification of assets and source of income requirements to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The ^ Company so qualified for the taxable year
ended July 31, 1998 and intends to continue to qualify during its current
taxable year. As a result, because the Company intends to distribute all of its
inhcome and recognized gains, it is anticipated that the ^ Company will pay no
federal income or excise taxes and that the ^ Company will be accorded conduit
or "pass through" treatment for federal income tax purposes.
Dividends paid by the Fund from net investment income, as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
the Fund sends shareholders information regarding the amount and character of
dividends paid in the year.
Distributions by each Fund of net capital gain (the excess of net
long-term capital gain over net short-term capital loss) are, for federal income
tax purposes, taxable to the shareholder as long-term capital gains regardless
how long a shareholder has held shares of the Fund. ^ During 1997, the Taxpayer
Relief Act established a new maximum capital gains tax rate of 20%. Depending on
the holding period of the asset giving rise to the gain, as capital gain was
taxable at a maximum rate of ^ either 20% or 28%. Beginning January 1, 1998, ^
all long-term gains on the sale of securities held for more than 12 months will
be taxable at a maximum rate of 20%. In addition, legislation signed in October
of 1998 provides that all capital gain distributions from a mutual fund paid to
shareholders during 1998 will be taxed at a maximum rate of 20%. Note that the
rate of capital gains tax is dependent on the shareholder's marginal tax rate
and may be lower than the above rates. 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 distributions by ^ the Fund.
All dividends and other distributions are regarded as taxable to the
investor, regardless of whether such dividends and distributions are reinvested
in additional shares of the Fund or another Fund in the INVESCO group. The net
<PAGE>
asset value of Fund shares reflects accrued net investment income and
undistributed realized capital and foreign currency gains; therefore, when a
distribution is made, the net asset value is reduced by the amount of the
distribution. If the net asset value of Fund shares were reduced below a
shareholder's cost as a result of a distribution, such distribution would be
taxable to the shareholder although a portion would be, in effect, a return of
invested capital. If shares are purchased shortly before a distribution, the
full price for the shares will be paid and some portion of the price may then be
returned to the shareholder as a taxable dividend or capital gain. However, the
net asset value per share will be reduced by the amount of the distribution,
which would reduce any gain (or increase any loss) for tax purposes on any
subsequent redemption of shares.
INVESCO may provide Fund shareholders with information concerning the
average cost basis of their shares in order to help them prepare their tax
returns. This information is intended as a convenience to shareholders and will
not be reported to the Internal Revenue Service (the "IRS"). The IRS permits the
use of several methods to determine the cost basis of mutual fund shares. The
cost basis information provided by INVESCO will be computed using the
single-category average cost method, although neither INVESCO nor the Fund
recommends any particular method of determining cost basis. Other methods may
result in different tax consequences. If a shareholder has reported gains or
losses of the Fund in past years, the shareholder must continue to use the cost
basis method previously used unless the shareholder applies to the IRS for
permission to change the method.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as 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. Foreign taxes withheld may be
treated as an expense of the Fund.
<PAGE>
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 taxable years beginning after December 31, 1997. 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
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.
<PAGE>
INVESTMENT PRACTICES
Portfolio Turnover. There are no fixed limitations regarding the Fund's
portfolio turnover. 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. Portfolio turnover rates for
the Fund for the fiscal years ended July 31, 1998, 1997 and 1996, were 132%,
147% and 156%, respectively. In computing the portfolio turnover rate, all
investments with maturities or expiration dates at the time of acquisition of
one year or less are excluded. Subject to this exclusion, the turnover rate is
calculated by dividing (A) the lesser of purchases or sales of portfolio
securities for the fiscal year by (B) the monthly average of the value of
portfolio securities owned by the Fund during the fiscal year.
Placement of Portfolio Brokerage. Either INVESCO. as the Company's
investment adviser, or IMR, as the Company's sub-adviser, places orders for the
purchase and sale of securities with brokers and dealers based upon INVESCO's or
IMR's evaluation of such ^ brokers' and dealers' financial responsibility
subject to their ability to effect transactions at the best available prices.
INVESCO 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 the portfolio
transactions of the Fund, viewed in terms of the size of transactions,
prevailing market conditions in the security purchased or sold and general
economic and market conditions. In seeking to ensure that the commissions or
discounts charged the Fund are consistent with prevailing and reasonable
commissions or discounts, INVESCO or 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 INVESCO or IMR seeks reasonably competitive rates, the Fund
does not necessarily pay the lowest commission, discount, or spread available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, INVESCO 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
<PAGE>
factors and trends, which may be of assistance or value to INVESCO 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 INVESCO or IMR in servicing all of their respective accounts and not
all such services may be used by INVESCO or IMR in connection with the Fund.
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, INVESCO 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.
