^ File No. 811-3886
As filed on April 22, 1996 ^
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N^-1A
^
REGISTRATION STATEMENT UNDER THE^INVESTMENT COMPANY ACT OF^1933 X
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^ Pre-Effective Amendment No.
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Post-Effective Amendment No. 26 ^ X
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^REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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^ Amendment No. 27 X
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^ INVESCO ADVISOR FUNDS, INC. (formerly, The EBI Funds, Inc.)
(Exact Name of Registrant as Specified in Charter)
1315 Peachtree Street, N.E., Atlanta, Georgia 30309
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 554^-1156
^ Glen A. Payne, Esq.
^ 7800 E. Union Avenue
^ Denver, Colorado 80237
(Name and Address of Agent for Service)
-------------------
Copies to:
^ Clifford J. Alexander, Esq.
^ Kirkpatrick & Lockhart
^ 1800 M Street, N.W., Suite 900
^ Washington, D.C. 20036
-------------------
Approximate Date of Proposed Public Offering: As soon as practicable after this
post-effective amendment becomes effective. ^
It is proposed that this filing will become effective (check appropriate box)^
^ immediately upon filing pursuant to paragraph (b)
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^X on May 1, 1996, pursuant to paragraph (b)
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^ 60 days after filing pursuant to paragraph (a)(1)
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^ on _______________,pursuant to paragraph (a)(1)
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^ 75 days after filing pursuant to paragraph (a)(2) ^___ on _____________,
- --- pursuant to paragraph (a)(2) of ^ rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
- --- previously filed post-effective amendment.
Registrant has registered an indefinite number or amount of securities under the
Securities Act of ^ 1993 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. Registrant filed the notice required by Rule 24f^-2 with respect to its
fiscal year ended December 31, ^ 1995 on February ^ 21, 1996.
^ Page 1 of 204
^ Exhibit index is located on page 133
<PAGE>
INVESCO ADVISOR FUNDS, INC.
CROSS REFERENCE SHEET
REQUIRED BY RULE 495
UNDER THE SECURITIES ACT OF 1933
The enclosed Prospectus, Statement of Additional Information, and Part C
relate to The EBI Funds, Inc. (the "Registrant"), an investment company
currently consisting of eight separate series (the "Portfolios").
PART A
Information Required in Prospectus
----------------------------------
Item Number Prospectus Caption
- ----------- ------------------
Item 1. Cover Page ^ Cover Page
Item 2. Synopsis ^ Summary; Fee Table
Item 3. Condensed Financial ^ Financial Highlights
Information
Item 4. General Description ^ The Fund; Investment
of Registrant Objectives and Policies
Item 5. Management of the Fund ^ Management of the Fund;
Miscellaneous
Item 5A. Management's Discussion Performance Information
of Fund Performance
^
Item 6. Capital Stock and Other ^ Capitalization
Securities
Item 7. Purchase of Securities ^ How to Buy Shares; ^ The
Being Offered Distributor; Plan ^ of
Distribution
Item 8. Redemption or Repurchase ^ How to Redeem Shares; How to
Exchange Shares
Item 9. Pending Legal Proceedings ^ Not applicable
<PAGE>
PART B
Information Required in Statement of Additional Information
-----------------------------------------------------------
Statement of Additional
Item Number Information Caption
- ----------- -----------------------
Item 10. Cover Page ^ Cover Page
Item 11. Table of Contents ^ Table of Contents
Item 12. General Information and ^ Prospectus - The Fund
History
Item 13. Investment Objectives and ^ Investment Objectives and
Policies Policies; Portfolio Securities
Loans; Investment Restrictions
Item 14. Management of the Fund ^ Management of the Fund --
Directors and Officers;
Management of the Fund --
Director Compensation
Item 15. Control Persons and Miscellaneous - Principal
Principal Holders of ^ Shareholders
Securities
Item 16. Investment Advisory and ^ The Advisory and Sub-Advisory
Other Services Agreements; Operating Services
Agreement
Item 17. Brokerage Allocation and ^ Brokerage and Portfolio
Other Practices Transactions
Item 18. Capital Stock and Other ^ Prospectus - Capitalization
Securities
Item 19. Purchase, Redemption and ^ Prospectus ^- How to Buy
Pricing of Securities Shares;
Being Offered Prospectus ^- How to Redeem
Shares; Prospectus^ - Computation
of Net Asset Value; Distribution
of Shares; Miscellaneous - Net
Asset Value
Item 20. Tax Status ^ Distributions and Tax
Information
Item 21. Underwriters ^ The Distributor
Item 22. Calculation of Performance ^ Information
Performance ^ Data
Item 23. Financial Statements ^ Incorporated by reference from
the Fund's 1995 Annual Report to
Shareholders
<PAGE>
^ INVESCO ADVISOR FUNDS, INC.
1315 Peachtree Street, N.E.
Atlanta, Georgia 30309
Telephone: 800/554-1156
^ INVESCO Advisor Funds, Inc. (the "Fund") is an open-end, diversified
management investment company consisting of ^ seven separate investment
portfolios (the "Portfolios"), as follows:
EQUITY PORTFOLIO
FLEX PORTFOLIO
^ INTERNATIONAL VALUE PORTFOLIO
INCOME PORTFOLIO
MULTIFLEX PORTFOLIO
REAL ESTATE PORTFOLIO
CASH ^ MANAGEMENT PORTFOLIO
- --------------------------------------------------------------------------------
Each Portfolio's investment objective (except the Cash Management
Portfolio) is to achieve a high total return on investment through capital
appreciation and current income, without regard to federal income tax
considerations. The Cash Management Portfolio's investment objective is to
achieve as high a level of current income, without regard to federal income tax
considerations, as is consistent with the preservation of capital and the
maintenance of liquidity. Each of the Portfolios has separate investment
policies. Shares of the Fund are not deposits or obligations of, or guaranteed
or endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency. An investment in the Cash Management Portfolio is neither insured nor
guaranteed by the U.S. Government. There can be no assurance that the Portfolio
will be able to maintain a stable net asset value of $1.00 per share. Prices of
shares of the other Portfolios can be expected to fluctuate.
- --------------------------------------------------------------------------------
INVESCO Services, Inc.
Investment Adviser
Manager
Distributor
INVESCO Capital Management, Inc. INVESCO Management & Research,^ Inc.
Sub-Adviser: Equity Portfolio Sub-Adviser: MultiFlex ^ Portfolio
Income Portfolio
Flex Portfolio
International Value Portfolio^INVESCO Realty Advisors, Inc.
Cash Management^ Portfolio Sub-Adviser: Real Estate Portfolio
- --------------------------------------------------------------------------------
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
<PAGE>
This Prospectus is designed to set forth concisely the information that you
should know before investing in any of the Portfolios. A Statement of Additional
Information (dated May 1, ^ 1996) for the Fund has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
Statement of Additional Information is available without charge from INVESCO
Services, Inc., 1355 Peachtree Street, N.E., Atlanta, Georgia 30309, telephone
number 1-800-972-9030.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS
May 1, ^ 1996
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY.............................................................. 8
FEE TABLE............................................................ 12
FINANCIAL HIGHLIGHTS................................................. 15
THE FUND............................................................. 26
INVESTMENT OBJECTIVES AND POLICIES................................... 26
Equity Portfolio................................................ 26
Income Portfolio................................................ 27
Flex Portfolio.................................................. 30
MultiFlex Portfolio............................................. 30
Real Estate Portfolio........................................... 33
International Value Portfolio................................... 35
Cash Management Portfolio....................................... 36
ADDITIONAL RISK FACTORS AND POLICIES RELEVANT TO THE PORTFOLIOS...... 37
INVESTMENT RESTRICTIONS.............................................. 48
MANAGEMENT OF THE FUND............................................... 48
THE DISTRIBUTOR...................................................... 54
PLAN OF DISTRIBUTION................................................. 54
^INVESCO ADVISOR FUNDS, INC. SHAREHOLDER
SERVICES GUIDE....................................................... 55
HOW TO BUY SHARES............................................... 56
Contingent Deferred Sales Charges........................... 58
General Information......................................... 58
HOW TO REDEEM SHARES............................................ 59
To Sell Through Your Broker-Dealer.......................... 59
To Sell Directly With the Fund.............................. 59
Redemption by Letter........................................ 60
Redemption by Telephone..................................... 60
Redemption by Check......................................... 61
Systematic Withdrawal Plan.................................. 61
General Information......................................... 62
HOW TO EXCHANGE SHARES......................................... 63
Automatic Monthly Exchange.................................. 63
BankDraft................................................... 64
COMPUTATION OF NET ASSET VALUE................................. 65
CAPITALIZATION................................................. 67
DISTRIBUTIONS AND TAX INFORMATION.............................. 68
Distributions............................................... 68
Federal Taxes............................................... 68
Automatic Dividend Reinvestment Plan........................ 69
SHAREHOLDER REPORTS............................................ 70
PERFORMANCE INFORMATION........................................ 70
<PAGE>
MISCELLANEOUS................................................. 71
LEGAL OPINIONS................................................ 72
<PAGE>
SUMMARY
THE FUND:
The securities offered by this Prospectus consist of shares of ^
common stock of seven separate investment portfolios of ^ INVESCO
Advisor Funds, Inc., an open-end, diversified management investment
company incorporated under the laws of the State of Maryland (the
"Fund"). These ^ seven portfolios are the Equity Portfolio, the
Income Portfolio, the Flex Portfolio, the MultiFlex Portfolio,^ the
Real Estate Portfolio, the International Value Portfolio and the
Cash Management Portfolio (collectively, the "Portfolios").
Investments of the Equity, Income, Flex, MultiFlex, ^ Real Estate
and International Value Portfolios will be managed without regard to
whether their distributions to shareholders will be characterized as
ordinary income or long-term capital gains. The Cash Management
Portfolio is designed for investment by corporations, partnerships,
individuals and pension and profit sharing plans.
INVESTMENT OBJECTIVES:
The investment objective of each Portfolio (except the Cash
Management Portfolio) is to achieve a high total return on
investment through capital appreciation and current income, without
regard to federal income tax considerations. The investment
objective of the Cash Management Portfolio is to achieve as high a
level of current income, without regard to federal income tax
considerations, as is consistent with the preservation of capital
and the maintenance of liquidity. Each of the Portfolios has
separate investment policies. See "Investment Objectives and
Policies".
MANAGEMENT OF THE FUND:
INVESCO Services, Inc., a Georgia corporation and the adviser and
manager for each of the Portfolios ("ISI" or the "Adviser" or the
"Manager"), is a registered investment adviser and broker-dealer
furnishing investment counseling services to private and
institutional clients. ISI is a wholly owned subsidiary of INVESCO
Capital Management, Inc.
INVESCO Capital Management, Inc., a Delaware corporation and the
sub-adviser for the Equity, Income, Flex, International Value and
Cash Management Portfolios ("ICM"), acts as investment adviser to
other investment companies and furnishes investment counseling
services to private and institutional clients.
INVESCO Management & Research, Inc., a Massachusetts corporation and
the sub-adviser for the MultiFlex ^ Portfolio ("IMR"), acts as
investment adviser to other investment companies and manages
primarily pension and endowment accounts.
INVESCO Realty Advisors, Inc., a Texas corporation and the
sub-adviser for the Real Estate Portfolio ("IRA"), acts as
investment adviser to corporate plans and public pension funds as
well as endowment and foundation accounts. See "Management
of the Fund".
<PAGE>
PRINCIPAL UNDERWRITER AND DISTRIBUTOR:
ISI (the "Distributor") also serves as the principal underwriter and
distributor of shares of the Fund.
PURCHASES:
Shares of each Portfolio, except the Cash Management Portfolio, are
offered at net asset value without a sales charge, but are subject
to a contingent deferred sales charge ("CDSC") of ^ a set percentage
of the dollar amount subject thereto during the first year after
purchase. This set percentage for the Equity, Flex, MultiFlex, Real
Estate and International Value Portfolios is 1%, and for the Income
Portfolio is 0.60%. Shares of the Cash Management Portfolio are
offered at net asset value. The minimum initial purchase of shares
in one or more of the Portfolios is $25,000, except that the minimum
initial purchase of shares in the Cash Management Portfolio is
$1,000^ or more at any time. Retirement plans may make subsequent
investments of $250 or more. The Portfolios reserve the right to
reduce or waive the minimum purchase requirements in certain cases.
^ (See "INVESCO Advisor Funds, Inc. Shareholder Services Guide - How
to Buy ^ Shares.")
Each Portfolio, except the Cash Management Portfolio, has adopted a
plan of distribution pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the plan,
the Portfolios may incur certain distribution costs; however, such
costs may not exceed a maximum amount equal to ^ 0.60% per annum of
the ^ Income Portfolio's average daily net assets ^. All other
Portfolios' distribution costs may not exceed 1.0% per annum of ^
their average daily net assets (except the Cash Management
Portfolio). Pursuant to the plan, the Portfolios make payments to
the Distributor, subject to the maximum annual limitations described
above, to reimburse the Distributor for expenses incurred in the
distribution of their shares. Generally, an asset-based fee for
selling Fund shares and providing services to shareholders will be
paid at least quarterly by the Distributor to broker-dealers who
sell shares of these Portfolios. On each purchase, a 1% sales
commission may be paid by the Distributor to the selling
broker-dealer for the Equity, Flex, MultiFlex, Real Estate and
International Value Portfolio assets; for the Income Portfolio this
sales commission is 0.60%. There are no charges to the shareholder
on purchases of shares at the time of purchase. (See "Plan of ^
Distribution.")
REDEMPTIONS:
A CDSC ^ is applicable to shares purchased by new investors on or
after May 1, 1995 and redeemed within the first year after purchase.
For the Income Portfolio the CDSC is 0.60%, and for all other
Portfolios it is 1.00%. Redemptions of shares of the Cash Management
Portfolio are generally not subject to a CDSC; however, a CDSC may
be applicable to redemptions of
<PAGE>
shares of the Cash Management Portfolio if the redeemed
shares were exchanged from another Portfolio. There is no CDSC
applicable to additional purchases of shares in any of the
Portfolios by shareholders of record on April 30, 1995 ^.
Shareholders whose broker/dealers maintain a single omnibus
account with Fund/Plan Services, Inc., (the "Transfer Agent") on
behalf of those shareholders and perform sub-accounting
functions with respect to those shareholders and are unable to
segregate shareholders of record prior to April 30, 1995 from
shareholders whose accounts were opened after that date, will be
subject to a CDSC on all purchases made after March 1, 1996. The
CDSC is assessed on an amount equal to the lesser of the original
purchase price or the redemption price of the shares redeemed.
The amount paid upon redemption will be the net asset value per
share next determined after the redemption request is received in
proper form, less the amount of any applicable CDSC. Payment will
be made no later than three days after receipt of a redemption
request in good order. Shares may be redeemed by writing or
calling ^ the Transfer Agent. Redemptions may also be effected
through the shareholder's securities dealer of record.
Each Portfolio has the right to redeem shareholder accounts
which fall below a minimum level ^ as a result of redemptions
of shares^ ($10,000 or less for all Portfolios, except the
Cash Management Portfolio, which is $1,000 or less). (See
"INVESCO Advisor Funds, Inc. Shareholder Services Guide - How
to Redeem ^ Shares.")
DIVIDENDS AND DISTRIBUTIONS:
The Equity, Flex, MultiFlex and Real Estate Portfolios intend to
make quarterly distributions of net investment income and annual
distributions of net realized long-term capital gains. The
International Value Portfolio intends to make semiannual
distributions of net investment income, and annual distributions of
net realized long-term capital gains. The Income ^ Portfolio intends
to make monthly distributions of net investment income, and annual
distributions of net realized long-term capital gains. The Cash
Management Portfolio intends to declare net income daily and
distribute dividends monthly. All distributions made to a
shareholder will be reinvested automatically in additional shares
pursuant to the Portfolios' Automatic Dividend Reinvestment Plans
unless the shareholder specifically elects to receive declared
dividends and other distributions in excess of $10.00 in cash.
See "Automatic Dividend Reinvestment Plan".
RISK FACTORS AND POLICIES:
Certain of the Portfolios may engage in investment techniques that
involve certain risks that are described more fully under
"Additional Risk Factors and Policies Relevant to the Portfolios."
For instance, all of the Portfolios, except the Real Estate
Portfolio, may invest in securities of foreign issuers, which may be
subject to additional risk factors, including foreign currency and
political risks, not applicable to securities of U.S. issuers. The
International Value Portfolio will invest primarily in foreign
securities. The MultiFlex ^ Portfolio may invest in securities rated
lower than Baa by Moody's Investors Service, Inc. ("Moody's") or BBB
by Standard & Poor's ^("S&P") but rated at least Ba by Moody's
<PAGE>
or BB by S&P at the time of purchase. Such securities carry a high
degree of credit risk and are considered speculative by the major
rating agencies. Each Portfolio, except the Equity and Cash
Management Portfolios, may write covered call options and cash
secured put options. The MultiFlex ^ Portfolio may enter into
commodity futures contracts and options thereon; the MultiFlex^
and International Value Portfolios may enter into foreign
currency futures contracts and options thereon; the MultiFlex
Portfolio may enter into stock index futures contracts and
options thereon; and the MultiFlex and International Value
Portfolios may enter into swap agreements. Each of these
techniques involves risk, as discussed more fully in the
description of the techniques under "Additional Risk Factors and
Policies Relevant to the Portfolios."
<PAGE>
FEE TABLE
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchase
of Shares (as a percentage of offering price) None
Contingent Deferred Sales Charge
(as a percentage of original purchase price
or redemption price, whichever is lower) ^ First year equal
to "12b-1 Fees"
column shown below;
0% after first year
Annual Operating Expenses (as a percentage of average net assets):
^
Total
Advisory 12b-1 Other Operating
Portfolio Fees Fees(1) Expenses Expenses(2)
- --------- -------- ------- -------- -----------
Equity Portfolio ^ 0.75% ^ 1.00% ^ 0.53% 2.28%
^ Income Portfolio(3) 0.40% 0.60% 0.54% 1.54%
Flex Portfolio ^ 0.75% ^ 1.00% ^ 0.53% 2.28%
^
MultiFlex Portfolio ^ 1.00% ^ 1.00% ^ 0.50% ^ 2.50%
^
Real Estate Portfolio ^ 0.90% ^ 1.00% ^ 0.50% 2.40%
^
International Value
Portfolio ^ 1.00% ^ 1.00% ^ 0.50% 2.50%
^
Cash Management
Portfolio ^ 0.50% ^ N/A ^ 0.50% ^ 1.00%
(1) Under rules of the National Association of Securities Dealers, Inc.
("NASD"), a 12b-1 fee may be treated as a sales charge for certain purposes
under those rules. Because the 12b-1 fee is an annual fee charged against the
assets of a Portfolio, long-term shareholders may indirectly pay more in total
sales charges than the economic equivalent of the maximum front-end sales charge
permitted by rules of the NASD.
(2) ISI has voluntarily agreed to limit the Total Operating Expenses of
the Portfolios to assure that Portfolio expenses do not exceed the ^ maximum
amounts as designated herein (see "Management of the Fund"), subject to
exceptions for brokerage commissions, interest, taxes, litigation, directors'
fees and expenses, and other extraordinary expenses. The expense ceilings
include reductions at larger asset sizes to reflect anticipated economies of
scale as the Portfolios grow in size. See "Management of the Fund^."
(3) ISI has voluntarily agreed to limit certain of its fees with respect
to Income Portfolio for the three-year period beginning October 1, 1995. If
these limitations were not in effect, the Portfolio's advisory fees, 12b-1 fees,
other expenses and total operating expenses would be 0.65%, 0.60%, 0.50% and
1.75%, respectively, of average daily net assets. During 1995, the Portfolio
incurred one-time reorganization expenses of 0.10%. (See "Management of the
Fund.")
<PAGE>
Example of Portfolio Expenses:
A shareholder would pay the following expenses on a $1,000 investment,
assuming (1) a hypothetical 5% annual return, and (2) redemption at the end of
each time period:
1 year ^3 years ^5 years ^10 years
------ ------- ------- --------
Equity Portfolio ^ $33 $71 $122 $262
^ Income Portfolio ^ $22 $49 $84 $183
^ Flex Portfolio ^ $33 $71 $122 $262
^ MultiFlex Portfolio ^ $35 $78 $133 $284
^ Real Estate Portfolio ^* $34 $75
^ International Value
Portfolio* $35 ^ $78
^ Cash Management Portfolio ^ $10 ^ $32 ^ $55 $122
^*The Real Estate and International Value Portfolios, which commenced operations
May 1, 1995, show figures for only one and three year periods, in accordance
with applicable regulations.
A shareholder would pay the following expenses on the same investment,
assuming no redemption:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Equity Portfolio $23 $71 $122 $262
Income Portfolio $16 $49 $84 $183
Flex Portfolio $23 $71 $122 $262
MultiFlex Portfolio $25 $78 $133 $284
Real Estate Portfolio* $24 $75
International Value Portfolio* $25 $78
Cash Management Portfolio $10 $32 $55 $122
*The Real Estate and International Value Portfolios, which commenced operations
May 1, 1995, show figures for only one and three year periods, in accordance
with applicable regulations.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the applicable Portfolios will bear
directly or indirectly. Those investment advisory fees which equal or exceed
0.75% of average net assets are higher than those generally charged by
investment advisers to similar funds for advisory services. However, the Adviser
also provides certain supervisory and administrative services to the Portfolios
pursuant to the Investment Advisory Agreement. For a more
<PAGE>
detailed description of such costs and expenses, see "Management of the Fund"
and "Plan of Distribution." The Examples set forth above assume reinvestment of
all dividends and distributions. THE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE MORE OR
LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLES. The assumed 5% return is
hypothetical and should not be considered a representation of past or future
annual returns.
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial information for the years ended December 31, 1995,
1994, 1993, 1992, 1991 and 1990, has been audited by Price Waterhouse LLP,
independent accountants^. This information should be read in conjunction with
the audited financial statements and the Report Of Independent Accountants
thereon appearing in the Fund's 1995 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. ^ Both
are available without charge by contacting INVESCO Services, Inc. at the address
or telephone number shown on the cover page of this Prospectus. All per share
data for the Equity, Income and Flex Portfolios has been adjusted to reflect a
25 share for 1 share stock split which was effected on December 31, 1991.