^ Fund transactions may be effected through qualified ^ brokers and
dealers ^ that recommend the Fund to their clients, or that act as agent in the
purchase of the Fund's shares for their clients. When a number of broker-dealers
can provide comparable price and execution on a particular transaction, the ^
INVESCO may consider the sale of Fund shares by a broker-dealer in selecting
among qualified ^ brokers and dealers.
Certain financial institutions (including brokers who may sell shares of
the Fund, or affiliates of such brokers) are paid a fee (the "Services Fee") for
recordkeeping, shareholder communications and other services provided by the
brokers to investors purchasing shares of the Fund through no transaction fee
programs ("NTF Programs") offered by the financial institution or its affiliated
broker (an "NTF Program Sponsor"). The Services Fee is based on the average
daily value of the investments in the Fund made in the name of such NTF Program
Sponsor and held in omnibus accounts maintained on behalf of investors
participating in the NTF Program. With respect to certain NTF Programs, the
directors of the Company have authorized the Fund to apply dollars generated
from the Company's Plan and Agreement of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan") to pay the entire Services Fee, subject to the
maximum Rule 12b-1 fee permitted by the Plan. With respect to other NTF
Programs, the Company's directors have authorized the Fund to pay transfer
agency fees to INVESCO based on the number of investors who have beneficial
interests in the NTF Program Sponsor's omnibus accounts in the Funds. INVESCO,
in turn, pays these transfer agency fees to the NTF Program Sponsor as a
sub-transfer agency or recordkeeping fee in payment of all or a portion of the
Services Fee. In the event that the sub-transfer agency or recordkeeping fee is
insufficient to pay all of the Services Fee with respect to these NTF Programs,
the directors of the Company have authorized the Company to apply dollars
generated from the Plan to pay the remainder of the Services Fee, subject to the
<PAGE>
maximum Rule 12b-1 fee permitted by the Plan. INVESCO itself pays the
portion of the Fund's Services Fee, if any, that exceeds the sum of the
sub-transfer agency or recordkeeping fee and Rule 12b-1 fee. The Company's
directors have further authorized INVESCO to place a portion of the Fund's
brokerage transactions with certain NTF Program Sponsors or their affiliated
brokers, if INVESCO reasonably believes that, in effecting the Fund's
transactions in portfolio securities, the broker is able to provide the best
execution of orders at the most favorable prices. A portion of the commissions
earned by such a broker from executing portfolio transactions on behalf of the
Fund may be credited by the NTF Program Sponsor against its Services Fee. Such
credit shall be applied first against any sub-transfer agency or recordkeeping
fee payable with respect to the Fund, and second against any Rule 12b-1 fees
used to pay a portion of the Services Fee, on a basis which has resulted from
negotiations between INVESCO or IDI and the NTF Program Sponsor. Thus, the Fund
pays sub-transfer agency or recordkeeping fees to the NTF Program Sponsor in
payment of the Services Fee only to the extent that such fees are not offset by
the Fund's credits. In the event that the transfer agency fee paid by the Fund
to INVESCO with respect to investors who have beneficial interests in a
particular NTF Program Sponsor's omnibus accounts in the Fund exceeds the
Services Fee applicable to the Fund, after application of credits, INVESCO may
carry forward the excess and apply it to future Services Fees payable to that
NTF Program Sponsor with respect to the Fund. The amount of excess transfer
agency fees carried forward will be reviewed for possible adjustment by INVESCO
prior to each fiscal year-end of the Fund. The Company's board of directors has
also authorized the Fund to pay to IDI the full Rule 12b-1 fees contemplated by
the Plan as payment for expenses incurred by IDI in engaging in the activities
and providing the services on behalf of the Fund contemplated by the Plan,
subject to the maximum Rule 12b-1 fee permitted by the Plan, notwithstanding
that credits have been applied to reduce the portion of the 12b-1 fee that would
have been used to pay IDI for payments to such NTF Program Sponsor absent such
credits.
The aggregate dollar amount of brokerage commissions paid by the Fund for
the fiscal years ended July 31, 1998, 1997 and 1996 were $158,423, $273,980 and
$386,415, respectively. During the fiscal year ended July 31, 1998, brokers
providing research received $1,272 in commissions on portfolio transactions
effected for the Fund. The aggregate dollar amount of such portfolio
transactions was $457,857. 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, 1998.
At July 31, 1998, the Fund did not hold securities of its regular brokers
or dealers, or their parents.
<PAGE>
Neither INVESCO nor IMR receives any brokerage commissions on portfolio
transactions effected on behalf of the Fund, and there is no affiliation between
INVESCO, IMR, or any person affiliated with INVESCO, IMR, or the Fund and any
broker or dealer that executes transactions for the Fund.