<PAGE>
Equity Portfolio
(For a Share Outstanding ^ Throughout Each Period)
<TABLE>
<CAPTION>
Y^ ear Ended December 31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
1995 1994 ^ 1993 ^ 1992 ^ 1991 ^ 1990 ^ 1989 ^ 1988 ^ 1987 ^ 1986
^ Net asset value ^-
beginning of period $55.83 $59.61 $63.27 $63.38 $54.70 $62.01 $56.89 $54.16 $56.05 $53.75
-------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income 0.41 0.36 0.41 0.60 0.66 1.04 1.20 1.21 1.04 0.85
^ Net gains or losses on
securities (both
realized and
unrealized) 16.44 1.26 5.40 2.44 17.63 (3.40) 11.12 6.23 2.91 3.21
-------------------------------------------------------------------------------------
Total from investment
operations 16.85 1.62 5.81 3.04 18.29 (2.36) 12.32 7.44 3.95 4.06
-------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends (from net
investment income) (0.41) (0.36) (0.41) (0.57) (0.69) (1.21) (1.26) (1.24) (1.24) (0.78)
Distributions (from
capital gains) (1.86) (5.04) (9.06) (2.58) (8.92) (3.74) (5.94) (3.47) (4.60) (0.98)
-------------------------------------------------------------------------------------
Total Distributions (2.27) (5.40) (9.47) (3.15) (9.61) (4.95) (7.20) (4.71) (5.84) (1.76)
^-------------------------------------------------------------------------------------
Net asset value ^-
end of ^ period $70.41 $55.83 $59.61 $63.27 $63.38 $54.70 $62.01 $56.89 $54.16 $56.05
=====================================================================================
TOTAL RETURN 30.28% 2.69% 9.16% 4.84% 33.59% (3.75%) 21.81% 14.02% 7.20% 7.76%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
^ RATIOS/SUPPLEMENTAL DATA
Net assets ^-
end of period
(000 Omitted) $113,573 $77,929 $86,659 $91,146 $81,732 $69,279 $87,968 $92,983 $119,312 $92,380
Ratio of expenses to
average net assets+ 2.28% 2.25% 2.25% 2.18% 2.22% 2.25% 2.24% 2.21% 2.01% 2.31%
Ratio of net
investment income to
average net assets+ 0.64% 0.61% 0.62% 0.90% 1.04% 1.71% 1.84% 1.81% 1.79% 1.45%
Portfolio turnover rate 17% 21% 47% 41% 47% 12% 21% 10% 20% 31%
^
^ +INVESCO Capital Management, Inc. voluntarily absorbed certain expenses of the
Portfolio aggregating $3,227 and $23,818 for 1993 and 1990, respectively. If
such expenses had not been absorbed, the ratio of expenses to average net assets
for 1993 and 1990 would have been 2.25% and 2.28%, respectively and the ratio of
net investment income to average net assets for 1993 and 1990 would have been
0.62% and 1.68%, respectively.
</TABLE>
<PAGE>
Income Portfolio
(For a Share Outstanding ^ Throughout Each Period) (Continued)
<TABLE>
<CAPTION>
Y^ ear Ended December 31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
1995 1994 ^ 1993 ^ 1992 ^ 1991 ^ 1990 ^ 1989 ^ 1988 ^ 1987 ^ 1986
^ Net asset value ^-
beginning of period $45.33 $48.60 $47.41 $47.77 $45.42 $45.48 $44.45 $45.45 $50.42 $47.36
-------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income 2.44 2.40 2.28 2.57 3.03 3.43 3.32 3.32 2.71 2.77
^ Net gains or losses on
securities (both
realized and
unrealized) 6.91 (3.27) 1.20 (0.37) 2.43 (0.03) 0.88 (0.92) (3.18) 3.23
-------------------------------------------------------------------------------------
Total from investment
operations 9.35 (0.87) 3.48 2.20 5.46 3.40 4.20 2.40 (0.47) 6.00
-------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends (from net
^ investment income) (2.46)(2.40) (2.29) (2.56) (3.11) (3.46) (3.27) (3.30) (3.35) (2.73)
Distributions (from
capital gains) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (1.15) (0.21)
-------------------------------------------------------------------------------------
Total Distributions (2.46) (2.40) (2.29) (2.56) (3.11) (3.46) (3.27) (3.30) (4.50) (2.94)
^-------------------------------------------------------------------------------------
Net asset value ^-
end of ^ period $52.22 $45.33 $48.60 $47.41 $47.77 $45.42 $45.48 $44.55 $45.45 $50.42
-------------------------------------------------------------------------------------
TOTAL RETURN 21.12%(1.80%) 7.39% 4.74% 12.46% 7.81% 9.12% 5.59% (0.90%) 13.06%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
^ RATIOS/SUPPLEMENTAL DATA
Net assets ^-
end of period
(000 Omitted) $31,986$25,467 $42,872 $47,096 $39,104 $41,004 $58,774 $74,309 $81,882 $51,669
Ratio of expenses to
average net assets+ 2.19% 2.25% 2.25% 2.25% 2.29% 2.30% 2.35% 2.16% 1.99% 2.37%
Ratio of net investment
income to average
net assets+ 4.94% 5.09% 4.56% 5.48% 6.48% 7.08% 6.98% 6.89% 6.29% 6.24%
Portfolio turnover rate 24% 59% 92% 16% 37% 25% 33% 49% 64% 73%
^
^ +INVESCO Capital Management, Inc. voluntarily absorbed certain expenses of the
Portfolio aggregating $17,720, $17,632 and $11,540 for 1995, 1993 and 1990,
respectively. If such expenses had not been absorbed, the ratio of expenses to
average net assets for 1995, 1993 and 1990 would have been 2.25%, 2.29% and
2.32%, respectively and the ratio of net investment income to average net assets
for 1995, 1993 and 1990 would have been 4.88%, 4.52% and 5.41%, respectively.
</TABLE>
<PAGE>
Flex Portfolio
(For a Share Outstanding ^ Throughout Each Period) (Continued)
<TABLE>
<CAPTION>
^ Period
Ended
Year Ended December 31 December 31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
1995 1994 ^ 1993 ^ 1992 ^ 1991 ^ 1990 ^ 1989 ^ 1988*
Net asset value ^-
beginning of period ^ $50.50 $54.16 $51.04 $49.35 $42.26 $45.32 $40.40 $40.00
-------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income 1.29 1.26 1.10 1.39 1.47 1.64 1.70 0.88
Net gains or losses on
securities (both
realized and unrealized) 12.38 (0.91) 4.22 2.37 8.90 (2.42) 5.18 0.40
-------------------------------------------------------------------------------------
Total from investment
operations 13.67 0.35 5.32 3.76 10.37 (0.78) 6.88 1.28
-------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends (from net investment
income) (1.29) (1.25) (1.09) (1.35) (1.49) (1.75) (1.65) (0.88)
Distributions (from capital
gains) (0.24) (2.76) (1.11) (0.72) (1.79) (0.53) (0.31) --
-------------------------------------------------------------------------------------
Total Distributions (1.53) (4.01) (2.20) (2.07) (3.28) (2.28) (1.96) (0.88)
-------------------------------------------------------------------------------------
Net asset value ^-
end of period ^$62.64 $50.50 $54.16 $51.04 $49.35 $42.26 $45.32 $40.40
=====================================================================================
TOTAL RETURN 27.30% 0.64% 10.48% 7.72% 24.80% (1.68%) 17.26% 4.45%
RATIOS/SUPPLEMENTAL DATA
Net assets ^- end of period
(000 Omitted) $399,162 $243,848^ $274,349$165,727 $104,204 $96,772^ $101,260 $54,941
Ratio of expenses to average
net assets+ 2.28% 2.25% 2.25% 2.17% 2.21% 2.25% 2.33% 2.31%#
Ratio of net investment income
to average net assets+ 2.28% 2.32% 2.10% 2.81% 3.12% 3.77% 4.08% 4.06%#
Portfolio turnover rate 5% 36% 27% 15% 24% 31% 20% 2%
</TABLE>
- -----------
<PAGE>
*From February 24, 1988, commencement of operations, to December 31, 1988.
^ +INVESCO Capital Management, Inc. voluntarily absorbed certain expenses of the
Portfolio aggregating $18,993 for 1993. If such expenses had not been absorbed,
the ratio of expenses to average net assets would have been 2.26%, and the ratio
of net investment income to average net assets would have been 2.09%.
#Annualized.
<PAGE>
MultiFlex Portfolio
(For a Share Outstanding ^ Throughout the Period) (Continued)
^
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the period
Year Ended December 31 November 17,
--------------------------- 1993*
1995 1994 to Dec. 31, 1993
----------------
Net asset value ^-
beginning of period ^ $39.13 $40.16 $40.00
^---------------------------------------------
INVESTMENT OPERATIONS
Net investment income 0.64 0.62 0.02
Net ^ gains or losses on securities
(both realized and unrealized) 7.75 (1.03) ^ 0.16
---------------------------------------------
Total from investment operations 8.39 (0.41) ^ 0.18
---------------------------------------------
DISTRIBUTIONS
Dividends (from net investment income) (0.64) (0.62) ^(0.02)
Distributions (from capital gains) (0.17) 0.00 0.00
---------------------------------------------
Total distributions (0.81) (0.62) ^(0.02)
---------------------------------------------
Net asset value ^- end of period ^ $46.71 $39.13 $40.16
^=============================================
TOTAL RETURN 21.58% (1.02%) ^ 0.46%
RATIOS/SUPPLEMENTAL DATA
Net assets ^- end of period (000 Omitted) $174,592 $120,220 $12,241
Ratio ^ of expenses to average net assets 2.50% 2.49% ^ 2.50%#
Ratio of net investment income to
average net assets 1.53% 2.01% ^ 1.09%#
Portfolio turnover rate 50% 81% ^ 0.53%
*Commencement of operations.
#Annualized.
</TABLE>
<PAGE>
^ Real Estate Portfolio
(For a Share Outstanding ^ Throughout Each Period) (Continued)
^
For the period
^ May 1, 1995*
to Dec. 31, ^ 1995
----------
Net asset value,^ beginning of period ^ $40.00
^ INVESTMENT OPERATIONS
Net investment income ^ 0.64
^ Net gain on securities (both realized and unrealized) ^ 3.00
^----------
Total from investment operations 3.64
^----------
DISTRIBUTIONS
Dividends (from net investment income) (0.62)
^----------
Total distributions ^(0.62)
^----------
Net asset value^, end of period ^ $43.02
^==========
TOTAL RETURN ^ 9.12%
^ Ratios/Supplemental Data
Net assets^, end of period (in 000's) $5,565^
^ Ratio of expenses to average net assets 2.40%#
^ Ratio of net investment income to ^ average net assets 4.68% ^#
Portfolio turnover rate 7% ^
*Commencement of operations.
#Annualized.
<PAGE>
International Value Portfolio
(For a Share Outstanding Throughout Each Period) (Continued)
For the period
May 1, 1995*
to Dec. 31, 1995
----------
Net asset value, beginning of period $40.00
INVESTMENT OPERATIONS
Net investment income 0.00
Net gain on securities (both realized and unrealized) 4.51
----------
Total from investment operations 4.51
----------
DISTRIBUTIONS
Dividends (from net investment income) 0.00
----------
Total distributions 0.00
----------
Net asset value, end of period $44.51
==========
TOTAL RETURN 11.28%
Ratios/Supplemental Data
Net assets, end of period (in 000's) $9,467
Ratio of expenses to average net assets 2.50%#
Ratio of net investment income to average net assets 0.03%#
Portfolio turnover rate 2%
*Commencement of operations.
#Annualized.
<PAGE>
Cash Management Portfolio
(For a Share Outstanding ^ Throughout Each Period) (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Y^ear Ended December 31
------------------------------------------------------------------------------------
1995 1994 ^ 1993 ^ 1992 ^ 1991 ^ 1990 ^ 1989 ^ 1988 ^ 1987 ^ 1986
^ Net asset value ^-
beginning of period ^ $1.00^ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
^------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income 0.05 0.03 0.02 0.03 0.05 0.07 0.08 0.07 0.06 0.05
^------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends (from net
investment ^ income) (0.05) (0.03) ^(0.02) ^(0.03) ^(0.05) ^(0.07) ^(0.08) ^(0.07) ^(0.06) ^(0.05)
^------------------------------------------------------------------------------------
Net asset value ^-
end of ^ period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====================================================================================
TOTAL RETURN 5.04% 3.30% 2.20% 3.00% 5.08% 7.35% 8.63% 6.90% 5.67% 5.33%
^ RATIOS/SUPPLEMENTAL DATA
Net assets ^-
end of period
(000 Omitted) $20,439$15,212^ $13,827^ $20,431^ $17,730^ $20,701^ $19,902^ $32,309^ $27,683^ $14,203
^ Ratio of expenses to
average net ^ assets+^ 1.00% 1.00% 0.95% ^ 0.73% ^ 1.00% ^ 1.09% ^ 1.00% ^ 0.88% ^ 1.25% ^ 1.21%
^ Ratio of net
investment income
to average net
assets+ 4.91% 3.23% ^ 2.17% ^ 2.94% ^ 5.04% ^ 7.11% ^ 8.31% ^ 6.90% ^ 5.67% ^ 5.33%
</TABLE>
^
^ +INVESCO Capital Management, Inc. voluntarily absorbed certain expenses of the
Portfolio aggregating $15,099, $38,925, $5,536 and $27,402 for 1993, 1992, 1990,
and 1989, respectively. If such expenses had not been absorbed, the ratio of
expenses to average net assets would have been 1.03%, 0.92%, 1.12%, and 1.11%
for the above periods, respectively, and the ratio of net investment income to
average net assets would have been 2.09%, 2.75%, 4.92%, and 8.20%, respectively.
<PAGE>
THE FUND
The Portfolios are separate series of ^ the INVESCO Advisor Funds, Inc.
(the "Fund"), an open-end, diversified management investment company,
incorporated under the laws of the State of Maryland on September 19, 1989.
Prior to January 16, 1996 the Fund was known as The EBI Funds, Inc.
The address of each Portfolio is 1315 Peachtree Street, N.E., Atlanta,
Georgia 30309, and the telephone number of each Portfolio is (800) 554-1156. The
address of the Distributor, INVESCO Services, Inc., is 1355 Peachtree Street,
N.E., Atlanta, Georgia 30309 and its telephone number is (800) 972-9030.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each of the Portfolios (except the Cash
Management Portfolio) is to achieve a high total return on investment through
capital appreciation and current income, without regard to federal income tax
considerations. The investment objective of the Cash Management Portfolio is to
achieve as high a level of current income, without regard to federal income tax
considerations, as is consistent with the preservation of capital and the
maintenance of liquidity. The investment objective of each Portfolio is a
fundamental policy which may not be changed without the approval of a vote of a
majority of the outstanding shares of that Portfolio. Investments of the Equity,
Income, Flex, MultiFlex, ^ Real Estate and International Value Portfolios will
be managed without regard to whether their distributions to shareholders will be
characterized as ordinary income or long-term capital gains (i.e., will not be
managed so as to minimize or avoid taxable capital gain distributions), and
therefore may be ^ of particular interest to investors who are tax-exempt. The
Cash Management Portfolio is designed for investment by corporations,
partnerships, individuals and pension and profit sharing plans. A more detailed
discussion of each Portfolio's investment objective and policies follows.
Equity Portfolio
The investment objective of the Equity Portfolio is to achieve a high
total return on investment through capital appreciation and current income,
without regard to federal income tax considerations. Substantially all of the
Portfolio's assets will be invested in common stocks and, to a lesser extent,
securities convertible into common stocks. Such securities will generally be
issued by companies which are listed on a national securities exchange (e.g.,
the New York Stock Exchange), or traded in the over-the-counter market, and
which usually pay regular dividends. At least 65% of the Equity Portfolio's
investments will consist of equity securities. The Equity Portfolio has
established minimum investment standards with respect to its investments in
common stocks which are identical to those established by ICM, the Portfolio's
sub-adviser, with respect to the management of large capitalization value
portfolios for its private advisory clients. These standards include utilization
of a proprietary database consisting of 800 of the largest companies in the
United States, each of which is required to have 10 years of financial history
in order to be included in the database. The database relates the current price
<PAGE>
of each stock to each company's historical record and ranks the 800 stocks based
on the best relative value. The top 250 stocks are then subjected to fundamental
investment analysis, based on which a purchase list of 100 stocks is created,
from which investments are selected. When market, business or economic
conditions warrant, in the judgment of the Adviser and ICM, that temporary
defensive measures should be employed, all or part of the assets of the
Portfolio may be invested temporarily in other securities, including high
quality corporate preferred stocks, bonds, debentures or other evidences of
indebtedness, and in obligations issued or guaranteed by the United States or
any instrumentality thereof, or held in cash.
Income Portfolio
The investment objective of the Income Portfolio is to achieve a high
total return on investment through capital appreciation and current income,
without regard to federal income tax considerations. During normal market
conditions at least 65% of the Income Portfolio's investments will consist of
income-producing securities. The Income Portfolio hopes to achieve its goal of
capital appreciation by selecting fixed income obligations which ICM, the
Portfolio's sub-adviser, believes are of a higher quality than has been
generally recognized by the marketplace. If ICM's analysis is correct in these
cases, the value of these obligations should increase as the marketplace
recognizes the higher quality of the obligations. ICM intends to identify
investments which it believes to be underrated (and therefore higher yielding)
in light of, among other things, historic and current financial condition of the
issuer, current and anticipated cash flow and borrowing requirements, strength
of management, responsiveness to business conditions, credit standing and
historic and current results of operations. Investors should note that
investments in fixed income obligations will generally be 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 fixed income obligations in which the
Portfolio invests generally will be affected by changes in the level of interest
rates. An increase in interest rates will generally reduce the value of
portfolio investments, and a decline in interest rates will generally increase
the value of portfolio investments.
Securities in which the Income Portfolio invests consist primarily of U.S.
Government obligations and carefully selected fixed income corporate obligations
which ICM considers to be of investment grade quality. The Income Portfolio
invests only in those corporate obligations which in ICM's opinion have the
investment characteristics described by Moody's Investors Service, Inc.
("Moody's") in rating corporate obligations within its four highest ratings of
Aaa, Aa, A and Baa and by Standard & Poor's Corporation ("S&P") in rating
corporate obligations within its four highest ratings of AAA, AA, A and BBB. It
is possible that the ability of the Portfolio to achieve its objective of high
total return could be diminished by its restriction on the use of non-investment
grade corporate obligations. For a description of these ratings, see Appendix A
to the Statement of Additional Information. Investments in government
obligations will include direct obligations of the U.S. Government, such as U.S.
Treasury Bills, Notes and Bonds, obligations guaranteed by the U.S. Government,
<PAGE>
such as Government National Mortgage Association obligations, and obligations of
U.S. Government authorities, agencies and instrumentalities, such as Federal
National Mortgage Association, Federal Home Loan Bank, Federal Financing Bank
and Federal Farm Credit Bank obligations.
The Income Portfolio may invest up to 35% of its assets in mortgage-backed
securities, including mortgage pass-through securities and collateralized
mortgage obligations ("CMOs"), which carry a guarantee from an agency of the
U.S. Government or a private issuer of the timely payment of principal and
interest or, in the case of unrated securities, are considered by the sub-
adviser to be investment grade quality. For a description of the risks
associated with these securities, see "Additional Risk Factors and Policies
Relevant to the Portfolios--Mortgage-Related Securities" below and
"Mortgage-Related Securities" in the Statement of Additional Information.
The Income Portfolio does not require that its investments in corporate
obligations actually be rated by Moody's or S&P, and it may acquire such unrated
obligations which in the opinion of ICM are of a quality at least equal to a
rating of Baa by Moody's or BBB by S&P. With respect to investments in unrated
obligations, the Portfolio will be more reliant on ICM's judgment and experience
than would be the case if the Income Portfolio invested solely in rated
obligations. Obligations rated Baa by Moody's or BBB by S&P may have speculative
characteristics. A rating of Baa by Moody's indicates that the obligation is of
"medium grade," neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. A rating of BBB by S&P indicates that the obligation is in the
lowest "investment grade" security rating. Obligations rated BBB are regarded as
having an adequate capacity to pay principal and interest. Whereas such
obligations 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 than obligations in the top three
"investment grade" categories. Both credit and market risks as described above
are increased by investing in fixed income obligations rated Baa by Moody's and
BBB by S&P. For a more detailed description of these ratings, see Appendix A to
the Statement of Additional Information.
ICM will attempt to limit fluctuations in the market value of the
portfolio by adopting a more defensive posture during periods of economic
difficulty. During such periods the Income Portfolio may acquire high quality
short-term money market instruments rated Prime-1 by Moody's or A or better by
S&P or, if unrated, of comparable quality as determined by ICM, at such times,
and in such amounts, as in the opinion of ICM seems appropriate. Short-term
money market instruments will include, among others, Treasury bills, bankers'
acceptances, certificates of deposit, time deposits, and commercial paper. For a
description of these instruments, see Appendix A to the Statement of Additional
Information.
The Income Portfolio may enter into contracts for the future delivery of
fixed income securities commonly referred to as "interest rate futures
contracts." These futures contracts will not be used for speculation but only as
<PAGE>
a hedge against anticipated interest rate changes. The Income Portfolio also may
use options to purchase or sell covered interest rate futures contracts or debt
securities and may write covered call options and cash secured puts. Covered
call options and cash secured puts will not exceed 25% of total assets. For a
discussion of these types of instruments, including the risks associated
therewith, see "Additional Risk Factors and Policies Relevant to the
Portfolios."
The Income Portfolio is subject to certain restrictions on its use of
financial futures contracts and options. The Income Portfolio will invest only
in futures contracts or options on underlying instruments in which the Portfolio
may invest. The Income Portfolio will not enter into financial futures contracts
or purchase options on financial futures contracts if, after such a transaction,
the sum of initial margin deposits on the open financial futures contracts and
of premiums paid on open options on financial futures contracts would exceed 5%
of the Portfolio's total assets. Subject to the provisions of the Fund's
fundamental investment policies, the Income Portfolio will not enter into
financial futures contracts or write options (except to close out open
positions) if, after such a transaction, the aggregate principal amount of all
open financial futures contracts and all options under which the Portfolio is
obligated would exceed 100% of the Portfolio's total assets. The Income
Portfolio will not write call options until it owns U.S. government securities
or financial futures contracts which may be delivered to satisfy the options or
has the right to obtain deliverable securities without further consideration (or
has segregated cash in the amount of any such consideration). The Income
Portfolio will not write put options unless it has segregated cash or cash
equivalents in amounts sufficient to satisfy the options. The Income Portfolio
will maintain such securities, rights, or segregated cash until the options are
exercised, closed or expire. The Income Portfolio will not purchase put and call
options on debt securities if, after such a transaction, the sum invested for
premiums in such options exceeds 2% of the Portfolio's total assets.
Flex Portfolio
The investment objective of the Flex Portfolio is to achieve a high total
return on investment through capital appreciation and current income, without
regard to federal income tax considerations. The Flex Portfolio invests in a
combination of equity securities and fixed and variable income securities. The
equity securities acquired by the Flex Portfolio are subject to the same
standards as those equity securities acquired by the Equity Portfolio. The
income securities acquired by the Flex Portfolio are subject to the same
investment standards applicable to income securities acquired by the Income
Portfolio. It is possible that the ability of the Portfolio to achieve its
objective of high total return could be diminished by its restriction on the use
of non-investment grade corporate obligations in the income securities portion
of its portfolio.
Typically, a minimum of ^ 20% of the total assets of the Flex Portfolio
will be invested in equity securities and a minimum of ^ 20% of total assets
will be invested in fixed and variable income securities. The remaining ^ 60% of
its portfolio will vary in asset allocation according to ICM's assessment of
business, economic, and market conditions. ICM's analytical processes
<PAGE>
associated with making allocation decisions are based upon a combination of
historical financial results and current prices for stocks and the current yield
to maturity available in the market for bonds. The premium return available from
one category relative to the other determines the actual asset deployment. ICM's
asset allocation processes are systematic and are based on current information
rather than forecasted change. The Flex Portfolio seeks reasonably consistent
returns over a variety of market cycles.
MultiFlex Portfolio
The investment objective of the MultiFlex Portfolio is to achieve a high
total return on investment through capital appreciation and current income,
without regard to federal income tax considerations. The Portfolio seeks to
achieve its objective by investing in a combination of equity securities
(consisting of common stocks and, to a lesser degree, preferred stocks and
securities convertible into common stock) and fixed-income securities, through
allocation of its assets among the following five asset classes: stocks of large
capitalization companies ("large cap stocks"), stocks of small capitalization
companies ("small cap stocks"), fixed-income securities, real estate securities
(primarily securities of real estate investment trusts ("REITs")), and
international stocks (primarily American Depositary Receipts ("ADRs")).
Allocating assets among different types of securities allows the Portfolio to
take advantage of performance opportunities in various sectors of the capital
market, while simultaneously providing diversification to reduce the risks of
each investment.
The Portfolio may invest up to 40% of its assets in each asset class;
however, the Portfolio will normally invest approximately 20% of its assets in
each of the five asset classes, which represents the expected allocation when
projected returns for the five classes are all normal relative to one another.
If the anticipated return for a particular asset class is higher than normal
relative to the others on an historical basis, it will be weighted more heavily
than it would under "normal" conditions. Conversely, if the anticipated return
for a particular asset class is lower than normal relative to the other classes
on an historical basis, a smaller percentage of assets (i.e., less than 20%)
would be invested in that class. Each asset class is briefly described below:
Large Cap Stocks. The MultiFlex Portfolio may invest in equity securities
of large companies, defined as companies with market capitalizations among the
largest 800 publicly traded U.S. corporations at the time of initial purchase.
These securities are traded principally on the national securities exchanges in
the United States, but also may be traded on regional stock exchanges or in the
over-the-counter market. Such stocks are more likely to pay regular dividends
than the stocks of smaller companies.
Small Cap Stocks. The MultiFlex Portfolio may invest in small cap
securities (i.e.,those issued by companies having smaller market capitalizations
than the largest 1,000 publicly traded U.S. corporations). These securities
typically pay no or minimal dividends and possess higher rates of return on
<PAGE>
invested capital and are subject to greater risk than securities of larger
companies, such as large price fluctuations which could increase the potential
for short-term gains and losses.
Fixed Income Securities. The fixed income securities in which the
MultiFlex Portfolio may invest consist of securities issued by the U.S.
Government, its agencies and instrumentalities, corporate securities, mortgage-
and asset- backed securities, zero coupon bonds, municipal obligations and
foreign currency denominated securities. The MultiFlex Portfolio may invest up
to 5% of its assets in corporate bonds rated below Baa by Moody's or BBB by S&P
but rated at least Ba by Moody's or BB by S&P at the time of purchase.
Investments in corporate bonds rated below "investment grade," i.e., rated below
Baa by Moody's or BBB by S&P, are described as "speculative" by both Moody's and
S&P. Such securities are sometimes referred to as "junk bonds," and may be
subject to greater market fluctuations, less liquidity, and greater risk. For a
further discussion of the special risks associated with investments in lower
rated securities, see "Additional Risk Factors and Policies Relevant to the
Portfolios - High Yield/High Risk Securities." The average maturity of the
MultiFlex Portfolio's investments in fixed income securities will vary depending
upon economic and market conditions. During normal market conditions, the
MultiFlex Portfolio's overall maturity will be in the 3.5 to 6.5 year range and
is expected to average at approximately 5 years over a market cycle. The
sub-adviser will seek to adjust the portfolio of fixed income securities held by
the Portfolio to maximize current income consistent with liquidity and the
preservation of principal.
Real Estate Securities. The MultiFlex Portfolio may invest in common
stocks of real estate companies, real estate investment trusts ("REITs"), and
other real estate related securities. REITs are trusts which sell shares to
investors and use the proceeds to invest in real estate or interests therein. A
REIT may focus on particular projects, such as apartment complexes, or
geographic regions, such as the Southeastern United States, or both. Health care
REITs invest primarily in hospitals, nursing homes, and similar facilities, and
are usually nationwide in scope. By investing in REITs indirectly through the
Portfolio, a shareholder will bear not only his proportionate share of the
expenses of the Portfolio, but also, indirectly, similar expenses of the REIT.
International Stocks. The MultiFlex Portfolio may invest in international
securities directly or by means of sponsored or unsponsored ADRs. Up to 40% of
total assets, measured at the time of purchase, may be invested directly in
foreign securities; securities of Canadian issuers and securities purchased by
means of sponsored ADRs are not subject to this 40% limitation. See "Additional
Risk Factors and Policies Relevant to the Portfolios - Foreign Securities."
IMR, the Portfolio's sub-adviser, regularly monitors the Portfolio's
investment allocations, and may vary the amount invested in each class depending
upon its assessment of business, economic and market conditions. The investment
results of the Portfolio depend upon the sub-adviser's ability to determine
correctly the relative attractiveness of various asset classes on a consistent
basis. However, market valuations change not only in response to economic
factors but to psychological and emotional factors as well. These factors are
<PAGE>
difficult to interpret and quantify. It is therefore possible that the Portfolio
may have a minimum allocation in stocks during a significant advance in overall
stock prices. Similarly, it is possible that the Portfolio may have a minimum
allocation in bonds during a significant advance in overall bond prices.
There may be temporary periods during which the allocation of assets to
each asset class deviates from the specified percentage allocation because of
inflows or outflows of cash from the Portfolio. This is most likely to occur
when the sub-adviser has positioned the portfolio assets close to a minimum or
maximum constraint for one or more asset classes and the Portfolio's cash
position is altered as a result of purchases and/or redemptions of the
Portfolio's shares. In such cases, IMR will deploy cash or reallocate portfolio
assets in a timely fashion (not to exceed seven days) to bring portfolio
composition within the specified asset allocation.
In periods of uncertain economic and market conditions, as determined by
the sub-adviser, the Portfolio may depart from its basic investment objective
and assume a temporary defensive position, with a portion of its assets invested
in cash or cash equivalents and, within the fixed income asset class, U.S.
Government and agency securities and investment grade corporate bonds. Cash may
be held for defensive purposes up to a maximum of 30% of the Portfolio's total
assets. While the Portfolio is in a defensive position, the opportunity to
achieve capital growth will be limited; however, the ability to maintain a
defensive position enables the Portfolio to seek to minimize capital losses
during market downturns. Under normal market conditions, the Portfolio does not
intend to invest a significant portion of its assets in cash or cash
equivalents.
In managing the equity portion of the portfolio, IMR will apply a
combination of quantitative strategies and traditional stock selection methods
to a very broad universe of stocks in order to uncover the best possible values.
Typically, stocks will be examined quantitatively for their exposure to certain
factors which the sub-adviser has identified as helpful in selecting equities
which can be expected to have superior future performance. These factors may
include earnings-to-price and book value-to-price ratios, earnings estimate
revision momentum, relative market strength compared to competitors,
inventory/sales trend, and financial leverage. A stock's expected return is
estimated based upon its exposure to these and other factors, and when combined
with proprietary estimates of trading costs, a risk-controlled optimal portfolio
is generated. Once an initial suggested portfolio has been generated through the
computer optimization process, traditional fundamental analysis is utilized to
provide a final review before stocks are selected for purchase by the Portfolio.
The MultiFlex Portfolio may purchase and write covered options on
securities (including index options and options on foreign securities), may
purchase and sell covered interest rate futures contracts, and may invest in
futures contracts for the purchase or sale of foreign currencies, fixed income
securities, commodities and instruments based on securities indices
(collectively, "futures contracts"), options on futures contracts, forward
commitments and swap agreements. See "Additional Risk Factors and Policies
<PAGE>
Relevant to the Portfolios." For a discussion of the tax considerations relating
to swap agreements, see Appendix A to this Prospectus and the Statement of
Additional Information under "Tax Information."
^
Real Estate Portfolio
The investment objective of the Real Estate Portfolio is to achieve a high
total return on investment through capital appreciation and current income,
without regard to federal income tax considerations. The Portfolio seeks to
achieve its objective by investing primarily in publicly traded securities of
companies related to the real estate industry. The Portfolio will not invest
directly in private real estate assets.
Under normal circumstances, the Portfolio will invest at least 65% of its
total assets in equity securities of companies which are principally engaged in
the real estate industry and are listed on U.S. securities exchanges or the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"). Companies listed on NASDAQ are generally smaller-capitalization
companies whose securities may be subject to large price fluctuations which
could increase the potential for short-term gains or losses. A company is
"principally engaged in the real estate industry" if at least 50% of its assets,
gross income or net profits are attributable to ownership, construction,
management, or sale of residential, commercial or industrial real estate,
including listed equity REITs which own properties, and listed mortgage REITs
which make short-term construction and development mortgage loans or which
invest in long-term mortgages or mortgage pools. By investing in REITs
indirectly through the Portfolio, a shareholder will bear not only his
proportionate share of the expenses of the Portfolio, but also, indirectly,
similar expenses of the REIT. See "Additional Risk Factors and Policies Relevant
to the Portfolios -- Real Estate Industry Securities."
The Portfolio may also invest up to 35% of its total assets in equity,
debt, or convertible securities of companies whose products and services are
related to the real estate industry, such as manufacturers and distributors of
building supplies and financial institutions which issue or service mortgages.
The Portfolio also may invest up to 35% of its total assets in securities of
companies unrelated to the real estate industry which are believed by the
sub-adviser to be undervalued and to have capital appreciation potential.
Moreover, consistent with its objective of current income, the Portfolio may
invest all or part of its assets in debt securities of companies related to the
real estate industry. Debt securities purchased by the Portfolio will be limited
to those rated at the time of the investment as investment grade by Moody's or
S&P or, if unrated, determined by the sub-adviser to be of comparable quality.
For a description of these ratings and a discussion of factors relevant to a
determination that an unrated security is of comparable quality, see Appendix A
to the Statement of Additional Information.
IRA, the Portfolio's sub-adviser, utilizes both fundamental real estate
analysis and quantitative securities analysis to select investments for the
<PAGE>
Portfolio. The fundamental real estate characteristics of securities included in
the qualifying universe are determined by analysis of a company's management and
strategic focus and an evaluation of the location, physical attributes and cash
flow generating capacity of a company's properties. Each component of the
analysis is assigned a weight and each company is systematically ranked to
determine which company's securities are to be emphasized in the selection of
Portfolio investments.
IRA's quantitative analysis applies a proprietary database and
multi-factor regression model to rank individual securities in the qualifying
universe from highest to lowest expected returns. Investment consideration is
limited to those actively traded securities which are expected to outperform the
NAREIT Equity Index over the subsequent three-month period. The NAREIT Equity
Index is composed of common stocks of all tax-qualified equity REITs listed on
the New York Stock Exchange, American Stock Exchange and the NASDAQ National
Market System.
After ranking each security fundamentally and quantitatively, diversified
portfolios are created through a statistical optimization process. This
technique incorporates such factors as expected return, volatility, correlation
to other stocks already held in the portfolio, and turnover costs.
If, in the opinion of the sub-adviser, market conditions warrant a
temporary defensive investment strategy, the Portfolio's assets may be invested
in money market instruments and U.S. government securities, or held in cash or
equivalents. The Portfolio may purchase and write put and call options on
securities and securities indices. See "Additional Risk Factors and Policies
Relevant to the Portfolios."
For taxable clients, a portion of the dividends paid by a REIT may be
considered return on capital and would not currently be regarded as taxable
income. Therefore, depending upon an individual's tax bracket, the dividend
yield may have a higher tax effective yield.
<PAGE>
International Value Portfolio
The investment objective of the International Value Portfolio is to
achieve a high total return on investment through capital appreciation and
current income, without regard to U.S. or foreign tax considerations. The
Portfolio seeks to achieve its objective by investing at least 65% of its total
assets in a diversified portfolio of foreign equity securities, consisting of
common stocks, preferred stocks, warrants, and securities convertible into
common stock. Equity securities may include foreign securities registered and
traded in U.S. markets, foreign securities traded in foreign markets and
American Depository Receipts issued as evidence of ownership of foreign
securities. The sub-adviser intends to hold securities in its portfolio of
companies domiciled in at least four countries. Moreover, consistent with its
objective of current income, the Portfolio may invest up to 35% of its total
assets in debt securities rated at the time of investment as investment grade
or, if unrated, determined by the sub-adviser to be of comparable quality. For a
description of these ratings and a discussion of factors relevant to a
determination that an unrated security is of comparable quality, see Appendix A
to the Statement of Additional Information.
Although the Portfolio intends to invest principally in securities of
companies in developed nations, including Europe and the Pacific Rim, it may
also invest up to 20% of its total assets in equity securities of companies
domiciled in emerging market countries. See "Additional Risk Factors and
Policies Relevant to the Portfolios - Foreign Securities, Emerging Markets"
below for a discussion of the risks associated with such investments.
ICM has access to the data and research of the Global Asset Allocation
Committee of its parent company, INVESCO PLC. This worldwide data and research
from the parent company, together with the sub-adviser's proprietary data base
consisting primarily of large and medium capitalization non-U.S. companies,
provide investment research and information which aid ICM in determining which
stocks are selected for the Portfolio.
Stocks within the sub-adviser's database are subjected to proprietary
computer analytical systems designed to compare the price of each stock to
various factors which include shareholders' equity per share, historic return on
equity, and the company's ability to reinvest earnings for future growth or to
pay earnings in the form of dividends. The results of this analysis are then
used to assist ICM in determining the relative value of each stock. Each stock's
final selection is based primarily upon ICM's opinion of the relative value of
the stock and takes into account the company's historic and current operating
results combined with an analysis of the likelihood of favorable operating
results being extended into future years. The final selection of a stock for the
portfolio may also take into account the sub-adviser's opinion of the
attractiveness of the stock to the portfolio as a whole based on diversification
and risk considerations.
ICM does not make country or industry allocation decisions based on
worldwide market or industry forecasts. Consequently, the industry and country
weightings in the portfolio tend to be a by- product of the stock selection
process and portfolio construction. Given the difficulty of profitably applying
<PAGE>
aggressive currency management over long periods of time, ICM tends to
incorporate currency hedging strategies only at the extremes of relative
valuation ranges.
When, in the judgment of the sub-adviser, market, business or economic
conditions warrant employing temporary defensive measures, the sub-adviser may
invest all or part of the assets of the Portfolio temporarily in securities of
U.S. issuers and may, for temporary defensive purposes, invest without limit in
(i) money market securities denominated in dollars or in the currency of any
foreign country and issued by entities organized in the U.S. or any foreign
country, such as short-term (less than 12 months to maturity) and medium-term
(not greater than five years to maturity) obligations issued or guaranteed by
the U.S. Government or the government of a foreign country, their agencies or
instrumentalities, (ii) finance company and corporate commercial paper and other
short-term corporate obligations, in each case rated Prime-1 by Moody's or A or
better by S&P or, if unrated, of comparable quality as determined by the
sub-adviser, and (iii) repurchase agreements with banks and broker-dealers with
respect to such securities.
Although the Portfolio invests principally in common stocks, it may also
enter into transactions in options on securities, securities indices and
currencies, forward currency contracts, futures contracts and related options,
and swap agreements. See "Additional Risk Factors and Policies Relevant to the
Portfolios."
Cash Management Portfolio
The Cash Management Portfolio's investment objective is to achieve as high
a level of current income, without regard to federal income tax considerations,
as is consistent with the preservation of capital and the maintenance of
liquidity. The Portfolio seeks to achieve its objective through investment in a
diversified portfolio of high-quality, short-term "money market" instruments.
These instruments consist of obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, and U.S.
dollar-denominated certificates of deposit, time deposits, bankers' acceptances,
commercial paper, repurchase agreements, and corporate obligations. For a
description of these instruments, see Appendix A to the Statement of Additional
Information. The Portfolio may also place a portion of its assets in
interest-bearing accounts with qualifying banks provided the Portfolio is free
to withdraw its assets at any time without suffering any interest reduction or
other penalty. Because the Portfolio invests in high quality, short-term debt
obligations, its ability to achieve a high level of current income is limited in
comparison to mutual funds that invest in securities which present a greater
credit risk.
The Portfolio will not purchase any security which has a maturity in
excess of 12 months. Notwithstanding this limitation, the Portfolio may purchase
a security with a maturity greater than 375 days which is subject to a demand
feature which reduces the remaining maturity to 375 days or less, if the demand
feature is unconditional and is rated by at least two major rating agencies, or
by the only rating agency that has assigned a rating, in the highest short term
rating category, or comparable unrated securities. The dollar-weighted average
<PAGE>
maturity of the Portfolio will not exceed 90 days. The Portfolio seeks to
maintain a constant net asset value of $1.00 per share, although there can be no
assurance that this will be achieved. (See "Computation of Net Asset Value").
Investments by the Portfolio must present minimal credit risk and be rated
within one of the two highest rating categories for short-term debt obligations
by at least two nationally recognized statistical rating organizations
("NRSROs") or, if only one NRSRO has assigned a rating, by that agency.
Purchases of securities which are unrated or rated only by one rating agency
must be approved or ratified by the Directors. Securities which are rated (or
that have been issued by an issuer that is rated with respect to a class of
short-term debt obligations, or any security within that class, comparable in
priority and quality with such securities) in the highest category by at least
two NRSROs are designated "First Tier Securities." Securities rated in the top
two categories by at least two NRSROs, but which are not rated in the highest
category by two or more NRSROs, are designated "Second Tier Securities."
Securities which are unrated may be purchased only if they are deemed to be of
comparable quality to rated securities. ISI, as investment adviser, shall
determine whether a security presents minimal credit risk under procedures
adopted by the Board of Directors.
The Portfolio may not invest more than 5% of its total assets in the
securities of any one issuer, except this limitation shall not apply to U.S.
Government securities and repurchase agreements thereon. The Portfolio may,
however, invest more than 5% of its total assets in the First Tier Securities of
a single issuer for a period of up to three business days after the purchase
thereof, although the Portfolio may not make more than one such investment at
any one time. Further, the Portfolio will not invest more than the greater of 1%
of its total assets or one million dollars, measured at the time of investment,
in the securities of a single issuer which were Second Tier Securities when
acquired by the Portfolio. In addition, the Portfolio may not invest more than
5% of its total assets in securities which were Second Tier Securities when
acquired.
ADDITIONAL RISK FACTORS AND POLICIES RELEVANT TO THE PORTFOLIOS
Repurchase Agreements. Each of the Portfolios, except the Equity
Portfolio, may engage in repurchase agreements. A repurchase agreement, which
may be considered a "loan" under the ^ 1940 Act, is a transaction in which a
fund purchases a security and simultaneously commits to sell the security to the
seller at an agreed-upon price and date (usually not more than seven days) after
the date of purchase. The resale price reflects the purchase price plus an
agreed-upon market rate of interest which is unrelated to the coupon rate or
maturity of the purchased security. A fund's risk is limited to the ability of
the seller to pay the agreed-upon amount on the delivery date. In the opinion of
management this risk is not material; if the seller defaults, the underlying
security constitutes collateral for the seller's obligations to pay. This
collateral, equal to or in excess of 100% of the repurchase agreement, will be
held by the custodian for the particular Portfolio's assets. However, in the
absence of compelling legal precedents in this area, there can be no assurance
<PAGE>
that the Portfolio will be able to maintain its rights to such collateral upon
default of the issuer of the repurchase agreement. To the extent that the
proceeds from a sale upon a default in the obligation to repurchase are less
than the repurchase price, the particular Portfolio would suffer a loss. It is
intended (but not required) that at no time will the market value of any of the
Portfolio's securities subject to repurchase agreements exceed 50% (75% as to
the Cash Management Portfolio) of the total assets of such Portfolio entering
into such agreement. It is intended for these Portfolios to enter into
repurchase agreements with commercial banks and securities dealers. The Board of
Directors will monitor the creditworthiness of such entities.
Foreign Securities. The MultiFlex and International Value Portfolios may
invest directly in foreign equity securities and the Equity, Flex, MultiFlex and
International Value Portfolios may invest in foreign securities represented by
ADRs, as described below. The MultiFlex^ and International Value ^ Portfolios
may also invest in foreign currency-denominated fixed income securities.
Investing in securities issued by companies whose principal business activities
are outside the United States may involve significant risks not present in
domestic investments. For example, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing, and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of cash or
other assets of the Portfolio, political or financial instability, or diplomatic
and other developments which could affect such investments. Further, economies
of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the United States. Foreign securities often
trade with less frequency and volume than domestic securities and therefore may
exhibit greater price volatility. Additional costs associated with an investment
in foreign securities may include higher custodial fees than apply to domestic
custodial arrangements, and transaction costs of foreign currency conversions.
ADRs provide a method whereby the Equity, Flex, MultiFlex and International
Value Portfolios may invest in securities issued by companies whose principal
business activities are outside the United States. These securities will not be
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets.
ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities, and may be issued as
sponsored or unsponsored programs. In sponsored programs, an issuer has made
arrangements to have its securities trade in the form of ADRs. In unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
<PAGE>
creation of a sponsored program. The Equity and Flex Portfolios intend to invest
only in sponsored ADRs. The MultiFlex and International Value Portfolios may
invest in both sponsored and unsponsored ADRs.
Since certain Portfolios are authorized to invest in securities denominated
or quoted in currencies other than the U.S. dollar, changes in foreign currency
exchange rates relative to the U.S. dollar will affect the value of securities
in the Portfolios and the unrealized appreciation or depreciation of such
investments. Changes in foreign currency exchange rates relative to the U.S.
dollar will also affect a Portfolio's yield on assets denominated in currencies
other than the U.S. dollar.
Emerging Markets. The International Value Portfolio may invest in
securities of companies domiciled in emerging market countries. Investment in
emerging market countries presents risks greater in degree than, and in addition
to, those presented by investment in foreign issuers in general. A number of
emerging market countries restrict, to varying degrees, foreign investment in
stocks. Repatriation of investment income, capital, and the proceeds of sales by
foreign investors may require governmental registration and/or approval in some
emerging market countries. A number of the currencies of developing countries
have experienced significant declines against the U.S. dollar in recent years,
and devaluation may occur subsequent to investments in these currencies by the
International Value Portfolio. Inflation and rapid fluctuations in inflation
rates have had and may continue to have negative effects on the economies and
securities markets of certain emerging market countries. Many of the emerging
securities markets are relatively small, have low trading volumes, suffer
periods of relative illiquidity, and are characterized by significant price
volatility. There is a risk in emerging market countries that a future economic
or political crisis could lead to price controls, forced mergers of companies,
expropriation or confiscatory taxation, seizure, nationalization, or creation of
government monopolies, any of which may have a detrimental effect on the
Portfolio's investments.
Options. Each Portfolio, except the Equity and Cash Management Portfolios,
may purchase and write put and call options on securities, as described in this
Prospectus and in the Statement of Additional Information. A Portfolio may write
a call or put option only if the option is "covered" by the Portfolio holding a
position in the underlying securities or by other means which would permit
immediate satisfaction of the Portfolio's obligation as writer of the option.
The purchase and writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a writer
continues, has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price. If a put or call
option purchased by the Portfolio is not sold when it has remaining value, and
if the market price of the underlying security, in the case of a put, remains
<PAGE>
equal to or greater than the exercise price or, in the case of a call, remains
less than or equal to the exercise price, the Portfolio will lose its entire
investment in the option. Also, where a put or call option on a particular
security is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the price of the
related security. There can be no assurance that a liquid market will exist when
a Portfolio seeks to close out an option position. Furthermore, if trading
restrictions or suspensions are imposed on the options markets, a Portfolio may
be unable to close out a position.
The MultiFlex and International Value Portfolios may also buy or sell put
and call options on foreign securities and foreign currencies. Currency options
traded on U.S. or other exchanges may be subject to position limits which may
limit the ability of the Portfolios to reduce foreign currency risk using such
options. Over-the-counter options differ from traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller and generally do not have as much market liquidity as exchange-traded
options.
Futures Contracts and Options on Futures Contracts. As described under
"Investment Objectives and Policies," the Income, Flex, MultiFlex^ and
International Value Portfolios may invest in interest rate futures contracts and
options thereon ("futures options"); the MultiFlex ^ Portfolio may enter into
commodity futures contracts and options; the MultiFlex^ and International Value
Portfolios may enter into foreign currency futures contracts and options; and
the MultiFlex Portfolio may enter into stock index futures contracts and options
thereon. Such contracts may not be entered into for speculative purposes. When a
Portfolio purchases a futures contract, an amount of cash, U.S. Government
securities, or money market instruments equal to the fair market value less
initial and variation margin of the futures contract will be deposited in a
segregated account to collateralize the position and thereby ensure that such
futures contract is "covered."