ADDITIONAL INFORMATION
Common Stock. The Company was incorporated with 100,000,000 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, 1998, 4,856,426 shares of the Fund
were outstanding. All shares offered hereby, when issued, will be fully paid and
nonassessable. The board of directors has the authority to designate additional
classes of common stock without seeking the approval of shareholders and may
classify and reclassify any authorized but unissued shares.
All 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 a majority 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, 1998, 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. 451,768.2500 9.65%
S1-RR
P.O. Box 9242
Boston, MA 02209-9242
<PAGE>
MAC & Co. 360,137.7620 7.69%
Acct. #860-611
Mellon Bank NA
Mutual Funds Dept.
P.O. Box 320
Pittsburgh, PA 15230-0320
INVESCO Trust Co. TR 321,476.0820 6.87%
Blue Cross Blue Shield Assoc.
Nat'l. 401K Plan
Attn: Larkin Hays
1201 Peachtree St. N.E., Ste. 2200
Atlanta, GA 30361-3500
Enele & Co. 308,530.1510 6.59%
Freightliner Corp.
Acct. #007128
Copper Mountain Trust Corp.
1211 S.W. Fifth Ave., Ste. 1900
Portland, OR 97204-3719
Thaddeus Kushinski TR 282,802.4580 6.04%
Holstein Friesian Assoc. of
America Reserve
One Holstein Pl.
Brattleboro, VT 05301-3363
Independent Accountants. PricewaterhouseCoopers LLP, 950 Seventeenth
Street, Denver, Colorado, has been selected as the independent accountants of
the Company. The independent accountants are responsible for auditing the
financial statements of the Company.
Custodian. State Street Bank and Trust Company, P.O. Box 351, Boston,
Massachusetts, has been designated as custodian of the cash and investment
securities of the ^ Company. The bank is also responsible for, among other
things, receipt and delivery of the investment securities of the Fund in
accordance with procedures and conditions specified in the custody agreement.
Under its contract with the ^ Company, the custodian is authorized to establish
separate accounts in foreign countries and to cause foreign securities owned by
the Fund to be held outside the United States in branches of U.S. banks and, to
the extent permitted by applicable regulations, in certain foreign banks and
foreign 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.
<PAGE>
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, 1998, and the report of
PricewaterhouseCoopers 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, 1998.
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
related 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.
<PAGE>
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.
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 AND OPTIONS 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 ("OCC") guarantees the performance of each party to an
exchange-traded option by in effect taking the opposite side of each such
option. A holder or writer may engage in transactions in exchange-traded options
on securities and options on indices of securities only through a registered
broker-dealer which is a member of the exchange on which the option is traded.
<PAGE>
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 the Fund as a
covered call option writer is unable to effect a closing purchase transaction in
a secondary market, unless the Fund is required to deliver the securities
pursuant to the assignment of an exercise notice, it will not be able to sell
the underlying security until the option expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities: (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or 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 OCC, based on forecasts provided by the U.S.
exchanges, believes that its facilities are adequate to handle the volume of
reasonably anticipated options transactions, and such exchanges have advised
such clearing corporation that they believe their facilities will also be
adequate to handle reasonably anticipated volume.
In addition, options on securities may be traded over-the-counter ("OTC")
through financial institutions dealing in such options as well as the underlying
instruments. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the
Company on behalf of 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.
<PAGE>
Futures Contracts
A futures contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future, for a fixed price. By its terms, a futures contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures contracts differ from options in that they are bilateral agreements,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, futures contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their term.
The purchase or sale of a futures contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalent, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index or instrument underlying the futures contract fluctuates, making positions
in the futures contract more or less valuable, a process known as "marking to
the market."
A futures contract may be purchased or sold only on an exchange, known as
a "contract market," designated by the Commodity Futures Trading Commission for
the trading of such contract, and only through a registered futures
commission merchant which is a member of such contract market. A commission must
be paid on each completed purchase and sale transaction. The contract market
clearing house guarantees the performance of each party to a futures contract,
by in effect taking the opposite side of such contract. At any time prior to the
expiration of a futures contract, a trader may elect to close out its position
by taking an opposite position on the contract market on which the position was
entered into, subject to the availability of a secondary market, which will
operate to terminate the initial position. At that time, a final determination
of variation margin is made and any loss experienced by the trader is required
to be paid to the contract market clearing house while any profit due to the
trader must be delivered to it.
Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury bonds, Treasury notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities, U.S. Treasury bills, bank certificates of deposit and commercial
paper. In addition, interest rate futures contracts include contracts on indices
of municipal securities. Foreign currency futures contracts currently are traded
on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German
mark and on Eurodollar deposits.
Options on Futures Contracts
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract, in the
case of a put option, at a fixed exercise price to a stated expiration date.
Upon exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of futures contracts, such as payment
of variation margin deposits. In addition, the writer of an option on a futures
contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
<PAGE>
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.