There are several risks associated with the use of futures and futures
options. The value of a futures contract may decline. With respect to
transactions for hedging, there can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the portfolio
securities being hedged. An incorrect correlation could result in a loss on both
the hedged securities in a Portfolio and the hedging vehicle so that the
portfolio return might have been greater had hedging not been attempted. There
can be no assurance that a liquid market will exist at a time when a Portfolio
seeks to close out a futures contract or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent a Portfolio from liquidating an
unfavorable position and the Portfolio would remain obligated to meet margin
requirements until the position is closed.
<PAGE>
The Portfolios will only enter into futures contracts or futures options
which are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system. A
Portfolio will use financial futures contracts and related options only for
"bona fide hedging" purposes, as such term is defined in applicable regulations
of the Commodity Futures Trading Commission, or, with respect to positions in
financial futures and related options that do not qualify as "bona fide hedging"
positions, will enter into such non-hedging positions only to the extent that
aggregate initial margin deposits plus premiums paid by it for open futures
option positions, less the amount by which any such positions are
"in-the-money," would not exceed 5% of the Portfolio's total assets.
Forward Foreign Currency Exchange Contracts. The MultiFlex and
International Value Portfolios may enter into forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the Portfolio
from adverse changes in the relationship between the U.S. dollar and foreign
currencies. A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers. Such contracts may
not be entered into for speculative purposes. A Portfolio will not enter into
forward contracts if, as a result, more than 10% of the value of its total
assets would be committed to the consummation of such contracts, and will
segregate assets or "cover" its positions consistent with requirements under the
1940 Act to avoid any potential leveraging of the Portfolio.
Swap Agreements. The MultiFlex and International Value Portfolios may
enter into interest rate, index and currency exchange rate swap agreements for
purposes of attempting to obtain a particular desired return at a lower cost to
the Portfolio than if it had invested directly in an instrument that yielded
that desired return. Swap agreements are two-party contracts entered into
primarily by institutional investors for periods ranging from a few weeks to
more than one year. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments. The gross returns to be
exchanged or "swapped" between the parties are calculated with respect to a
"notional amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index.
Commonly used swap agreements include interest rate caps, under which, in return
for a premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap"; interest rate floors, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates fall below a specified level, or "floor"; and
interest rate collars, under which a party sells a cap and purchases a floor or
vice versa in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictive basis on
which to calculate the obligations which the parties to a swap agreement have
<PAGE>
agreed to exchange. Most swap agreements entered into by a Portfolio would
calculate the obligations of the parties to the agreement on a "net basis."
Consequently, a Portfolio's obligations (or rights) under a swap agreement will
generally be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). Obligations under a swap agreement will be
accrued daily (offset against amounts owing to the Portfolio) and any accrued
but unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, U.S. Government
securities, or high grade debt obligations, to avoid any potential leveraging of
the portfolio. A Portfolio will not enter into a swap agreement with any single
party if the net amount owed or to be received under existing contracts with
that party would exceed 5% of the Portfolio's total assets.
Mortgage-Related Securities. As described under "Investment Objectives and
Policies," the Income Portfolio may invest in mortgage pass-through securities
and CMOs, and the MultiFlex ^ Portfolio may invest in mortgage-related
securities, including CMOs and mortgage-backed bonds, and asset-backed
securities.
Mortgage pass-through securities are securities representing interests in
"pools" of mortgage loans in which payments of both interest and principal on
the securities are generally made monthly, in effect "passing through" monthly
payments made by the individual borrowers on the mortgage loans which underlie
the securities (net of fees paid to the issuer or guarantor of the securities).
Payment of principal and interest on some mortgage pass-through securities
may be guaranteed by the full faith and credit of the U.S. Government (in the
case of securities guaranteed by the Government National Mortgage Association
("GNMA")); or guaranteed by agencies or instrumentalities of the U.S. Government
(in the case of securities guaranteed by the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"),
which are supported only by the discretionary authority of the U.S. Government
to purchase the agency's obligations). For more information on GNMA certificates
and FNMA and FHLMC mortgage-backed obligations, see "Mortgage-Related
Securities" in the Statement of Additional Information.
CMOs are securities which are typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FNMA, or FHLMC. Similar to
a bond, interest and pre-paid principal on a CMO are paid, in most cases,
semiannually. CMOs are structured into multiple classes, with each class bearing
a different stated maturity. Monthly payments of principal, including
prepayments, are first returned to investors holding the shortest maturity
class; investors holding the longer maturity classes will receive principal only
after the first class has been retired. CMOs that are issued or guaranteed by
the U.S. Government or by any of its agencies or instrumentalities will be
considered U.S. Government securities by the Portfolios, while other CMOs, even
if collateralized by U.S. Government securities, will have the same status as
other privately issued securities for purposes of applying a Portfolio's
diversification tests.
<PAGE>
Mortgage-backed bonds are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and FNMA and FHLMC pass-through securities)
or on a modified basis (as with CMOs). Accordingly, a change in the rate of
prepayments on the pool of mortgages could change the effective maturity of a
CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
Asset-backed securities are securities representing interests in other
types of financial assets, such as automobile-finance receivables or credit-card
receivables. Such securities are subject to many of the same risks as are
mortgage-backed securities, including prepayment risks and risks of foreclosure.
They may or may not be secured by the receivables themselves or may be unsecured
obligations of their issuers. For further information on these securities, see
the Statement of Additional Information.
Risks of mortgage-related securities. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, thereby affecting the investment's average life and
perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely
controlled by the borrower. Borrowers are most likely to exercise prepayment
options at the time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise. Besides the effect of prevailing interest rates, the rate of
prepayment and refinancing of mortgages may also be affected by home value
appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may fluctuate
over time. The price of mortgage-backed securities may be particularly sensitive
to prevailing interest rates, the length of time the security is expected to be
outstanding, and the liquidity of the issue. In a period of unstable interest
rates, there may be decreased demand for certain types of mortgage-backed
securities, and a fund invested in such securities wishing to sell them may find
it difficult to find a buyer, which may in turn decrease the price at which they
may be sold.
Credit risk reflects the risk that a Portfolio may not receive all or part
of its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions. With respect to GNMA certificates,
although GNMA guarantees timely payment even if homeowners delay or default,
tracking the "pass-through" payments may, at times, be difficult.
For further information, see the Statement of Additional Information.
<PAGE>
Zero Coupon Obligations. The MultiFlex ^ Portfolio may invest in zero
coupon obligations, which are fixed-income securities that do not make regular
interest payments. Instead, zero coupon obligations are sold at substantial
discounts from their face value. The Portfolio accrues income on these
investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy distribution
obligations, in which case the Portfolio will forego the purchase of additional
income-producing assets with these funds. The difference between a zero coupon
obligation's issue or purchase price and its face value represents the imputed
interest an investor will earn if the obligation is held until maturity. Zero
coupon obligations may offer investors the opportunity to earn higher yields
that those available on ordinary interest-paying obligations of similar credit
quality and maturity. However, zero coupon obligation prices may also exhibit
greater price volatility than ordinary fixed-income securities because of the
manner in which their principal and interest are returned to the investor.
Real Estate Industry Securities. Because each of the MultiFlex and Real
Estate Portfolios invests in securities of companies engaged in the real estate
industry, it could conceivably own real estate directly as a result of a default
on debt securities it owns. The Portfolio, therefore, may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, adverse changes in the climate for real estate, increases in
property taxes and operating expenses, changes in zoning laws, casualty or
condemnation losses, limitations on rents, changes in neighborhood values, the
appeal of properties to tenants, and increases in interest rates.
In addition to the risks described above, equity REITs may be affected by
any changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified, and are
therefore subject to the risk of financing single or a limited number of
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self-liquidation, and the possibility of failing to qualify for
tax-free pass-through of income under the Internal Revenue Code and of failing
to maintain exemption from the 1940 Act. Changes in interest rates may also
affect the value of debt securities held by the Portfolio. By investing in REITs
indirectly through the Portfolio, a shareholder will bear not only his
proportionate share of the expenses of the Portfolio, but also, indirectly,
similar expenses of the REITs.
High Yield/High Risk Securities. The MultiFlex and Relative Return Bond
Portfolios may invest up to 5% and 10% of assets, respectively, in securities
rated lower than Baa by Moody's or BBB by S&P, but rated at least Ba by Moody's
or BB by S&P or, if unrated, determined by the Portfolio's sub-adviser to be of
comparable quality. Securities rated lower than Baa by Moody's or lower than BBB
<PAGE>
by S&P are sometimes referred to as "high yield," "high risk," or "junk" bonds.
In addition, securities rated Baa are considered by Moody's to have some
speculative characteristics.
Investing in high yield securities involves special risks in addition to
the risks associated with investments in higher rated debt securities. High
yield securities may be regarded as predominately speculative with respect to
the issuer's continuing ability to meet principal and interest payments.
Analysis of the creditworthiness of issuers of high yield securities may be more
complex than for issuers of higher quality debt securities, and the ability of a
Portfolio to achieve its investment objective may, to the extent of its
investments in high yield securities, be more dependent upon such
creditworthiness analysis than would be the case if the Portfolio were investing
in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to interest
rate changes than more highly rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If the issuer of high yield securities
defaults, a Portfolio may incur additional expenses to seek recovery. In the
case of high yield securities structured as zero coupon or payment-in-kind
securities, the market prices of such securities are affected to a greater
extent by interest rate changes, and therefore tend to be more volatile than
securities which pay interest periodically and in cash.
The secondary markets on which high yield securities are traded may be
less liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations in
the daily net asset value of a Portfolio's shares. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
the values and liquidity of high yield securities, especially in a thinly traded
market.
There may be special tax considerations associated with investing in high
yield securities structured as zero coupon or payment-in-kind securities. A
Portfolio records the interest on these securities as income even though it
receives no cash interest until the security's maturity or payment date. A
Portfolio will be required to distribute all or substantially all such amounts
annually and may have to obtain the cash to do so by selling securities which
otherwise would continue to be held. Shareholders will be taxed on these
distributions.
The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit ratings
in a timely fashion to reflect events since the security was last rated. The
<PAGE>
sub-adviser does not rely solely on credit ratings when selecting securities for
the Portfolios, and develops its own independent analysis of issuer credit
quality. If a credit rating agency changes the rating of a portfolio security
held by the Portfolio, the Portfolio may retain the security if the sub-adviser
deems it in the best interest of the shareholders.
Delayed Delivery Transactions ("Forward Commitments"). The MultiFlex,^
Real Estate and International Value Portfolios may purchase or sell securities
on a when-issued or delayed delivery basis. These transactions involve a
commitment by the Portfolio to purchase or sell securities for a predetermined
price or yield, with payment and delivery taking place more than three days in
the future, or after a period longer than the customary settlement period for
that type of security. When delayed delivery purchases are outstanding, the
Portfolio will set aside and maintain until the settlement date in a segregated
account, cash, U.S. Government securities or high grade debt obligations in an
amount sufficient to meet the purchase price. Typically, no income accrues on
securities purchased on a delayed delivery basis prior to the time delivery of
the securities is made, although a Portfolio may earn income on securities it
has deposited in a segregated account. When purchasing a security on a delayed
delivery basis, a Portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield fluctuations, and takes such
fluctuations into account when determining its net asset value. Because a
Portfolio is not required to pay for the security until the delivery date, these
risks are in addition to the risks associated with the Portfolio's other
investments. If the Portfolio remains substantially fully invested at a time
when delayed delivery purchases are outstanding, the delayed delivery purchases
may result in a form of leverage. When the Portfolio has sold a security on a
delayed delivery basis, the Portfolio does not participate in future gains or
losses with respect to the security. If the other party to a delayed delivery
transaction fails to deliver or pay for the securities, the Portfolio could miss
a favorable price or yield opportunity or could suffer a loss. A Portfolio may
dispose of or renegotiate a delayed delivery transaction after it is entered
into, and may sell when-issued securities before they are delivered, which may
result in a capital gain or loss.
^
Portfolio Securities Loans. Each of the Portfolios, except the Cash
Management Portfolio, may lend limited amounts of portfolio securities (not to
exceed ^ 10% of total assets for the ^ Equity, Income, Flex, MultiFlex, Real
Estate and International Value Portfolios) to broker-dealers or other
institutional investors. See the Statement of Additional Information.
Portfolio Turnover. Generally, the rate of portfolio turnover will not be
a limiting factor when the Portfolios deem changes appropriate; however, it is
anticipated that no Portfolio's annual portfolio turnover rate generally will
exceed 100%. In any particular year, however, market conditions could result in
portfolio activity at a greater rate than anticipated. Portfolio turnover rate,
along with the Fund's brokerage allocation policies, are discussed in the
Statement of Additional Information.
<PAGE>
General. No assurance is or can be given that any of the Portfolios will
accomplish its investment objectives, as there is some degree of uncertainty in
every investment.
INVESTMENT RESTRICTIONS
The Directors of the Fund, on behalf of the Portfolios, have adopted
certain investment restrictions which are fundamental policies and may not be
changed as to any Portfolio without the approval of the holders of a majority of
such Portfolio's outstanding voting securities (which in this Prospectus means,
as to each Portfolio, the vote of the lesser of (i) 67% or more of the voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy, or (ii) more
than 50% of the outstanding voting securities). The Statement of Additional
Information contains, under the heading "Investment Restrictions," specific
enumerated investment restrictions which govern the investments of each
Portfolio. The Fund's investment restrictions include, among others, limitations
with respect to the percentage of the value of any Portfolio's total assets that
may be invested in any one company or any one industry.
All of the Portfolios are "diversified" for purposes of the 1940 Act. It
is a fundamental restriction applicable to the MultiFlex, ^ Real Estate and
International Value Portfolios that, with respect to 75% of its portfolio, the
Portfolio will not purchase a security (other than a security issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if, as a
result, more than 5% of the assets of the Portfolio would be invested in the
securities of the issuer. With respect to the Equity, Income, Flex and Cash
Management Portfolios, these diversification requirements are applied to 100% of
the Portfolio's total assets.
Except for those investment policies of a Portfolio specifically
identified as fundamental, all investment policies and practices described in
this Prospectus and in the Statement of Additional Information, including each
Portfolio's investment objective, are not fundamental and therefore, may be
changed by the Board of Directors without shareholder approval. Such changes may
result in a Portfolio having investment objectives different from the investment
objectives which the shareholder considered appropriate at the time of
investment in the Fund. For a description of each Portfolio's fundamental and
non-fundamental investment policies, see "Investment Restrictions" in the
Statement of Additional Information.
MANAGEMENT OF THE FUND
The investment adviser to each of the Portfolios is INVESCO Services, Inc.
("ISI" or the "Adviser"), a Georgia corporation having its principal office at
1315 Peachtree Street, N.E., Atlanta, Georgia 30309. ISI has been engaged in the
investment advisory business since 1983, and is a wholly owned subsidiary of
INVESCO Capital Management, Inc., whose business is described below.
<PAGE>
The sub-adviser to the Equity, Income, Flex, Cash Management and
International Value Portfolios is INVESCO Capital Management, Inc. ("ICM"), a
Delaware corporation having its principal office at 1315 Peachtree Street, N.E.,
Atlanta, Georgia 30309. ICM also has an advisory office in Coral Gables,
Florida, and a marketing office in San Francisco, California and has been
engaged in the investment advisory business since 1979. ICM currently manages in
excess of ^ $39 billion of assets for its customers, and it believes it has one
of the nation's largest discretionary portfolios of tax-exempt accounts (such as
pension and profit-sharing funds for corporations and state and local
governments). ICM currently sponsors one investment company, INVESCO Treasurer's
Series Trust, which consists of four portfolios. In addition, ICM furnishes
investment advice to the following other investment companies: The Large Cap
Value Fund of the Prudential Target Portfolio Trust, the Chaconia Growth &
Income Fund, certain portfolios of the INVESCO Variable Investment Funds, Inc.,
and certain portfolios of INVESCO Value Trust. Portfolios are supervised by
investment managers who utilize ICM's facilities for investment research and
analysis, review of current economic conditions and trends, and consideration of
long-range investment policy matters.
The sub-adviser to the MultiFlex ^ Portfolio is INVESCO Management &
Research, Inc. ("IMR"), formerly Gardner and Preston Moss, Inc., a Massachusetts
corporation having its principal office at 101 Federal Street, Boston,
Massachusetts 02110. IMR has been engaged in the investment advisory business
since 1969. IMR currently manages ^ $2.4 billion of assets for its customers,
predominately in pension and endowment accounts. IMR currently sponsors one
investment company, The Commonwealth Investment Trust, which consists of one
portfolio.
The sub-adviser to the Real Estate Portfolio is INVESCO Realty Advisors,
Inc. ("IRA"), a Texas corporation having its principal office at One Lincoln
Centre, Suite 1200, 5400 LBJ Freeway/LB-2, Dallas, Texas 75240. IRA has been a
registered investment adviser and qualified professional asset manager since
1983. IRA currently manages ^ $2.7 billion of assets for its customers. As of
December 31, ^ 1995, IRA's portfolio contained ^ 105 properties totalling over ^
30.6 million square feet of commercial real estate and ^ 13,651 apartment units.
IRA does not currently advise any other investment companies.
ISI and ICM provide general investment advice and portfolio management to
the Equity, Income, Flex, Cash Management and International Value Portfolios.
ISI and IMR provide general investment advice and portfolio management to the
MultiFlex ^ Portfolio. ISI and IRA provide general investment advice and
portfolio management to the Real Estate Portfolio. The controlling person of
ISI, ICM, IRA and IMR is INVESCO PLC, an English public limited company which is
a holding company of global investment managers.
Under the respective Investment Advisory and Sub-Advisory Agreements (the
"Advisory Agreements") with the Fund, the Adviser, subject to the supervision of
the Directors, and the sub-advisers, subject to the supervision of the Adviser
and the Directors (see the Statement of Additional Information under "Officers
<PAGE>
and Directors"), and in conformance with each Portfolio's stated policies,
manage the Portfolios' investment operations. In this regard, it will be the
responsibility of the respective sub-adviser (subject to the supervision of the
Adviser) not only to make investment decisions for the Portfolios, but also to
place purchase and sale orders for the portfolio transactions of the Portfolios.
The Adviser and sub-advisers may follow a policy of considering sales of shares
of the Fund as a factor in the selection of broker-dealers to execute portfolio
transactions. (See the Statement of Additional Information under "Brokerage and
Portfolio Transactions"). In fulfilling its responsibilities, the Adviser may
engage the services of other investment managers with respect to one or more of
the Portfolios, subject to approval of the Board of Directors.
Information about the individual portfolio managers responsible for
management of the Fund, including their business experience for the past five
years, is provided below.
Equity Portfolio
- ----------------
Michael C. Harhai, Portfolio Manager, ICM (March 1993 to present);
C.F.A. Senior Vice President and Manager, Sovran Capital
Portfolio Manager Management Corp. (Jan. 1992 to March 1993); Senior
Vice President and Portfolio Manager, C&S/Sovran
Capital Management (July 1991 to Jan. 1992);
Senior Vice President and Portfolio Manager,
Citizens & Southern Investment Advisors, Inc.
(Jan. 1984 to July 1991). Chartered Financial
Analyst. Trustee, Atlanta Society of Financial
Analysts. Mr. Harhai has managed the Equity
Portfolio since July 1993.
R. R. Terrence Portfolio Manager, ICM (April 1992 to present);
Irrgang, C.F.A. Consultant, Towers, Perrin, Forster & Crosby
Assistant Portfolio (Oct. 1988 to April 1992). Chartered Financial
Manager Analyst. Atlanta Society of Financial Analysts.
Mr. Irrgang has assisted in managing the Equity
Portfolio since July 1993.
Income Portfolio
- ----------------
James O. Baker Portfolio Manager, ICM (Oct. 1992 to present);
Portfolio Manager Portfolio Manager, Willis Investment Counsel
(Dec. 1990 to Oct. 1992); Broker, Morgan Keegan
(Dec. 1989 to Dec. 1990); Broker, Drexel Burnham
Lambert (April 1985 to Dec. 1990). Mr. Baker has
managed the Income Portfolio since July 1993.
Ralph H. Jenkins, Vice President, ICM (Dec. 1991 to present);
Jr., C.F.A. Portfolio Manager, ICM (Jan. 1988 to present).
Assistant Portfolio Chartered Financial Analyst. Chartered Investment
Manager Counselor. Atlanta Society of Financial Analysts.
Mr. Jenkins has assisted in managing the Income
Portfolio since 1989.
<PAGE>
Flex Portfolio
- --------------
Edward C. Mitchell, President and Director, ICM (Jan. 1992 to
Jr., C.F.A. present); Vice President and Director,
Portfolio Manager ICM (Jan. 1979 to Dec. 1991). Chartered
Financial Analyst. Chartered Investment
Counselor. Past President, Atlanta Society
of Financial Analysts. Mr. Mitchell has managed
the Flex Portfolio since its commencement of
operations in February 1988.
David S. Griffin, Portfolio Manager, ICM (March 1991 to present);
C.F.A. Mutual Fund Sales, ISI (Feb. 1986 to March 1991).
Assistant Portfolio Chartered Financial Analyst. Atlanta Society
Manager of Financial Analysts. Mr. Griffin has assisted
in managing the Flex Portfolio since July 1993.
MultiFlex Portfolio
- -------------------
Robert S. Slotpole Vice President and Portfolio Manager, IMR
(June 1993 to present); Portfolio Manager,
Hamilton Partners (February 1992 to June 1993);
Vice President and Portfolio Manager, The First
Boston Corporation (May 1985 to February 1992).
Mr. Slotpole is responsible for the asset
allocation decision regarding the Portfolio's
investments in its five asset classes.
Mr. Slotpole is assisted by a team of analysts,
each of whom specializes in one of the asset
classes in which the Portfolio may invest.
Each analyst is also responsible for the security
selection in his asset class within the overall
asset allocation parameters and security selection
methodologies established by IMR. Mr. Slotpole has
managed the MultiFlex Portfolio since July 1,
1994.
<PAGE>
^ Real Estate Portfolio
- -----------------------
^ IRA employs a team of portfolio managers who are collectively
responsible for the investment decisions relating to the Real Estate Portfolio
^.
International Value Portfolio
- -----------------------------
W. Lindsay Davidson Portfolio Manager, ICM (April 1993 to present);
Portfolio Manager, INVESCO Asset Management
Limited (May 1984 to March 1993). Mr. Davidson
has managed the International Value Portfolio
since its commencement of operations in May 1995.
Cash Management Portfolio
- -------------------------
George S. Robinson, Jr. Vice President, ICM (Dec. 1991 to present);
Portfolio Manager, ICM (Jan. 1987 to present);
Registered Representative, ISI (Jan. 1987 to
present); President, INVESCO Treasurer's Series
Trust (Jan. 1987 to present). Insurance and Money
Market Specialist. Atlanta Society of Financial
Analysts. Mr. Robinson has managed the Cash
Management Portfolio since 1988.
For the services to be rendered and the expenses to be assumed by the
Adviser under the Investment Advisory Agreement, each of the Portfolios pays to
the Adviser an advisory fee which is computed daily and paid as of the last day
of each month on the basis of each Portfolio's daily net asset value, using for
each daily calculation the most recently determined net asset value of the
Portfolio. (See "Computation of Net Asset Value").
On an annual basis, the advisory fee is equal to 0.75% of the average net
asset value of ^ each of the Equity^ and Flex Portfolios; 0.90% of the average
net asset value of the Real Estate Portfolio; 1.00% of the average net asset
value of each of the MultiFlex and International Value Portfolios; ^ 0.50% of
the average net asset value of the ^ Cash Management Portfolio, and 0.65% of the
average net asset value of the Income Portfolio (the Adviser has agreed to
reimburse the Income Portfolio for a three-year period beginning October 1,
1995, so that the advisory fee shall not exceed 0.40% of average daily net
assets). Those fees which are equal to or higher than 0.75% of average net
assets are higher than those generally charged by investment advisers to similar
funds for advisory services. However, the Adviser also provides certain
supervisory and administrative services to the Fund pursuant to the Investment
Advisory Agreement.
For services to be rendered to the Equity, Income, Flex, Cash Management
and International Value Portfolios by ICM under those Portfolios' Sub-Advisory
Agreements, ISI will pay to ICM a sub-advisory fee which will be computed daily
and paid as of the last day of each month on the basis of each Portfolio's daily
net asset value using for each daily calculation the most recently determined
<PAGE>
net asset value of the Portfolio. (See "Computation of Net Asset Value"). On an
annual basis, the sub-advisory fee is equal to 0.20% of the average net asset
value of the Portfolio for each of the Equity and Flex Portfolios, 0.10% of the
average net asset value of the Portfolio for each of the Income and Cash
Management Portfolios, and, for the International Value Portfolio, 0.35% of
average net assets on the first $50 million of assets, 0.30% of average net
assets on the next $50 million of assets, and 0.25% of average net assets on
assets in excess of $100 million.
For services to be rendered to the MultiFlex ^ Portfolio by IMR under ^
that Portfolio's Sub-Advisory ^ Agreement, ISI will pay to IMR a sub-advisory
fee which will be computed daily and paid as of the last day of each month on
the basis of ^ the Portfolio's daily net asset value using for each daily
calculation the most recently determined net asset value of the Portfolio. (See
"Computation of Net Asset Value"). On an annual basis, the sub-advisory ^ fee is
equal to the following: ^ 0.35% of average net assets on the first $500 million
of assets and 0.25% of average net assets on assets in excess of $500 million^.
For services to be rendered to the Real Estate Portfolio by IRA under that
Portfolio's Sub-Advisory Agreement, ISI will pay to IRA a sub-advisory fee which
will be computed daily and paid as of the last day of each month on the basis of
the Portfolio's daily net asset value using for each daily calculation the most
recently determined net asset value of the Portfolio (see "Computation of Net
Asset Value"). On an annual basis, the sub-advisory fee is equal to 0.35% of
average net assets on the first $100 million of assets and 0.25% of average net
assets on assets in excess of $100 million.
As manager to the Fund, ISI also provides operating services pursuant to
an Operating Services Agreement with the Fund. Under the Operating Services
Agreement, each Portfolio pays to the Manager an annual fee of 0.50% of daily
net assets of the Portfolio for providing or arranging to provide accounting,
legal (except litigation), dividend disbursing, transfer agent, registrar,
custodial, shareholder reporting, sub-accounting and recordkeeping services and
functions. The agreement provides that the Manager pays all fees and expenses
associated with these and other functions, including, but not limited to,
registration fees, shareholder meeting fees, and proxy statement and shareholder
report expenses.
The combined effect of the Advisory Agreements, Operating Services
Agreement, and Plan of Distribution of the Fund (see "Plan of Distribution"
below) is to place a cap or ceiling on the total expenses of each Portfolio,
other than brokerage commissions, interest, taxes, litigation, directors' fees
and expenses, and other extraordinary expenses. ISI has voluntarily agreed to
adhere to maximum expense ratios for the Portfolios. To the extent that expenses
exceed the amounts listed below, ISI will waive its fees or reimburse the
Portfolio to assure that expenses do not exceed the designated maximum amounts
as qualified above. The expense ceilings include reductions at larger asset
sizes to reflect anticipated economies of scale as the Portfolios grow in size.
If, in any calendar quarter, the average net assets of each of the Equity
or Flex Portfolios are less than $500 million, each Portfolio's expenses shall
<PAGE>
not exceed 2.25%; on the next $500 million of net assets, expenses shall not
exceed 2.15%; on the next $1 billion of net assets, expenses shall not exceed
2.10%; and on all assets over $2 billion, expenses shall not exceed 2.05%. If,
in any calendar quarter,^ the average net assets of the MultiFlex or
International Value Portfolios are less than $100 million, expenses shall not
exceed 2.50%; on the next $400 million of net assets, expenses shall not exceed
2.40%; on the next $500 million ^, expenses shall not exceed 2.35%; on the next
$1 billion of net assets, expenses shall not exceed 2.30%; and on all assets
over $2 billion, expenses shall not exceed 2.25%. If, in any calendar quarter,
the average net assets of the Real Estate Portfolio are less than $100 million,
expenses shall not exceed 2.40%; on the next $400 million of net assets,
expenses shall not exceed 2.35%; on the next $500 million ^, expenses shall not
exceed 2.30%; and on all assets over $1 billion, expenses shall not exceed
2.25%. In any calendar year, the expenses of the ^ Income Portfolio may not
exceed ^ 1.75%, and the expenses of the Cash Management Portfolio may not exceed
1% of average net assets. The Adviser has agreed to reimburse the Income
Portfolio for a three-year period beginning October 1, 1995, so that the
expenses in any calendar year beginning with 1996 shall not exceed 1.50% of
average net assets.
The Adviser and Sub-Adviser permit investment and other personnel to
purchase and sell securities for their own accounts, subject to a compliance
policy governing personal investing. This policy requires the Adviser's and
Sub-Adviser's personnel to conduct their personal investment activities in a
manner that the Adviser and Sub-Adviser believe is not detrimental to the
Portfolios or the Adviser's and Sub-Adviser's other advisory clients. See the
Statement of Additional Information for more detailed information.
THE DISTRIBUTOR
ISI, the Fund's distributor (the "Distributor"), a Georgia corporation, is
the principal underwriter of the Fund under a separate Distribution Agreement
(the "Distribution Agreement"). All of the Distributor's outstanding shares of
voting stock are owned by ICM. The Distributor is also the principal underwriter
for other investment companies. The Distributor acts as agent upon the receipt
of orders from investors. The Distributor's principal office is located at 1355
Peachtree Street, N.E., Atlanta, Georgia 30309.
The Distributor will be reimbursed for distribution-related expenses by
the Equity, Income, Flex, MultiFlex, ^ Real Estate and International Value
Portfolios pursuant to the plan of distribution promulgated pursuant to Rule
12b-1 under the 1940 Act, as described under "Plan of Distribution" herein and
in the Statement of Additional Information under "Distribution of Shares." The
Cash Management Portfolio does not have a plan of distribution under Rule 12b-1.
Shares purchased on or after May 1, 1995, by new investors of Equity, Flex,
MultiFlex, Real Estate and International Value Portfolios are subject to a 1%
CDSC on redemptions made within one year of purchase^. Shares purchased on or
after May 1, 1995, by new investors of Income Portfolio are subject to a 0.60%
CDSC of a set percentage on redemptions made within one year of purchase. The
proceeds of the CDSC are paid to the Distributor to defray its expenses in
<PAGE>
providing certain distribution-related services to the Fund, including the
payment of a ^ sales commission to broker-dealers who sell shares of the Fund,
as described below.
PLAN OF DISTRIBUTION
Rule 12b-1 under the 1940 Act ("Rule 12b-1") permits investment companies
to use their assets to bear expenses of distributing their shares if they comply
with various conditions. Pursuant to Rule 12b-1, the Equity, Income, Flex,
MultiFlex,^ Real Estate and International Value Portfolios, but not the Cash
Management Portfolio, have adopted a plan of distribution ^(the "Plan"). The
Plan provides that each Portfolio may incur certain distribution and maintenance
fees which may not exceed a maximum amount equal to ^ 0.60% per annum of the
average net assets of the ^ Income Portfolio, and 1.0% of the average annual net
assets for the other Portfolios. This expense includes the payment of 0.25% of
average annual net assets to broker-dealers as a "service fee" for providing
account maintenance or personal service to existing shareholders.
The Plan provides for payments by each Portfolio (except the Cash
Management Portfolio) to ISI at the ^ rates indicated above, subject to the
authority of the directors to reduce the amount of payments or to suspend the
Plan for such periods as they may determine. The Distributor may pay additional
amounts up to 0.25% on assets serviced by a dealer from its own resources to
dealers or others who meet designated eligibility criteria relating to sales of
Fund shares, or who provide administrative or informational assistance to
shareholders.
Although shares are sold without an initial sales charge, ISI may pay a
sales commission ^ to dealers who sell shares of the relevant Portfolios. These
sales commissions may equal 0.60% on sales of Income Portfolio and 1.0% on all
other Portfolios. These commissions are not paid on sales to investors exempt
from the CDSC, including shareholders of record on April 30, 1995 who purchase
additional shares in any of the Portfolios on or after May 1, 1995, and in
circumstances where ISI grants an exemption on particular transactions. In
addition, in order to further compensate dealers (including, for this purpose,
certain other financial institutions) for services provided in connection with
sales of shares and the maintenance of shareholder accounts, ISI makes quarterly
payments to qualifying dealers based on the average net asset value of shares
which are attributable to shareholders for whom the dealers are designated as
the dealer of record. ISI makes such payments up to a maximum annual rate of
1.0% ^(0.60% for Income Portfolio), of the average net asset value of shares
sold by broker-dealers, which are outstanding on the books of such Portfolios
for each month, subject to the annual limitations described above. When a sales
commission has been paid to the selling broker-dealer, additional quarterly
payments will not be made until after the first full year. ISI may suspend or
modify the payments made to dealers described above, and such payments are
subject to the continuation of the Plan to the Portfolios, the terms of selling
or shareholder servicing agreements between dealers and ISI, and any applicable
limits imposed by the NASD.
<PAGE>
For additional information concerning the Fund's plan of distribution, see
the Statement of Additional Information under "Distribution of Shares."
^ INVESCO ADVISOR FUNDS, INC. SHAREHOLDER
SERVICES GUIDE
HOW TO BUY SHARES
All opening of accounts and initial purchases are to be made through a
professional financial consultant whose firm has a Selling/Servicing Agreement
with ISI.
================================================================================
Method Initial Investment Additional Investmen^t
- --------------------------------------------------------------------------------
Directly Visit your registered ^ Made with your financial
with your financial consultant consultant.
financial who ^ has a selling or
consultant servicing ^ agreement
with the Distributor.
- --------------------------------------------------------------------------------
By mail: Make check payable to ^ ^ Use stub from most
the appropriate recent statement, attach
Portfolio and ^ enclose check payable to that
with fully ^ completed Portfolio and mail to:
account ^ application
and mail to: ^ INVESCO Advisor Funds, Inc.
^ 2 West Elm Street
^ INVESCO Advisor Funds, P.O. Box ^ 847
Inc. Conshohocken, PA 19428
2 West Elm Street
^ P.O. Box 847
Conshohocken, PA 19428
- --------------------------------------------------------------------------------
Please be sure your or in a payment envelope
financial consultant to:
has properly and
accurately completed INVESCO Advisor Funds,
the ^ section for their Inc.
name and firm ^ P.O. Box 412797
information to assure Kansas City, MO 64141-
we may ^ properly 2797
assist the consultant ^
in servicing your
account.
<PAGE>
- --------------------------------------------------------------------------------
By Wire: Have your financial Wire as noted under
consultant ^ call ^ "Initial Investment."
800-554-1156 to
properly ^ obtain an
account number, ^ then
wire Federal funds
prior to ^ 4:00 p.m.,
Eastern Time, for same-
day ^ processing as
follows:
United Missouri Bank of
Kansas City, N.A.
ABA Routing #1010^-
0069^-5
Credit to Account
9870475308
FBO INVESCO Advisor
Funds for further
credit to
Equity
UMB #740108006
Income
UMB #740109004
Flex
UMB #740110002
MultiFlex
UMB #740106000^
Real Estate
UMB #740105002
International Value
UMB #740103007
Cash Management
UMB #740111000
For account of (client
name) and account number
obtained by your
financial consultant
from the phone call^.
================================================================================
The Fund reserves the right to reject any purchase order.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Minimum Purchases:
Initial Additional
- --------------------- ----------------------------------------------------------------------
Portfolio Symbol Cusip Non IRA IRA Non IRA IRA
Account Account Account Account
Equity ^ IAECX 460936305 $25,000 $25,000 $1,000 $250
Flex ^ IAFCX 460936842 $25,000 $25,000 $1,000 $250
MultiFlex ^ IAMFX 460936503 $25,000 $25,000 $1,000 $250
Real Estate ^ 460936701 $25,000 $25,000 $1,000 $250
International Value ^ 460936883 $25,000 $25,000 $1,000 $250
Income IAICX 460936867 ^ $25,000 $25,000 $1,000 $250
Cash Management ^ 460936107 $1,000 $1,000 $1,000 $250
</TABLE>
<PAGE>
The toll free telephone number of the Fund is (800) 554-1156. Investors may
call the Distributor for assistance in completing the required application or
other authorization forms. The Distributor's office is located at 1355 Peachtree
Street, N.E., Atlanta, Georgia 30309 and the telephone number is (800) 972-9030.
Contingent Deferred Sales Charges
Shares of each Portfolio, except the Cash Management Portfolio, that are
purchased by new investors on or after May 1, 1995 and redeemed within one year
from the date of purchase are subject to a CDSC ^. The CDSC rate is 0.60% for
the Income Portfolio and 1.0% for all other Portfolios. This rate is applied to
the lesser of the net asset value of the shares at redemption or the initial
purchase price of the shares being redeemed. There is no CDSC applicable to
additional purchases of shares in any of the Portfolios by shareholders of
record on April 30, 1995 ^. Shares purchased on or after March 1, 1996 through a
broker/dealer who performs a sub-accounting function on behalf of the transfer
agent in an omnibus account, and is unable to segregate shareholders by date of
opening of accounts, will be subject to the appropriate CDSC. Redemptions of
shares of the Cash Management Portfolio are generally not subject to a CDSC;
however, a CDSC may be applicable to redemptions of shares of the Cash
Management Portfolio ^ if the redeemed shares were exchanged from another
Portfolio. See ^"How to Exchange Shares." Proceeds from the CDSC are paid to,
and are used in whole or in part by, the Distributor to defray its expenses
related to providing distribution related services to the Fund, such as the
payment of a ^ commission to the selling dealer or agent at the time of share
purchase. The combination of the CDSC and the distribution fee facilitates the
ability of the Fund to sell shares without a sales charge at the time of
purchase.
Prior to May 1, 1995, shares originally purchased prior to January 1, 1992
("old" shares) were subject to a maximum CDSC of 5% of the lesser of the
original purchase price or market value at redemption of those shares.
Imposition of this CDSC on "old" shares has been discontinued.
General Information
The Fund reserves the right to reduce or to waive the minimum purchase
requirements in certain cases, such as, but not limited to, investments
involving entities which are affiliated with one another (such as separate
employee benefit plans sponsored by the same employer or separate companies
under common control) or where additional investments are expected to be made in
amounts sufficient to meet the minimum requirement.
Orders placed with broker-dealers must be placed prior to the close of
regular trading of the New York Stock Exchange and transmitted to the Fund by
telephone prior to the closing of the New York Stock Exchange or through the
National Securities Clearing Corporation -- Fund/SERV clearing system
("Fund/SERV") on that day. A purchase order submitted directly to the Transfer
Agent is effective when an application containing all of the information,
signatures and payments required by ISI or the Transfer Agent to carry out the
order is received by the Transfer Agent.
<PAGE>
HOW TO REDEEM SHARES
Shares may be redeemed on any day on which the New York Stock Exchange is
open for regular trading. Within three business days after receipt of a proper
redemption request by the Transfer Agent, the redeeming Portfolio will make
payment in cash of the net asset value of the shares next determined after such
redemption request was received, less any applicable CDSC, except as described
below under "Redemption of Shares -- General." In determining the amount of the
CDSC that may be applicable to a redemption, the calculation is determined in
the manner that results in the lowest possible rate being charged. Therefore,
any shares in the redeeming shareholder's account that may be redeemed without
charge will be assumed to be redeemed prior to those subject to a charge. In
addition, if the CDSC is determined to be applicable to redeemed shares, it will
be assumed that shares held for the longest duration are redeemed first. ^ The
CDSC rate is applied to the lesser of the net asset value of the shares at
redemption or the initial purchase price of the shares being redeemed. This
insures that no CDSC is imposed on amounts representing increases in the net
asset value ^ of shares subject to a CDSC. No CDSC is imposed on the redemption
of shares acquired through reinvestment of income dividends or capital gains
distributions.
To Sell Through Your Broker-Dealer
Requests for redemption submitted through a broker-dealer must be received
by the broker-dealer prior to the close of regular trading of the New York Stock
Exchange and be forwarded either electronically to the Transfer Agent prior to
the close of order processing through the National Securities Clearing
Corporation's Fund/SERV System for that day's trading, or by telephone prior to
the close of regular trading on the New York Stock Exchange. It is the
responsibility of dealers to promptly transmit redemption notices to the Fund.
To Sell Directly With the Fund
Requests for redemption may be submitted directly to the Fund by letter
or, under certain circumstances, by telephone.
<PAGE>
Redemption by Letter
A signature guarantee from a national bank or a NASD- or U.S. stock
exchange-registered broker-dealer is required on letters of redemption when:
o a shareholder's address has changed in the last 30 days,
o a shareholder's redemption is for an amount of $100,000
or greater,
o the redemption is less than $100,000 and the shareholder
requests that the check for the proceeds be made payable
to a party other than in whose name(s) the account is
registered; provided, however, that payment shall be made
to a national bank or NASD-registered broker-dealer for
specific credit to an account with the same registration
as the account from which the redemption is made.
Standing instructions may be presented at the time the
account is opened, or may be presented, in written form
with signature guarantee after the account is opened,
o the redemption is less than $100,000 and the shareholder requests
that proceeds be sent to an address different from that on the
account. Such standing instructions to do so may be presented at the
time the account is opened, or may be presented, in written form
with signature guarantee after the account is opened.
Redemption by Telephone
Telephone redemption privileges are established automatically at the time
an account is opened, unless an investor specifically requests that such
privileges not be made available for his account. The proceeds of shares
redeemed by telephone must be in an amount not less than $1,000 nor more than
$100,000. The proceeds of a redemption by telephone will promptly be forwarded
according to the shareholder's instructions, provided that the redemption is
made payable to one of the following: (i) the shareholder of record; (ii) a
person designated to receive redemption proceeds pursuant to properly
signature-guaranteed instructions given previously by the shareholder; or (iii)
a bank account designated to receive redemption proceeds pursuant to properly
signature-guaranteed instructions given previously by the shareholder. If a
shareholder instructs that redemption proceeds be wired to a bank, the
shareholder should be aware that fees are normally charged by such banks and
will be borne by the investor.
In electing a telephone redemption, the investor authorizes the Transfer
Agent to act on telephone instructions from any person representing himself to
be the investor or the investor's authorized representative, and believed by the
Transfer Agent to be genuine. The Transfer Agent's records of such instructions
are binding. Investors should be aware that a telephone redemption may be
difficult to implement during periods of drastic economic or market changes.
Should redeeming shareholders be unable to implement a telephone redemption
during such periods, or for any other reason, they may give appropriate notice
of redemption to their financial consultant or to the Transfer Agent by mail.
The Fund reserves the right to modify or terminate the telephone redemption
privilege at any time without notice.
<PAGE>
By utilizing telephone redemption privileges, the shareholder has agreed
that neither the Transfer Agent nor the Fund will be liable for following
instructions communicated by telephone that it reasonably believes to be
genuine. The Fund provides written confirmation of transactions initiated by
telephone as a procedure designed to confirm that telephone instructions are
genuine. As a result of this policy, the investor may bear the risk of any loss
in the event of such a transaction. However, if the Transfer Agent or the Fund
fails to employ this and other established procedures, the Transfer Agent or the
Fund may be liable.
Redemption by telephone is not available for Semper Trust Company IRA
accounts. Such redemption requests must be made in writing by the IRA
shareholder and must specify the reason for the withdrawal (early withdrawal,
mandatory, etc.), and the current age of the IRA shareholder. In the event that
instructions for withholding taxes are not specified in the written request,
appropriate taxes will automatically be withheld.
Redemption by Check
Shareholders of the Cash Management Portfolio may redeem shares by check
in an amount not less than ^ $100. At the shareholder's request, the Transfer
Agent will provide the shareholder with checks drawn on the account maintained
for that purpose on behalf of the Cash Management Portfolio by the custodian.
These checks can be made payable to the order of any person and the payee of the
check may cash or deposit the check in the same manner as any check drawn on a
bank. When such a check is presented for payment, the Cash Management Portfolio
will redeem a sufficient number of full and fractional shares in the
shareholder's account to cover the amount of the check. Shareholders earn
dividends on the amounts being redeemed by check until such time as such check
clears the bank. If the amount of the check is greater than the value of the
shares held in the shareholder's account, the check will be returned, and the
shareholder may be subject to extra charges (presently estimated to be
approximately $20.00 per returned check). The Cash Management Portfolio does not
allow an account to be closed through a check redemption. The Fund reserves the
right at any time to suspend the procedure permitting redemption by check.
Systematic Withdrawal Plan
A Systematic Withdrawal Plan is available to shareholders who own or
purchase shares of the Portfolios which the Transfer Agent has approved for
inclusion in such a Plan, having a total value of $10,000 or more. Under the
Systematic Withdrawal Plan, the Transfer Agent will make specified monthly or
quarterly payments to a designated party of any amount selected (minimum payment
of $100). This will occur on the 25th of each month, or the first business day
following the 25th if the 25th is not a normal business day on the New York
Stock Exchange. Notice of all changes concerning the Systematic Withdrawal Plan
must be received by the Transfer Agent at least two weeks prior to the next
scheduled payment. Further information regarding the Systematic Withdrawal Plan
and its requirements and tax consequences can be obtained by contacting the
Transfer Agent at (800) 554-1156.
<PAGE>
General Information
Redemptions of shares are taxable events on which a shareholder may
realize a gain or a loss. Shareholders who are subject to federal income
taxation should note that if a loss has been realized on the sale of shares of a
Portfolio, the loss may be disallowed for tax purposes if shares of the same
Portfolio are purchased within 30 days before or after the sale.
The CDSC may be waived on redemptions of shares in connection with: (1)
redemptions made within one year following the death or disability of a
shareholder; (2) continuing, periodic withdrawals under the Systematic
Withdrawal Plan, up to an annual total of 10% of the value of a shareholder's
account; (3) a lump-sum or other distribution in the case of an IRA, a
self-employed individual retirement plan (so-called "Keogh Plan") or a custodial
account under Section 403(b) of the Internal Revenue Code following attainment
of age 59 1/2; (4) redemptions by directors, trustees, officers, employees (and
immediate family members) of the Fund ^, of ISI and its affiliates and of
broker/dealers which have executed selling agreements with ISI; and (5) under
other circumstances ^ as may be determined by the Fund. The CDSC may be waived
on certain sales or redemptions to promote goodwill and because the sales
effort, if any, involved in making such sales is negligible.
The date of payment for redeemed shares may be postponed, or a Portfolio's
obligation to redeem its shares may be suspended, beyond the three-day period
mentioned above (1) for any period during which trading on the New York Stock
Exchange is restricted (as determined by the SEC), (2) for any period during
which an emergency exists (as determined by the SEC) which makes it
impracticable for the Portfolio to dispose of its securities or to determine the
value of a Portfolio's net assets, or (3) for such other periods as the SEC may,
by order, permit for the protection of shareholders.
It is possible that in the future conditions may exist which would, in the
opinion of the Directors, make it undesirable for a Portfolio to pay for
redeemed shares in cash. In such cases, the Directors may authorize payment to
be made in portfolio securities or other property of the applicable Portfolio.
However, each Portfolio is obligated under the 1940 Act to redeem for cash all
shares presented to such Portfolio for redemption by any one shareholder up to
$250,000 (or 1% of the applicable Portfolio's net assets if that is less) in any
90-day period. Securities delivered in payment of redemptions are valued at the
same value assigned to them in computing the applicable Portfolio's net asset
value per share. Shareholders receiving such securities are likely to incur
brokerage costs on their subsequent sales of such securities.
If the Directors determine that it is in the best interest of a Portfolio,
such Portfolio has the right to redeem upon prior written notice, at the then
current net asset value per share, all shareholder accounts which have dropped
below a minimum level ($1,000 for the Cash Management Portfolio; $10,000 for the
other Portfolios) as a result of redemption of such Portfolio's shares (but not
as a result of any reduction in market value of such shares). An investor will
<PAGE>
have 60 days to increase the shares in his account to the minimum level in order
to avoid any such involuntary redemption.
HOW TO EXCHANGE SHARES
Shares may be exchanged by telephone, by writing to the Transfer Agent, or
through a financial consultant. Telephone exchange privileges are established
automatically at the time an account is opened, unless an investor specifically
requests that such privileges not be made available for his account.
Investors in any of the Portfolios may exchange shares of their respective
Portfolio held for at least 15 days for shares of the other Portfolios without
the payment of a CDSC; the sales charge will be assessed, if applicable, when
the shareholder redeems his or her shares or has them repurchased without a
corresponding purchase of shares in another Portfolio. Where a shareholder
previously exchanged his shares into the Cash Management Portfolio from another
Portfolio, the applicable CDSC will be assessed when the shares are redeemed
from the Cash Management Portfolio even though this Portfolio does not otherwise
assess a CDSC on redemptions. The combined holding period of shares in each
Portfolio other than the Cash Management Portfolio shall be used to determine
whether the CDSC is applicable at the time of redemption.
The exchange privilege is limited to residents of states in which the
shares of the Portfolio being acquired are registered for sale. Before making an
exchange, the investor should review a current prospectus of the Fund for
information relating to the Portfolio in which he is acquiring shares. Investors
should consider the differences in the investment objectives and portfolio
compositions of such Portfolios.
By utilizing telephone exchange privileges, the shareholder has agreed
that neither the Fund nor the Transfer Agent will be liable for following
instructions communicated by telephone that it reasonably believes to be
genuine. The Transfer Agent provides written confirmation of transactions
initiated by telephone as a procedure designed to confirm that telephone
instructions are genuine. As a result of this policy, the investor may bear the
risk of any loss in the event of such a transaction. However, if the Fund or the
Transfer Agent fails to employ this and other established procedures, the Fund
or the Transfer Agent may be liable.
It is the policy of the Fund to discourage frequent trading by
shareholders among the Portfolios in response to market fluctuations.
Accordingly, in order to maintain a stable asset base in each Portfolio and to
reduce administrative expenses borne by each Portfolio, the Fund reserves the
right to modify or withdraw the exchange privilege at any time without notice.
Automatic Monthly Exchange
Shareholders of the Portfolios may arrange for a fixed dollar amount of
their shares to be automatically exchanged for shares of any of the other
Portfolios on a monthly basis. This will occur on the 25th of each month, or the
first business day following the 25th if the 25th is not a regular trading day
<PAGE>
on the New York Stock Exchange. The minimum monthly exchange in this program is
$100. This automatic exchange program can be changed by the shareholder at any
time by writing to the Transfer Agent at least two weeks prior to the date the
change is to be made. Further information regarding this service can be obtained
by contacting the Transfer Agent.
BankDraft
For shareholders who want to maintain a schedule of monthly investments,
BankDraft uses various methods to draw a preauthorized amount from the
shareholder's bank account to purchase Fund shares. The minimum account size for
participation in this program is $10,000, and the minimum monthly draft amount
is $100. This automatic investment program can be changed by the shareholder at
any time by writing to the Transfer Agent at least two weeks prior to the date
the change is to be made. Further information regarding this service can be
obtained by contacting the Transfer Agent.
<PAGE>
COMPUTATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined on each day
that the New York Stock Exchange is open for trading and at such other times
and/or on such other days as there is sufficient trading in the portfolio
securities of a particular Portfolio that might materially affect its net asset
value per share. The net asset value per share of shares of each Portfolio is
determined at the close of the New York Stock Exchange, currently 4:00 p.m.
(Eastern Time). Each Portfolio's net asset value is calculated in the following
manner:
Equity Securities. Securities which are listed or admitted to trading on a
national securities exchange or traded on the NASDAQ National Market System will
be valued at the last sales price on the exchange on which the security is
principally traded. Securities for which there is no sale on that day and
securities traded only in the over-the-counter market will be valued at their
highest closing bid prices obtained from one or more dealers making markets for
such securities or, if market quotations are not readily available, at their
fair values as determined in good faith by the Board of Directors.
Income Securities. Valuations of fixed and variable income securities are
supplied by independent pricing services used by ISI as the Fund's manager,
which have been approved by the Directors of the Fund. ISI pays the cost of use
of the independent pricing services on behalf of the Fund pursuant to the
Operating Services Agreement. Valuations are based upon a consideration of
yields or prices of obligations of comparable quality, coupon, maturity and
type, indications as to value from recognized dealers, and general market
conditions. The pricing service may use electronic data processing techniques
and/or a computerized matrix system to determine valuations. Securities for
which market quotations are readily available are valued based upon those
quotations. The procedures used by the pricing service are reviewed by the
officers of the Fund and ISI or the sub-advisers under the general supervision
of the Directors. The Directors may deviate from the valuation provided by the
pricing service whenever, in their judgment, such valuation is not indicative of
the fair value of the obligation. In such instances the obligations will be
valued at fair value as determined in good faith by or under the direction of
the Directors.
Foreign Securities. Foreign securities traded on foreign exchanges
ordinarily will be valued at the last quoted sales price available before the
time when the Portfolio's assets are valued. If a security's price is available
from more than one U.S. or foreign exchange, the exchange that is the primary
market for the security will be used. Foreign securities not traded on foreign
exchanges and foreign income securities are valued on the basis of independent
pricing services approved by the Directors, and such pricing services generally
follow the same procedures in valuing such foreign securities as are described
above. Values of the portfolio securities primarily traded on a foreign exchange
are received already translated into U.S. dollars from a quotation service
approved by the Board of Directors.
<PAGE>
Other Securities. Other securities and assets of a Portfolio, including
restricted securities, will be valued at fair value as determined in good faith
by or under the direction of the Directors. With respect to futures contracts,
options and swap agreements, see Appendix A to this Prospectus.
After portfolio securities are valued as described above, cash,
receivables and other assets of the Portfolio are added and liabilities of the
Portfolio are deducted. Each Portfolio's net asset value per share is determined
by dividing the value of the net assets of the Portfolio (i.e., assets less
liabilities) by the total number of outstanding shares of the Portfolio ^.
Expenses and fees of each Portfolio, including the fees of ISI, are accrued
daily and taken into account for the purpose of determining net asset value.
Cash Management Portfolio. The Cash Management Portfolio seeks to maintain
a constant net asset value of $1.00 per share. There can be no assurance that
the Cash Management Portfolio will be able to maintain a net asset value of
$1.00 per share. In order to accomplish this goal, the Cash Management Portfolio
intends to utilize the amortized cost method of valuing portfolio securities. By
using this method, the Cash Management Portfolio seeks to maintain a constant
net asset value of $1.00 per share despite minor shifts in the market value of
its portfolio securities. Under the amortized cost method of valuation,
securities are valued at cost on the date of purchase. Thereafter, the value of
the security is increased or decreased incrementally each day so that at
maturity any purchase discount or premium is fully amortized and the value of
the security is equal to its principal. The amortized cost method may result in
periods during which the amortized cost value of the securities may be higher or
lower than their market value, and the yield on a shareholder's investment may
be higher or lower than that which would be recognized if the net asset value of
the portfolio was not constant and was permitted to fluctuate with the market
value of the portfolio securities. It is believed that any such differences will
normally be minimal. The Board of Directors has undertaken to establish
procedures reasonably designed, taking into account current market conditions
and the Cash Management Portfolio's investment objectives, to stabilize, to the
extent possible, the Cash Management Portfolio's price per share, as computed
for the purposes of sales and redemptions. Such procedures include review of the
value of portfolio holdings by the Board of Directors, at such intervals as it
deems appropriate, to determine whether the Cash Management Portfolio's net
asset value calculated by using available market quotations or market
equivalents deviates from $1.00 per share based on amortized cost. If any
deviation between the Cash Management Portfolio's net asset value based upon
available market quotations or market equivalents and that based upon amortized
cost exceeds 0.5%, the Board of Directors will promptly consider what action, if
any, is appropriate. The action may include, as appropriate, the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding dividends; reducing the number
of shares outstanding; or utilizing a net asset value per share determined by
using available market quotations.
<PAGE>
CAPITALIZATION
^
The authorized capital stock of the Fund consists of 10,070,000,000 shares
of common stock having a par value of $.001 per share. The authorized capital
stock of the Fund has been classified as 10,000,000 shares of each of the
Equity, Income, ^ MultiFlex, ^ Real Estate and International Value Portfolios,
20,000,000 shares of Flex Portfolio and 10,000,000,000 shares of the Cash
Management Portfolio. The Fund's Articles of Incorporation provide that the
obligations and liabilities of each Portfolio are restricted to the assets of
the particular Portfolio and generally do not extend to the assets of the other
Portfolios of the Fund.
There are no conversion or preemptive rights in connection with any shares
of the Fund, nor are there cumulative voting rights with respect to the shares
of the Fund. Each of the Portfolios' shares has equal voting rights, except that
only shares of the respective Portfolio are entitled to vote on matters
concerning only that Portfolio. Each issued and outstanding share of a Portfolio
is entitled to participate equally in dividends and distributions declared by
the Fund with respect to that Portfolio and, upon liquidation or dissolution, in
net assets of that Portfolio remaining after satisfaction of outstanding
liabilities.
All issued and outstanding shares of the Fund will be fully paid and
nonassessable and will be redeemable at the net asset value per share (subject
to any applicable contingent deferred sales charge). Unless specifically
requested in writing by a shareholder, the interests of shareholders in the Fund
will not be evidenced by a certificate or certificates representing shares of
the Fund.
<PAGE>
DISTRIBUTIONS AND TAX INFORMATION
Distributions
It is the intention of the Equity, Income, Flex, MultiFlex, ^ Real Estate
and International Value Portfolios to distribute to shareholders of each of
these Portfolios net investment income and net realized capital gains, if any. ^
It is intended that the Equity, Flex, MultiFlex and Real Estate Portfolios will
make periodic distributions of net investment income (including any net
short-term capital gains) during the months of March, June, September and
December, and will make an annual distribution of its net realized long-term
capital gain during the month of December. It is contemplated that the
International Value Portfolio will make semiannual distributions of net
investment income and an annual distribution of net realized long-term capital
gain during the month of December. ^ It is intended that the Income ^ Portfolio
will make monthly distributions of net investment income (including any net
short-term capital gains), and an annual distribution of net realized long-term
capital gain during the month of December. The net income of the Cash Management
Portfolio is declared daily and its dividends will be distributed monthly. Net
realized capital gains, if any, will be distributed during the month of
December. All such distributions will be reinvested automatically in additional
shares (or fractions thereof) of each applicable Portfolio pursuant to such
Portfolio's Automatic Dividend Reinvestment Plan unless a shareholder has
elected not to participate in this plan or has elected to terminate his
participation in the plan and to receive his distributions in excess of ten
dollars in cash. Shareholders of the Cash Management Portfolio will not be
entitled to dividends for the day on which the investment is made, and will
receive dividends through and including the day of redemption. Shareholders of
the Cash Management Portfolio who redeem all of their shares at any time during
the month will be paid all dividends accrued through the date of redemption.
Shareholders of the Cash Management Portfolio who redeem less than all of their
shares will be paid the proceeds of the redemption in cash, and dividends with
respect to the redeemed shares will be reinvested in additional shares (unless
the shareholder has elected not to participate in the Portfolio's Automatic
Dividend Reinvestment Plan or has elected to terminate his participation in such
plan). See "Automatic Dividend Reinvestment Plan^."
Federal Taxes
Each Portfolio of the Fund intends to continue to qualify for the special
tax treatment afforded regulated investment companies under Subchapter M of the
Internal Revenue Code, as amended (the "Code"). ^ Qualified Portfolios will not
be subject to federal income taxes to the extent that it distributes its net
investment income and net realized capital gain. In order to avoid a 4% federal
excise tax, the Portfolios intend to distribute each year substantially all of
their income and gains.
With respect to tax-exempt shareholders, distributions from the Portfolios
will not be subject to federal income taxation to the extent permitted under the
applicable tax-exemption. With respect to a shareholder that is not exempt from
federal income taxation, all dividends from a Portfolio, whether received in
<PAGE>
cash or in additional shares of a Portfolio, will be taxable and must be
reported by the shareholder on its federal income tax return. Shareholders must
treat dividends, other than capital gain dividends, as ordinary income.
Dividends designated as capital gain dividends are taxable to shareholders as
long-term capital gain. The Cash Management Portfolio expects that all or
substantially all of the dividends received from the Portfolio will be taxable
to shareholders as ordinary income. Certain dividends declared in October,
November, or December of a calendar year are taxable to shareholders as though
received on December 31 of that year if paid to shareholders during January of
the following calendar year.
Information concerning the status of a Portfolio's distributions for
federal income tax purposes will be mailed to shareholders annually. Such
distributions may also be subject to state and local taxes.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect, and is
qualified in its entirety by reference thereto. The Code and these regulations
are subject to change by legislative or administrative action. For further
discussion of the taxation of the Portfolios and of the tax consequences of
becoming a shareholder in any of the Portfolios, see the Statement of Additional
Information under "Tax Information." Shareholders should consult with their tax
advisors concerning the tax consequences of an investment in the Fund.
Automatic Dividend Reinvestment Plan
For convenience of the shareholders and to permit shareholders to increase
their shareholdings in the Portfolios in which they have invested, Fund/Plan
Services, Inc., the Fund's transfer agent (the "Transfer Agent"), is
automatically appointed by the investors to receive all dividends and capital
gains distributions of the respective Portfolios and to reinvest them in shares
(or fractions thereof) of the ^ respective Portfolios at the net asset value per
share next determined on the reinvestment date.
Shareholders may, however, elect not to enter into or to terminate at any
time without penalty their participation in the Automatic Dividend Reinvestment
Plan and to receive payment of all dividends and distributions in excess of ten
dollars by check by notifying the Transfer Agent, in writing, at the time of
investment for new investments or at least 15 days prior to the proposed date of
such termination for existing participants. Shareholders may rejoin the plan by
notifying the Transfer Agent, in writing, at least 15 days prior to the record
date on which such shareholder wishes to rejoin the plan. Each Portfolio has the
right to appoint a new transfer agent.
The Transfer Agent will maintain each shareholder's Portfolio account and
furnish the shareholder with written information concerning all transactions in
the account, including information needed for tax records. Upon termination of a
shareholder's participation in the Automatic Dividend Reinvestment Plan, a check
for the market value of any fractional interest will, at the request of the
shareholder, be sent to the shareholder. All costs of the Automatic Dividend
<PAGE>
Reinvestment Plan, including those of registration under applicable securities
laws, if any, will be borne by ISI on behalf of the Fund, pursuant to the
Operating Services Agreement.
SHAREHOLDER REPORTS
Each Portfolio will issue to each of its shareholders semiannual and
annual reports containing each Portfolio's financial statements, including
selected financial highlights and a schedule of each Portfolio's portfolio
securities. The federal income tax status of shareholder distributions will also
be reported to shareholders after the end of each year.
Shareholders having any questions concerning any of the Portfolios may
call the Distributor. The toll-free telephone number is (800) 972-9030.
PERFORMANCE INFORMATION
From time to time the Fund may provide yield and total return ^ figures
for the Portfolios in advertisements ^ and in reports and other communications
to shareholders. The Equity ^ (IAECX), Income ^(IAICX), Flex ^(IAFCX) and
MultiFlex ^(IAMFX) Portfolios are listed in the daily newspaper mutual fund
section under the name ^"INVESCO Advisor Funds."
^"Average annual total return" and "total return" figures represent the
increase (or decrease) in the value of an investment in the particular Portfolio
over a specified period. Both calculations assume that all income dividends and
capital gain distributions during the period are reinvested at net asset value
in additional shares of the Portfolio. Quotations of average annual total return
represent an average annual compounded rate of return on a hypothetical
investment in the Portfolio over a period of 1, 5, and 10 years ending on the
most recent calendar quarter close. Quotations of total return, which are not
annualized, reflect actual earnings and asset value fluctuations for the periods
indicated. Both types of return are based on past experience and do not
guarantee future results.
Portfolios other than the Cash Managment Portfolio may provide quotations
of "yield," "dividend yield," and "distribution yield." Quotations of yield for
these Portfolios will be based on all investment income per share earned during
a given 30-day period (including dividends and interest), less expenses accrued
during the period ("net investment income"), and will be computed by dividing
net investment income by the maximum public offering price per share on the last
day of the period.
Dividend yield is a measure of investment return during a specified period
based on dividends actually paid by a Portfolio during that period. Dividend
yield is calculated by totalling the dividends paid by a Portfolio during the
specified period and dividing that sum by the net asset value per share ^ of the
Portfolio on the last day of the period. Where the dividend yield is calculated
for a period of less than a year, results may be annualized. Distribution yield
is computed in the same way, but includes distributions paid from capital gains
realized by the Portfolio, as well as dividends from its net investment income.
<PAGE>
In addition, from time to time the Cash Management Portfolio advertises
its "yield" and "effective yield." Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of the
Cash Management Portfolio refers to the net income generated by an investment in
the Cash Management Portfolio over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Cash Management Portfolio is assumed
to be reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. "Yield" is based
on historical earnings and is not intended to indicate future performance. ^
Additional performance information^ is contained in the Statement of Additional
Information (see "Performance Information"), as well as in the Fund's Annual
Report to Shareholders, both of which are available upon request without charge.
Performance information for a Portfolio may be compared in advertisements,
sales literature, and reports to shareholders to: (i) unmanaged indices, such as
the S&P's 500 Stock Index, the Salomon Brothers Broad Investment Grade Bond
Index, the Morgan Stanley Capital International indices, the Dow Jones
Industrial Average, Donoghue Money Market Institutional Averages, the Merrill
Lynch 1 to 3 Year Treasury Index, the Salomon Brothers World Government
Benchmark Bond Index, the Lehman Brothers Municipal Bond Index, the Lehman
Brothers Aggregate Bond Index, the Lehman Brothers Government Corporate Index
and the NAREIT Equity Index; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or persons who rank mutual funds on
overall performance or other criteria; and (iii) the Consumer Price Index
(measure for inflation) and other measures of the performance of the economy to
assess the real rate of return from an investment in the Fund. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and managements costs and expenses.
MISCELLANEOUS
United Missouri Bank of Kansas City, N.A. is the custodian for each of the
Portfolios. The bank does not perform any investment management functions for
the Fund. The principal address of United Missouri Bank of Kansas City, N.A. is
928 Grand Avenue, Kansas City, Missouri. The custodian may use the services of
sub- custodians with respect to the Portfolios.
Fund/Plan Services, Inc. (the "Transfer Agent") is the transfer agent for
the Fund's shares of common stock. The Transfer Agent will maintain each
shareholder's account as to each Portfolio and furnish the shareholder with
written information concerning all transactions in the account, including
information needed for tax records. The Portfolios each have the right to
<PAGE>
appoint a successor Transfer Agent. Pursuant to an Operating Services Agreement,
the Manager pays for the services of the Transfer Agent to the Portfolios (see
"Management of the Fund"). The principal business address of Fund/Plan Services,
Inc. is 2 West Elm Street, Conshohocken, PA 19428.
As stated above, the Portfolios are series of the Fund. The Fund, as a
Maryland corporation, is not required to hold annual shareholder meetings.
However, special meetings may be called for purposes such as electing or
removing directors, changing fundamental policies or approving an advisory
contract, or as may be required by applicable law or the Fund's Articles of
Incorporation or By-Laws. Meetings of shareholders will be called upon written
request of shareholders holding in the aggregate at least 10% of the Fund's
outstanding shares. The directors will provide appropriate assistance to
shareholders, in compliance with provisions of the 1940 Act, if such a request
for a meeting is received. Each shareholder receives one vote for each share
owned, except that only shares of the respective Portfolio are entitled to vote
on matters concerning only that Portfolio.
This Prospectus omits certain information contained in the registration
statement which the Fund has filed with the SEC under the Securities Act of 1933
and the 1940 Act, and reference is made to the registration statement and the
exhibits thereto for further information with respect to the Fund and the shares
offered hereby. Copies of such registration statement, including exhibits, may
be obtained from the SEC's principal office at Washington, D.C., upon payment of
the fee prescribed by the SEC.
LEGAL OPINIONS
The legality of the securities offered by this Prospectus will be passed
upon for the Fund by Kirkpatrick & Lockhart, 1800 M Street, N.W., Suite 900,
Washington, D.C. 20036.
<PAGE>
- --------------------------------------- ---------------------------------------
Investment Adviser
INVESCO Services, Inc.
Sub-Advisers
INVESCO Capital Management, Inc. PROSPECTUS
INVESCO Management & Research, ^ INVESCO ADVISOR FUNDS, INC.
Inc.
INVESCO Realty Advisors, Inc. EQUITY PORTFOLIO
INCOME PORTFOLIO
FLEX PORTFOLIO
Distributor MULTIFLEX PORTFOLIO
INVESCO Services, Inc. ^ REAL ESTATE PORTFOLIO
INTERNATIONAL VALUE PORTFOLIO
Transfer Agent and Administrator CASH MANAGEMENT PORTFOLIO
Fund/Plan Services, Inc.
May 1, 1996
Custodian
United Missouri Bank of Kansas
City, N.A.
Independent Accountants
Price Waterhouse LLP
Denver, Colorado
- --------------------------------------- ---------------------------------------
<PAGE>
^ INVESCO ADVISOR FUNDS, INC.
EQUITY PORTFOLIO
INCOME PORTFOLIO
FLEX PORTFOLIO
MULTIFLEX PORTFOLIO
^ REAL ESTATE PORTFOLIO
INTERNATIONAL VALUE PORTFOLIO
CASH MANAGEMENT PORTFOLIO
1315 Peachtree Street, N.E.
Atlanta, Georgia 30309
Telephone: 800/554-1156
- --------------------------------------------------------------------------------
^ INVESCO Advisor Funds, Inc. (the "Fund") is comprised of ^ seven separate
series (the "Portfolios"), each of which represents a separate portfolio of
investments. Each of the Portfolios has separate investment objectives and
investment policies. The Portfolios are as follows: Equity Portfolio, Income
Portfolio, Flex Portfolio, MultiFlex Portfolio,^ Real Estate Portfolio,
International Value Portfolio and Cash Management Portfolio. ^
- ------------------------------------------------------------------------------
INVESCO Services, Inc.
Investment Adviser
Manager
Distributor
INVESCO Capital Management, Inc.
Sub-Adviser: Equity Portfolio
Income Portfolio
Flex Portfolio
International Value Portfolio
Cash Management Portfolio
INVESCO Management & Research, Inc.
Sub-Adviser: MultiFlex Portfolio
^
INVESCO Realty Advisors, Inc.
Sub-Adviser: Real Estate Portfolio
- ------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a Prospectus but should be read
in conjunction with the Fund's current Prospectus dated May 1, ^ 1996. Please
retain this Statement of Additional Information for future reference. The
Prospectus is available from INVESCO Services, Inc., 1355 Peachtree Street,
N.E., Atlanta, Georgia 30309.
- ------------------------------------------------------------------------------
May 1, ^ 1996
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES AND POLICIES......................................... 76
Convertible Securities............................................... 76
Mortgage-Related Securities.......................................... 76
INVESTMENT RESTRICTIONS.................................................... 79
PORTFOLIO SECURITIES LOANS................................................. 82
MANAGEMENT OF THE FUND..................................................... 83
Directors and Officers............................................... 83
Director Compensation................................................ 86
Fund Committees...................................................... 89
THE ADVISORY AND SUB-ADVISORY AGREEMENTS................................... 89
OPERATING SERVICES AGREEMENT............................................... 93
THE DISTRIBUTOR............................................................ 94
DISTRIBUTION OF SHARES..................................................... 95
DISTRIBUTIONS AND TAX INFORMATION.......................................... 97
Distributions........................................................ 97
Federal Taxes........................................................ 98
Options, Futures and Foreign Currency Forward
Contracts...................................................... 99
Swap Agreements......................................................100
Currency Fluctuations -- "Section 988" Gains or Losses...............100
Investment in Passive Foreign Investment Companies...................101
Debt Securities Acquired at a Discount...............................102
Distributions........................................................102
Disposition of Shares................................................103
Backup Withholding...................................................103
Other Taxation.......................................................104
SERVICES PROVIDED BY THE FUND..............................................104
Systematic Withdrawal Plan...........................................104
Exchange Privilege...................................................105
Automatic Dividend Reinvestment Plan.................................105
Automatic Monthly Exchange...........................................105
BankDraft............................................................105
BROKERAGE AND PORTFOLIO TRANSACTIONS.......................................106
PERFORMANCE INFORMATION....................................................108
MISCELLANEOUS..............................................................113
Principal Shareholders...............................................113
Net Asset Value......................................................113
The Custodian........................................................113
Independent Accountants..............................................113
Financial Statements.................................................113
APPENDIX A............................................................... A-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following discussion elaborates on the disclosure of the Portfolios'
investment policies contained in the Prospectus.
Convertible Securities
Although the equity investments of the International Value Portfolio
consist primarily of common and preferred stocks, the Portfolio may buy
securities convertible into common stock if, for example, the sub-adviser
believes that a company's convertible securities are undervalued in the market.
Convertible securities eligible for purchase by the Portfolio include
convertible bonds, convertible preferred stocks, and warrants. A warrant is an
instrument issued by a corporation which gives the holder the right to subscribe
to a specific amount of the corporation's capital stock at a set price for a
specified period of time. Warrants do not represent ownership of the securities,
but only the right to buy the securities. The prices of warrants do not
necessarily move parallel to the prices of underlying securities. Warrants may
be considered speculative in that they have no voting rights, pay no dividends,
and have no rights with respect to the assets of a corporation issuing them.
Warrant positions will not be used to increase the leverage of the Portfolio;
consequently, warrant positions are generally accompanied by cash positions
equivalent to the required exercise amount.
Mortgage-Related Securities
Mortgage-related securities are interests in pools of mortgage loans made
to residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations (see "Mortgage Pass- Through
Securities" below). The Portfolios may also invest in debt securities which are
secured with collateral consisting of mortgage-related securities (see
"Collateralized Mortgage Obligations"), and in other types of mortgage-related
securities.
Mortgage Pass-Through Securities. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential or commercial mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by the
Government National Mortgage Association ("GNMA")) are described as "modified
pass-through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.
<PAGE>
GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of FHA-insured or VA-guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved seller/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers. Pass-
through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the 12 Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets a Portfolio's investment quality standards. There can be no
assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. Although the market for
such securities is becoming increasingly liquid, securities issued by certain
private organizations may not be readily marketable. A Portfolio will not
purchase mortgage-related securities or other assets which in the sub-adviser's
<PAGE>
opinion are illiquid if, as a result, more than 15% of the value of the
Portfolio's total assets will be illiquid.
Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to a Portfolio's
industry concentration restrictions, by virtue of the exclusion from that test
available to all U.S. Government securities. In the case of privately issued
mortgage-related securities, the Portfolios take the position that
mortgage-related securities do not represent interests in any particular
"industry" or group of industries. The assets underlying such securities may be
represented by a portfolio of first lien residential mortgages (including both
whole mortgage loans and mortgage participation interests) or portfolios of
mortgage pass-through securities issued or guaranteed by GNMA, FNMA or FHLMC.
Mortgage loans underlying a mortgage-related security may in turn be insured or
guaranteed by the Federal Housing Administration or the Department of Veterans
Affairs. In the case of private issue mortgage-related securities whose
underlying assets are neither U.S. Government securities nor U.S.
Government-insured mortgages, to the extent that real properties securing such
assets may be located in the same geographical region, the security may be
subject to a greater risk of default than other comparable securities in the
event of adverse economic, political or business developments that may affect
such region and, ultimately, the ability of residential homeowners to make
payments of principal and interest on the underlying mortgages.
Collateralized Mortgage Obligations ("CMOs"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepay- ments, is
first returned to investors holding the shortest maturity class. Investors
holding the longer maturity classes receive principal only after the first class
has been retired. An investor is partially guarded against a sooner than desired
return of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
<PAGE>
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates which are secured by the pledge of a
pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs,
payments of principal and interest on the CMOs are made semiannually, as opposed
to monthly. The amount of principal payable on each semiannual payment date is
determined in accordance with FHLMC's mandatory sinking fund schedule, which, in
turn, is equal to approximately 100% of FHA prepayment experience applied to the
mortgage collateral pool. All sinking fund payments in the CMOs are allocated to
the retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
INVESTMENT RESTRICTIONS
The Directors of the Fund, on behalf of the Portfolios, have adopted the
following investment restrictions, all of which are fundamental policies and may
not be changed as to any Portfolio without the approval of the holders of a
majority of such Portfolio's outstanding voting securities (which in this
Prospectus means, as to each Portfolio, the vote of the lesser of (i) 67% or
more of the voting securities present at a meeting, if the holders of more than
50% of the outstanding voting securities are present or represented by proxy, or
(ii) more than 50% of the outstanding voting securities). The Portfolios may
not:
(1) Invest in the securities of issuers conducting their principal
business activity in the same industry, if immediately after such investment the
value of a Portfolio's investments in such industry would exceed 25% of the
value of such Portfolio's total assets; provided, however, that this limitation
does not apply to a Portfolio's investments in obligations issued or guaranteed
by the U.S. Government, its agencies, authorities or instrumentalities, and, as
to the Cash Management Portfolio, certificates of deposit of domestic branches
of U.S. banks or bankers' acceptances of domestic branches of U.S. banks.
<PAGE>
(2) For the MultiFlex, ^ Real Estate and International Value Portfolios,
with respect to 75% of the Portfolio's assets, invest in the securities of any
one issuer, other than obligations of, or guaranteed by, the U.S. Government,
its agencies, authorities or instrumentalities, if immediately after such
investment more than 5% of the value of the Portfolio's total assets, taken at
market value, would be invested in such issuer or more than 10% of such issuer's
outstanding voting securities would be owned by such Portfolio. For the Equity,
Income, Flex and Cash Management Portfolios, with respect to 100% of the
Portfolio's assets, invest in the securities of any one issuer, other than
obligations of, or guaranteed by, the U.S. Government, its agencies, authorities
or instrumentalities, if immediately after such investment more than 5% of the
value of the Portfolio's total assets, taken at market value, would be invested
in such issuer or more than 10% of such issuer's outstanding voting securities
would be owned by such Portfolio.
(3) Underwrite securities of other issuers, except insofar as it may
technically be deemed an "underwriter" under the Securities Act of 1933, as
amended, in connection with the disposition of a Portfolio's portfolio
securities.
(4) Invest in companies for the purpose of exercising control or
management.
(5) Issue any class of senior securities or borrow money, except
borrowings from banks for temporary or emergency purposes not in excess of 5% of
the value of a Portfolio's total assets at the time the borrowing is made.
(6) Mortgage, pledge, hypothecate or in any manner transfer as security
for indebtedness any securities owned or held except to an extent not greater
than 5% of the value of a Portfolio's total assets.
(7) Make short sales of securities or maintain a short position. All
Portfolios, except the Equity and Cash Management Portfolios, may, however,
write covered call options and cash secured put options.
(8) Purchase securities on margin, except that a Portfolio may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities.
(9) Purchase or sell real estate or interests in real estate. A Portfolio
may invest in securities secured by real estate or interests therein or issued
by companies, including real estate investment trusts, which invest in real
estate or interests therein.
(10) Purchase or sell commodities or commodity contracts, except as set
forth in the Prospectus and in this Statement of Additional Information for
transactions in commodity futures contracts, foreign currency futures contracts,
and stock index futures contracts. The Income, Flex and Multiflex Portfolios may
enter into interest rate futures contracts if immediately after such a
<PAGE>
commitment the sum of the then aggregate futures market prices of financial
instruments required to be delivered under open futures contract sales and the
aggregate purchase prices under future contract purchases would not exceed 30%
of the applicable Portfolio's total assets.
(11) Make loans to other persons, provided that a Portfolio may purchase
debt obligations consistent with its investment objectives and policies and,
except for the Cash Management Portfolio, may lend limited amounts (not to
exceed ^ 10% of total assets) of its portfolio securities to broker-dealers or
other institutional investors.
(12) Purchase securities of other investment companies except (a) in
connection with a merger, consolidation, acquisition or reorganization; or (b)
by purchase in the open market of securities of other investment companies
involving only customary brokers' commissions and only if immediately thereafter
(i) no more than 3% of the voting securities of any one investment company are
owned by the Portfolio, (ii) no more than 5% of the value of the total assets of
a Portfolio would be invested in any one investment company, and (iii) no more
than 10% of the value of the total assets of a Portfolio would be invested in
the securities of such investment companies. A portion of a Portfolio's cash may
be invested from time to time in investment companies to which the Adviser or
sub-adviser serves as investment adviser; provided that no management or
distribution fee will be charged by the Adviser or sub-adviser with respect to
any such assets so invested and provided further that at no time will more than
3% of the Portfolio's assets be so invested. Should a Portfolio purchase
securities of other investment companies, shareholders may incur additional
management, advisory and distribution fees.
(13) Invest in securities for which there are legal or contractual
restrictions on resale, if more than 2% of the value of a Portfolio's total
assets would be invested in such securities, or invest in securities for which
there is no readily available market, if more than 5% of the value of a
Portfolio's total assets would be invested in such securities. In determining
securities subject to this 5% restriction, the Portfolios will include
repurchase agreements maturing in more than seven days.
The Income Portfolio has adopted the following additional investment
restriction, which is a fundamental policy and may not be changed without the
approval of the holders of a majority of the Income Portfolio's outstanding
voting securities, as defined above. The Income Portfolio may not invest in
non-income producing securities if immediately after such investment more than
35% of the value of its total assets would be invested in such securities. (See
"Investment Objectives and Policies" in the Prospectus). However, as an
operating policy, the Income Portfolio does not intend to invest in non-income
producing securities.
Additional investment restrictions adopted by the Directors on behalf of
the Portfolios, which may be changed by the Directors at their discretion,
provide that the Portfolios may not:
(1) For the Equity, Income, Flex, Cash Management^ and Real Estate
Portfolios, invest more than 10% of the value of the applicable Portfolio's
total assets in securities of foreign issuers; provided, however, that the
<PAGE>
Equity and Flex Portfolios may invest up to 25% of the value of the applicable
Portfolio's total assets in sponsored ADRs (American Depositary Receipts). The
MultiFlex Portfolio may invest up to 40% of total assets in securities of
foreign issuers and the International Value Portfolio may invest up to 100% of
its total assets in securities of foreign issuers. Investing in securities
issued by companies whose principal business activities are outside the United
States may involve significant risks not present in domestic investments.
(2) Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except as set forth in the Prospectus and this Statement
of Additional Information for transactions in options, futures, and options on
futures and transactions arising under swap agreements. Options on interest rate
futures contracts and investments in initial margins will not exceed 5% of the
applicable Portfolio's total assets. Covered call options and cash secured puts
will not exceed 25% of the applicable Portfolio's total assets. For a detailed
discussion on these types of instruments, see the Prospectus.
(3) Purchase or sell interests in oil, gas or other mineral leases or
exploration or development programs. A Portfolio, however, may purchase or sell
securities issued by entities which invest in such interests.
(4) Invest more than 5% of a Portfolio's total assets in securities of
companies having a record, together with predecessors, of less than three years
of continuous operation.
(5) Purchase or retain the securities of any issuer if any individual
officer or Director of a Portfolio, the Adviser or sub-adviser, or any
subsidiary thereof owns individually more than 0.5% of the securities of that
issuer and all such officers and Directors together own more than 5% of the
securities of that issuer.
(6) Engage in arbitrage transactions.
Another policy which may be changed by the Directors at their discretion
is that, to the extent a Portfolio invests in warrants, a Portfolio's investment
in warrants, valued at the lower of cost or market, may not exceed 5% of the
value of such Portfolio's net assets. Included within that amount, but not to
exceed 2% of the value of such Portfolio's net assets, may be warrants which are
not listed on the New York or American Stock Exchanges. Warrants acquired by a
Portfolio as part of a unit or attached to securities may be deemed to be
without value.
PORTFOLIO SECURITIES LOANS
Each of the Portfolios, except the Cash Management Portfolio, may lend
limited amounts of portfolio securities (not to exceed ^ 10% of total assets) to
broker-dealers or other institutional investors. The sub-advisers will monitor
the creditworthiness of such broker-dealers in accordance with procedures
adopted by the Directors. Fund Management understands that it is the current
view of the staff of the Securities and Exchange Commission (the "Commission")
that the Portfolios are permitted to engage in loan
<PAGE>
transactions only if the following conditions are met: (1) the applicable
Portfolio must receive 100% collateral in the form of cash or cash equivalents,
e.g., U.S. Treasury bills or notes, from the borrower; (2) the borrower must
increase the collateral whenever the market value of the borrowed securities
(determined on a daily basis) rises above the level of the collateral; (3) the
applicable Portfolio must be able to terminate the loan after notice; (4) the
applicable Portfolio must receive reasonable interest on the loan or a flat fee
from the borrower, as well as amounts equivalent to any dividends, interest or
other distributions on the securities loaned and any increase in market value;
(5) the applicable Portfolio may pay only reasonable custodian fees in
connection with the loan; and (6) voting rights on the securities loaned may
pass to the borrower; however, if a material event affecting the investment
occurs, the Portfolio must be able to terminate the loan and vote proxies or
enter into an alternative arrangement with the borrower to enable the Portfolio
to vote proxies. Excluding items (1) and (2), these practices may be amended
from time to time as regulatory provisions permit.
While there may be delays in recovery of loaned securities or even a loss
of rights in collateral supplied should the borrower fail financially, loans
will be made only to firms deemed by the sub-advisers to be of good standing and
will not be made unless, in the judgment of the respective sub-adviser, the
consideration to be earned from such loans would justify the risk.
It is expected that each of the Portfolios will use the cash portions of
loan collateral to invest in short-term income producing securities for such
Portfolio's account and that such Portfolio may share some of the income from
these investments with the borrower.
MANAGEMENT OF THE FUND
Directors and Officers
Listed below are the Directors and executive officers of the Fund, their
business addresses and their principal occupations during the past five years.
CHARLES W. BRADY,*+ Chairman of the Board of Directors
Mr. Brady is Chief Executive Officer and a director of INVESCO PLC, London,
England, and of ^ subsidiaries thereof. He is also Chairman of the Board of
INVESCO Treasurer's Series Trust and of The Global Health Sciences Fund.
Address: 1315 Peachtree Street, N.E., Atlanta, Georgia 30309. Born: May 11,
1935.
FRED A. DEERING, +# Vice Chairman of the Board of Directors
Mr. Deering ^ was formerly Chairman of the Executive Committee and Chairman
of the Board of Security Life of Denver Insurance Company, Denver, Colorado ^;
Director of NN Financial, Toronto, Ontario, Canada; Director and Chairman of the
Executive Committee of ING America Life, Life Insurance Co. of Georgia, and
<PAGE>
Southland Life Insurance Company. Vice Chairman of INVESCO Treasurer's Series
Trust. Trustee of The Global Health Sciences Fund. Address: Security Life
Center, 1290 Broadway, Denver, Colorado ^.
Born: January 12, 1928.
HUBERT L. HARRIS, JR.,*+ President and Director
Mr. Harris has been President of the Fund since April 1991. Mr. Harris is
also President of ISI, a position he has held since January 1990. He is a
Director and Chief Financial Officer of INVESCO PLC, London, England. From
November 1988 to January 1990, he was an employee of ICM. From 1983 to 1988, Mr.
Harris was President and Executive Director of the International Association for
Financial Planning. Mr. Harris is a member of the Executive Committee of the
Alumni Board of Trustees of Georgia Institute of Technology. Address: 1315
Peachtree Street, N.E., Atlanta, Georgia 30309. Born: July 15, 1943.
VICTOR L. ANDREWS,** Director
Dr. Andrews has been Mills Bee Lane Professor of Banking and Finance and
Chairman of the Department of Finance at Georgia State University, Atlanta,
Georgia since 1968. Since October 1984, Dr. Andrews has been Director of the
Center for the Study of Regulated Industry at Georgia State University. He is a
former member of the faculties of the Harvard Business School and the Sloan
School of Management of MIT. He is also a Director of The Southeastern Thrift
and Bank Fund, Inc. and The Sheffield Funds, Inc., and a Trustee of INVESCO
Treasurer's Series Trust. Address: Department of Finance, Georgia State
University, University Plaza, Atlanta, Georgia 30303-3083. Born: June 23, 1930.
BOB R. BAKER,+** Director
Mr. Baker has been President and Chief Executive Officer of AMC Cancer
Research Center, Denver, Colorado, since January 1989. Until mid-December 1988,
Mr. Baker served as Vice Chairman of the Board of First Columbia Financial
Corporation (a financial institution), Englewood, Colorado. Prior to that time,
Mr. Baker served as Chairman of the Board and Chief Executive Officer of First
Columbia Financial Corporation. Mr. Baker is a Trustee of INVESCO Treasurer's
Series Trust. Address: 1775 Sherman Street, #1000, Denver, Colorado 80203. Born:
August 7, 1936.
LAWRENCE H. BUDNER,# Director
Mr. Budner is a Trust Consultant. Prior to June 1987, he was Senior Vice
President and Senior Trust Officer of InterFirst Bank of Dallas, Texas. He is a
Trustee of INVESCO Treasurer's Series Trust. Address: 7608 Glen Albens, Dallas,
Texas 75225. Born: July 25, 1930.
<PAGE>
DANIEL D. CHABRIS,+# Director
Mr. Chabris is a Financial Consultant. From 1966 to 1988, he was Assistant
Treasurer of Colt Industries, Inc., New York, New York. He is a Trustee of
INVESCO Treasurer's Series Trust. Address: 15 Sterling Road, Armonk, New York
10504. Born: August 1, 1923.
KENNETH T. KING,** Director
Mr. King is retired. Mr. King was formerly Chairman of the Board of The
Capital Life Insurance Company and of Providence Washington Insurance Company
and Director of numerous subsidiaries thereof in the United States. Prior to
that, Mr. King was the Chairman of the Board of The Providence Capital Companies
in the United Kingdom and Guernsey. Mr. King also served as Chairman of the
Board of Symbion Corporation (a high technology company) until 1987. He is a
Trustee of INVESCO Treasurer's Series Trust. Address: 4080 North Circulo
Manzanillo, Tucson, Arizona 85715.
Born: November 16, 1925.
FRANK M. BISHOP,* Director
Mr. Bishop is President and Chief Operating Officer of INVESCO Inc., a
position he has held since February 1993. Mr. Bishop is also Director of INVESCO
Funds Group, Inc. (since March 1993), and Director (since February 1993), Vice
President (since December 1991), and portfolio manager (since February 1987) of
ICM and predecessor firms. Address: 1315 Peachtree Street, N.E., Atlanta,
Georgia 30309. Born: December 7, 1943.
A.D. FRAZIER, JR.,** Director
Mr. Frazier is Chief Operating Officer of the Atlanta Committee for the
Olympic Games. Until 1991, Mr. Frazier was Executive Vice President of the North
American Banking Group of First Chicago Bank. Mr. Frazier is also Director of
the Atlanta Chamber of Commerce and Atlanta Symphony Orchestra and a Trustee of
INVESCO Treasurer's Series Trust and The Global Health Sciences Fund. Address:
250 Williams Street, Suite 6000, Atlanta, Georgia 30301. Born: June ^ 29, 1944.
JOHN W. MCINTYRE,# Director
Mr. McIntyre is retired. He was formerly Chairman of the Board and Chief
Executive Officer of Citizens and Southern National Bank in Atlanta, Georgia,
positions he held from May 1986 to December 1991. Prior to that, Mr. McIntyre
was Vice Chairman of the Board of The Citizens and Southern Corporation and
Chairman of the Board and Chief Executive Officer of The Citizens and Southern
Georgia Corp. Director of Golden Poultry Co., Inc. He is also a Trustee of
INVESCO Treasurer's Series Trust, The Global Health Sciences Fund and Gables
Residential Trust. Address: Seven Piedmont Center, Suite 100, Atlanta, Georgia
30305. Born: September 14, 1930.
<PAGE>
^ TONY D. GREEN, Treasurer and Secretary
^ Mr. Green has ^ served as Treasurer and Secretary ^ since June 1995. He
has also served as ^ Senior Vice President of INVESCO Services since July 1993.
Secretary since April 1995. Prior to joining INVESCO, he was Principal for
Mutual Fund Operations at Edward D. Jones & Co. He also served as Treasurer and
Secretary of INVESCO ^ Treasurers Series Trust since ^ July 1995. Address: 1355
Peachtree Street, N.E., Atlanta, Georgia 30309. Born: ^ March 1, 1947.
- --------------------------------------
* Messrs. Brady, Bishop and Harris are "interested persons" (as that term is
defined in the 1940 Act) of the Fund because of their affiliation with ISI
and/or its affiliated companies.
# Member of the audit committee of the Fund.
+ Member of the executive committee of the Fund. The executive
committee acts upon the current and ordinary business of the
Fund 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 Fund.
All decisions are subsequently submitted for ratification by
the Board of Directors.
** Member of the management liaison committee of the Fund.
ICM and ISI serve as investment adviser and principal underwriter,
respectively, of INVESCO Treasurer's Series Trust. Mr. Brady is also Chairman of
the Board, Mr. Deering is Vice Chairman, and all of the Directors of the Fund
are directors or trustees of the following investment companies: INVESCO Growth
Fund, Inc., INVESCO Industrial Income Fund, Inc., INVESCO Dynamics Fund, Inc.,
INVESCO Income Funds, Inc., INVESCO Tax-Free Income Funds, Inc., INVESCO
Strategic Portfolios, Inc., INVESCO Value Trust, INVESCO Emerging Growth Fund,
Inc., INVESCO Money Market Funds, Inc., INVESCO International Funds, Inc.,
INVESCO Diversified Funds, Inc., INVESCO Multiple Asset Funds, Inc., and INVESCO
Variable Investment Funds, Inc. All of the Directors of the Fund, except Mr.
Harris, are also trustees of INVESCO Treasurer's Series Trust.
Director Compensation
The following table sets forth, for the fiscal period ended December 31, ^
1995: the compensation paid by the Fund to its eight independent directors for
services rendered in their capacities as directors of the Fund; the retirement
benefits accrued as Fund expenses with respect to the Defined Benefit Deferred
Compensation Plan discussed below; and the total compensation paid by all of the
mutual funds distributed by ISI and INVESCO Funds Group, Inc., including the
Fund, INVESCO Treasurer's Series Trust and The Global Health Sciences Fund
(collectively, the "INVESCO Complex") ^(50 portfolios in total) to these
directors for services rendered in their capacities as directors or trustees.
<PAGE>
Total
Retirement Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
Name of Person, tion From Fund Upon Paid To
Position ^ Fund1 ^ Expenses2 Retirement3 ^ Directors1
- --------------- --------- ---------- ------------- ----------
Fred A. Deering,
Vice Chairman ^ of
the Board ^ $15,305 $2,293 $1,022 $87,350
Victor L. Andrews ^ 12,652 2,018 1,127 68,000
Bob R. Baker ^ 14,953 2,033 1,511 73,000
Lawrence H. Budner ^ 14,463 2,166 1,127 68,350
Daniel D. Chabris ^ 14,992 2,472 801 73,350
^ A. D. Frazier, Jr. ^ 21,346 0 0 63,500
Kenneth T. King ^ 14,632 2,382 927 70,000
John W. McIntyre ^ 21,713 0 0 67,850
---------- ------- ------ --------
Total ^ $130,056 $13,414 $6,515 $571,400
% of Net Assets 0.0173% 0.0018% N/A 0.0043%
1The vice chairman of the board, the chairman of the audit, management
liaison, and compensation committees, and the members of the executive committee
each receive compensation for serving in such capacities in addition to the
compensation paid to all independent directors.
2Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the election
of the directors.
3These figures represent the Fund's share of the estimated annual benefits
by ^ the INVESCO Complex (excluding the Global Health Sciences Fund which does
not participate in any retirement plan) upon the director's 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 ^ Messrs. Frazier and McIntyre, ^ each of these directors has
<PAGE>
served as a director/trustee of one or more funds in the INVESCO Complex for the
minimum five-year period required to be eligible to participate in the Defined
Benefit Deferred Compensation Plan.
4Totals as a percentage of the Fund's net assets as of December 31, 1995.
5Totals as a percentage of the net assets of the INVESCO Complex as of
December 31, 1995.
Messrs. Bishop, Brady, and Harris, as "interested persons" of the Fund and
of the other funds in the INVESCO Complex, receive compensation as officers or
employees of ISI or its affiliated companies, and do not receive any directors'
fees or other compensation from the Fund or the other funds in the INVESCO
Complex for their service as directors.
^
The boards of directors/trustees of the mutual funds ^ managed by INVESCO,
INVESCO Advisor Funds, Inc. and INVESCO Treasurer's Series Trust have adopted a
Defined Benefit Deferred Compensation Plan for the ^ non-interested directors
and trustees of the funds. Under this plan, each director or trustee who is not
an interested person of the funds (as defined in the 1940 Act) and who has
served for at least five years (a "qualified director") is entitled to receive,
upon retiring from the ^ boards at the retirement age of 72 (or the retirement
age of 73 ^ to 74, if the retirement date is extended by the boards for one or
two years, but less than three years) continuation of payment for one year (the
"first year retirement benefit") of the annual basic retainer payable by the
funds to the qualified director at the time of his retirement (the "basic
retainer"). Commencing with any such director's second year of retirement, and
commencing with the first year of retirement of a director whose retirement has
been extended by the board for three years, a qualified director shall receive
quarterly payments at an annual rate equal to 25% of the basic retainer. These
payments will continue for the remainder of the qualified director's life or ten
years, whichever is longer (the "reduced retainer payments"). If a qualified
director dies or becomes disabled after age 72 and before age 74 while still a
director of the funds, the first year retirement benefit and the reduced
retainer payments will be made to him or to his beneficiary or estate. If a
qualified director becomes disabled or dies either prior to age 72 or during
his/her 74th year while still a director of the funds, the director will not be
entitled to receive the first year retirement benefit; however, the reduced
retainer payments will be made to his beneficiary or estate. The plan is
administered by a committee of three directors who are also participants in the
plan and one director who is not a plan participant. The cost of the plan will
be allocated among the INVESCO, ^ INVESCO Advisor and Treasurer's Series funds
in a manner determined to be fair and equitable by the committee. ^ The Fund is
not making any payments to directors under the plan as of the date of this
Statement of Additional Information^. The Fund has no stock options or other
pension or retirement plans for management or other personnel and pays no salary
or compensation to any of its officers.
<PAGE>
Fund Committees
The Fund has an audit committee which is comprised of ^ four of the
Directors who are not interested persons of the Fund. The committee meets
periodically with the Fund's independent accountants and officers to review
accounting principles used by the Fund, the adequacy of internal controls, the
responsibilities and fees of the independent accountants, and other matters.
The Fund also has a management liaison committee which meets quarterly
with various management personnel in order (a) to facilitate better
understanding of management and operations of the Fund, 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.
As indicated in the Prospectus, ISI permits 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 and its North American affiliates. The policy requires
officers, inside directors, investment and other personnel of ISI, ICM, IMR and
IRA 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 Portfolios.
In addition to the pre-clearance requirement described above, the policy
subjects officers, inside directors, investment and other personnel of ISI and
its North American affiliates to various trading restrictions and reporting
obligations. All reportable transactions are reviewed for compliance with the
policy. The provisions of this policy are administered by and subject to
exceptions authorized by ISI, ICM, IMR and IRA.
THE ADVISORY AND SUB-ADVISORY AGREEMENTS
The investment adviser to the Fund is INVESCO Services, Inc., a Georgia
corporation (the "Adviser" or "ISI"), which has its principal office at 1315
Peachtree Street, N.E., Atlanta, Georgia 30309. The Adviser is a wholly owned
subsidiary of INVESCO Capital Management, Inc., which serves as sub-adviser to
five of the Portfolios, as described below.
The sub-adviser to the Equity, Income, Flex, International Value and Cash
Management Portfolios is INVESCO Capital Management, Inc., a Delaware
corporation ("ICM"), which has its principal office at 1315 Peachtree Street,
N.E., Atlanta, Georgia 30309. ICM also has an advisory office in Coral Gables,
Florida and a marketing and client service office in San Francisco, California.
The sub-adviser to the MultiFlex ^ Portfolio is INVESCO Management and
Research, Inc., formerly Gardner and Preston Moss,
<PAGE>
Inc., of Boston, Massachusetts ("IMR"), a Massachusetts corporation which has
its principal office at 101 Federal Street, Boston, MA 02110. IMR manages funds
of approximately ^ $2.4 billion, predominantly in pension and endowment
accounts.
The sub-adviser to the Real Estate Portfolio is INVESCO Realty Advisors,
Inc., a Texas corporation based in Dallas ("IRA"), which has its principal
office at One Lincoln Centre, Suite 1200, 5400 LBJ Freeway/LB 2, Dallas, Texas
75240. IRA is responsible for providing advisory services in the U.S. real
estate markets for INVESCO PLC's clients worldwide. Established in 1983 as a
registered investment adviser and qualified professional asset manager, funds
under management total ^ $2.7 billion. As of December 31, ^ 1995, its direct
portfolio contained ^ 105 properties totalling over ^ 30.6 million square feet
of commercial real estate and ^ 13,651 apartment units. Clients include
corporate plans and public pension funds as well as endowment and foundation
accounts.
ICM, IMR and IRA are wholly owned subsidiaries of INVESCO North American
Holdings, Inc., formerly Britannia Holdings, Inc. ("INAH"), a Delaware
corporation, which is a wholly owned subsidiary of INVESCO PLC. INVESCO PLC is a
financial holding company which was organized in 1935. ^ The principal business
of INVESCO PLC, which is carried on through subsidiaries, is investment
management on a global basis. Through subsidiaries located in London, Denver,
Atlanta, Boston, Louisville, Dallas, Tokyo, Hong Kong, Paris, Luxembourg, and
the Channel Islands, INVESCO PLC ^ provides investment services around the
world. INVESCO PLC's other North American subsidiaries include the following:
INVESCO Funds Group, Inc., formerly Financial Programs, Inc., an
affiliated company which is also a wholly owned subsidiary of INAH, was
established in 1932, and engages in the investment advisory business in Denver,
Colorado, managing 14 no-load mutual funds consisting of ^ 40 portfolios with
combined assets of approximately ^ $12.0 billion at December 31, ^ 1995.
PRIMCO Capital Management, Inc. ("PRIMCO"), which was established in 1985
and is based in Louisville, Kentucky, specializes in managing stable return
investments principally on behalf of Section 401(k) retirement plans.
^ INVESCO Asset Management Limited (formerly, "MIM Limited") ("INVESCO
Management"), an investment management company located in the United Kingdom.
The principal business of INVESCO Management is the management of pension funds,
investment trusts, unit trusts, and various investment portfolios on behalf of
private clients, charities, corporations, and foreign financial institutions.
^
The corporate headquarters of INVESCO PLC are located at 11 Devonshire
Square, London, EC2M 4YR, England.
^
<PAGE>
Under their Investment Advisory and Sub-Advisory Agreements (the
"Agreements") with the respective Portfolios, the Adviser and sub-advisers will,
subject to the supervision of the Directors of the Fund and in conformance with
the stated policies of the Portfolios, manage the investment operations of the
Portfolios. In this regard, it will be the responsibility of the Adviser and
sub-advisers not only to make investment decisions for the Portfolios, but also
to place the purchase and sale orders for the portfolio transactions of the
Portfolios. (See "Brokerage and Portfolio Transactions.") The Investment
Advisory Agreement provides that, in fulfilling its responsibilities, the
Adviser may engage the services of other investment managers with respect to one
or more of the Portfolios.
The Adviser is also responsible for furnishing to the Portfolios, at the
Adviser's expense, the services of persons believed to be competent to perform
all supervisory and administrative services required by the Portfolios, in the
judgment of the Directors, to conduct their respective businesses effectively,
as well as the offices, equipment and other facilities necessary for their
operations. Such functions include the maintenance of each Portfolio's accounts
and records, and the preparation of all requisite corporate documents such as
tax returns and reports to the Securities and Exchange Commission ("SEC") and
shareholders. Operational services which are necessary for the day-to-day
operations of the Portfolios are provided under a separate Operating Services
Agreement between the Fund and ISI (See "Operating Services Agreement").
Except as discussed below (see "Operating Services Agreement"), each of
the Portfolios is responsible for the payment of its own expenses. However, if,
in any given year, the sum of a particular Portfolio's expenses exceeds
applicable state expense limitations, the Adviser will be required to reimburse
such Portfolio for such excess expenses promptly. Interest, taxes, distribution
expenses, directors' fees and expenses and extraordinary items such as
litigation costs are not deemed expenses for purposes of the foregoing
limitations and will be borne by the Fund or particular Portfolio, as
applicable. Expenditures, including costs incurred in connection with the
purchase or sale of portfolio securities, which are capitalized in accordance
with generally accepted accounting principles applicable to investment
companies, are accounted for as capital items and not as expenses. There were no
reimbursements for the Portfolios during the period ended December 31, 1995,
except for the Income Portfolio for $17,720. There were no reimbursements for
the Portfolios during the period ended December 31, 1994. For the fiscal year
ended December 31, 1993, ISI reimbursed the Equity, Income, Flex and Cash
Management Portfolios in the following amounts: $3,227, $17,632, $18,993 and
$15,099 respectively. For the fiscal year ended December 31, 1992, the Cash
Management Portfolio was reimbursed in the amount of $38,925 by ICM, the
Portfolio's former adviser. There were no reimbursements for the Equity, Income,
or Flex Portfolios during that period. For the fiscal year ended December 31,
<PAGE>
1991, there were no reimbursements for the Equity, Income, Flex or Cash
Management Portfolios by ICM, the Portfolios' former adviser.
For the services to be rendered and the expenses to be assumed by the
Adviser under the Investment Advisory Agreements, each Portfolio will pay to the
Adviser an advisory fee which will be computed daily and paid as of the last day
of each month on the basis of the Portfolio's daily net asset value, using for
each daily calculation the most recently determined net asset value of the
Portfolio. (See "Computation of Net Asset Value"). On an annual basis, the
advisory fee is equal to 0.75% of the average net asset value of net assets of
the Portfolio for each of the Equity^ and Flex Portfolios, 0.90% of the average
net asset value of the Real Estate Portfolio, 1.0% of the average net asset
value of each of the MultiFlex and International Value Portfolios, ^ 0.65% of
the average net asset value of ^ the Income Portfolio (the Advisor has agreed to
reimburse the Income Portfolio for a three year period beginning October 1,
1995, so that the advisory fees shall not exceed 0.40% of average daily net
assets) and 0.50% of the average net asset value of the Cash Management
Portfolio. Those fees which equal 0.75% of average annual net assets are higher
than those generally charged by investment advisers to similar funds for
advisory services. However, the Adviser also provides certain supervisory and
administrative services to the Portfolios pursuant to the Investment Advisory
Agreements. No advisory fee will be paid to the Adviser with respect to any
assets of the Portfolios invested in the Cash Management Portfolio.
For the services to be rendered and the expenses to be assumed by ICM, IMR
and IRA under their respective Sub-Advisory Agreements, the Adviser will pay to
each sub-adviser a fee which will be computed daily and paid as of the last day
of each month on the basis of each Portfolio's daily net asset value, using for
each daily calculation the most recently determined net asset value of the
Portfolio. (See "Computation of Net Asset Value"). On an annual basis, the
sub-advisory fee is equal to 0.20% of the average net asset value of the
Portfolio for each of the Equity and Flex Portfolios; 0.10% of the average net
asset value of the Portfolio for each of the Income^ and Cash Management ^
Portfolios; 0.35% of the average net asset value of the Real Estate Portfolio on
assets up to $100 million and 0.25% on assets in excess of $100 million; 0.35%
of the average net asset value of the MultiFlex Portfolio on assets up to $500
million and 0.25% on assets in excess of $500 million; and the following for the
International Value Portfolio: 0.35% on net assets up to $50 million, 0.30% on
net assets over $50 million and up to $100 million, and 0.25% on net assets over
$100 million.
The current Investment Advisory and Sub-Advisory Agreements were approved
by the shareholders of the Equity, Income, Flex and Cash Management Portfolios
on June 8, 1993, by the sole shareholder of the MultiFlex ^ Portfolio on
November 8, 1993, and by the sole shareholder of the Real Estate and
International Value Portfolios on April 10, 1995. The Agreements will each
continue in effect from year to year provided such continuance is specifically
approved at least annually by (i) the vote of a majority of each applicable
Portfolio's outstanding voting securities (as defined
<PAGE>
under "Investment Restrictions" in the Prospectus) or by the Directors, and (ii)
the vote of a majority of the Directors, who are not "interested persons" (as
such term is defined in the 1940 Act) of the Portfolios or the Adviser or the
respective sub-adviser. The Agreements are terminable on 60 days' written notice
by either party thereto and will terminate automatically if assigned.
For the fiscal years ended December 31, 1995, 1994^ and 1993 ^ the
aggregate amounts of the advisory fees paid to the Adviser (ISI for the period
July 1, 1993 through December 31, 1994 and ICM in prior periods) by the
Portfolios, were as follows:
December 31,
Portfolio 1995 1994 1993
- --------- ---- ---- ----
^
Equity $ 725,315 $ 594,977 $ 682,566 ^
Income ^(net) 177,461 243,102 ^ 360,382
^ Flex 2,387,908 1,909,886 1,742,393
MultiFlex ^ 1,424,150 815,359 ^ 5,794 ^
Real Estate ^ 13,012 N/A N/A
International Value ^ 24,906 N/A N/A
Cash Management ^ 85,504 93,680 ^ 86,715
^
The investment advisory services of the Adviser to the Portfolios are not
exclusive and the Adviser is free to render investment advisory services to
others, including other investment companies.
OPERATING SERVICES AGREEMENT
ISI, as manager of the Portfolios, also provides operating services
pursuant to an Operating Services Agreement with the Fund. Under the Operating
Services Agreement, each Portfolio pays to the Manager an annual fee of 0.50% of
daily net assets of the Portfolio for providing or arranging to provide
accounting, legal (except litigation), dividend disbursing, registrar,
custodial, shareholder reporting, sub-accounting and recordkeeping services and
functions. These agreements provide that the Manager pays all fees and expenses
associated with these and other functions, including, but not limited to,
registration fees, shareholder meeting fees, and proxy statement and shareholder
report expenses.
The combined effect of the Advisory Agreements and Operating Services
Agreement, and the Distribution Plans of each of the Portfolios (see
"Distribution of Shares"), is to place a cap or ceiling on the total expenses of
each Portfolio, other than brokerage commissions, interest, taxes, litigation,
directors' fees and expenses, and other extraordinary expenses. ISI has
voluntarily agreed to adhere to maximum expense ratios for the Portfolios. To
the extent that a Portfolio's expenses exceed the amounts listed below, ISI will
waive its fees or reimburse the Portfolio to assure that each Portfolio's
expenses do not exceed the designated maximum amounts except for those items
specifically identified above. The expense ceilings include reductions at larger
asset sizes to reflect anticipated economies of scale as the Portfolios grow in
size.
<PAGE>
If, in any calendar quarter, the average net assets of the Equity or Flex
Portfolios are less than $500 million, expenses shall not exceed 2.25%; on the
next $500 million of net assets, expenses shall not exceed 2.15%; on the next $1
billion of net assets, expenses shall not exceed 2.10%; and on all assets over
$2 billion, expenses shall not exceed 2.05%. ^ In any calendar ^ year, the ^
expenses of the Income Portfolio ^ may not exceed 1.75%. If, in any calendar
quarter, the average net assets of the MultiFlex or International Value
Portfolio are less than $100 million, expenses shall not exceed 2.50%; on the
next $400 million of net assets, expenses shall not exceed 2.40%; on the next
$500 million of net assets, expenses shall not exceed 2.35%; on the next $1
billion of net assets, expenses shall not exceed 2.30%; and on all assets over
$2 billion, expenses shall not exceed 2.25%. If, in any calendar quarter, the
average net assets of the Real Estate Portfolio are less than $100 million,
expenses shall not exceed 2.40%; on the next $400 million of net assets,
expenses shall not exceed 2.35%; on the next $500 million of net assets,
expenses shall not exceed 2.30%; and on all assets over $1 billion, expenses
shall not exceed 2.25%. In any calendar year, the expenses of the Cash
Management Portfolio may not exceed 1% of average net assets^. The Adviser has
agreed to reimburse the Income Portfolio for a three-year period beginning
October 1, 1995, so that the expenses in any calendar year beginning with 1996
shall not exceed 1.50% of average net assets.
THE DISTRIBUTOR
ISI, the Fund's distributor (the "Distributor"), is the principal
underwriter of the Fund under a separate Distribution Agreement dated as of July
1, 1993, as amended November 1, 1993 ^ , April 19, 1995 and February 16, 1996
(the "Distribution Agreement"). All of the Distributor's outstanding shares of
voting stock are owned by ICM. The Distributor's office is located at 1355
Peachtree Street, N.E., Atlanta, Georgia 30309. The Distributor will receive
payments from each Portfolio, except the Cash Management Portfolio, pursuant to
the provisions of the Fund's plan of distribution described under "Distribution
of Shares."
Prior to May 1, 1995, the Distributor received directly the full amount of
all contingent deferred sales charges paid upon redemption of shares of the
Equity, Income, and Flex Portfolios purchased prior to January 1, 1992.
Imposition of a contingent deferred sales charge on redemptions of shares
purchased prior to 1992 has been discontinued.
The aggregate amounts of contingent deferred sales charges received by the
Distributor for the fiscal year ended December 31, ^ 1995, were as follows:
<PAGE>
Equity ^ Portfolio $ 3,391
Income ^ Portfolio 901
Flex ^ Portfolio 15,716
MultiFlex ^ Portfolio 2,167
Cash Management ^ Portfolio ^ 0
^ Real Estate Portfolio 79
^ International Value Portfolio 7
The aggregate amount of payments (not including contingent deferred sales
charges) received by the Distributor for the fiscal year ended December 31, ^
1995, from each of the Portfolios, except the Cash Management Portfolio, was as
follows:
Equity Portfolio $967,086
Income Portfolio 241,340
Flex Portfolio 3,183,877
MultiFlex ^ Portfolio 1,424,150
Real Estate Portfolio 14,458
International Value Portfolio 24,906 ^
The amounts paid by each of the Portfolios, except the Cash Management
Portfolio, under its plan of distribution (described below) for the fiscal year
ended December 31, ^ 1995, were used by the Distributor as follows:
^ Printing and Mailing Compensation
Prospectus (to other ^ to Dealers and
Portfolio Advertising than Shareholders) other Expenses
- --------- ----------- -------------------- --------------
Equity ^ $60,000 $20,125 $886,961
Income ^ 4,954 10,000 226,386
Flex ^ 226,932 90,000 2,866,945
MultiFlex ^ 52,851 45,000 1,326,299
Real Estate 3,000 7,507 3,951
International Value 10,138 5,802 8,966
Any remaining amounts paid to the Distributor were retained by it to
offset the initial commission paid by the Distributor to dealers selling shares
of the Equity, Income and Flex Portfolios.
^
DISTRIBUTION OF SHARES
Rule 12b-1 under the 1940 Act ("Rule 12b-1") permits a fund to use its
assets to bear expenses of distributing its shares if it complies with various
conditions, including adoption of a plan of distribution containing certain
provisions set forth in the Rule. The plan described below was approved by the
Directors of the Fund with respect to the Equity, Income, Flex, MultiFlex, ^
Real Estate and International Value Portfolios, including a majority of the
Directors who are not "interested persons" of the Portfolios as defined in the
1940 Act ("Independent Directors") and the Directors who have no direct or
indirect financial interest in the plan or any agreement related thereto (the
"Rule 12b-1 Directors"), who currently are the same persons as the Independent
Directors. The Directors have determined that, in their judgment, there is a
reasonable likelihood that the plan will benefit each Portfolio and its
shareholders by, among other things, providing broker-dealers
<PAGE>
with an incentive to sell additional shares of the Fund, thereby helping to
satisfy the Fund's liquidity needs and thus, helping to increase the Fund's
investment flexibility. In their regular quarterly ^ reviews of the plan, the
Directors ^ consider its continued appropriateness and the levels of
compensation provided in the plan. On June 8, 1993, the plan was approved by
shareholders of the Equity, Income, and Flex Portfolios. On November 8, 1993,
the plan was approved by the sole shareholder of ^ the MultiFlex ^ Portfolio. On
April 10, 1995, the plan was approved by the sole shareholder of each of the
Real Estate and International Value Portfolios.
The plan provides that each applicable Portfolio may incur certain
distribution and maintenance fees which may not exceed a maximum amount equal to
^ 0.60% of average annual net assets for the ^ Income Portfolio^ and 1.0% of
average annual net assets for the other applicable Portfolios. This expense
includes the payment of up to 0.25% of each Portfolio's average annual net
assets to broker-dealers as a "service fee" for providing account maintenance or
personal service to existing shareholders.
Under the plan of distribution, broker-dealers selling Fund shares may be
paid fees for selling shares and maintaining Fund assets. Generally, an
asset-based fee for selling shares and providing services to shareholders will
be paid out of Rule 12b-1 plan payments by the Distributor as follows: payments
not exceeding 1.0% per annum ^(0.60% per annum for the ^ Income Portfolio),
which amount includes the 0.25% "service fee^," of the average net asset value
of Fund shares sold by broker-dealers, which are outstanding on the books of
such Portfolios for each month, will be made at least quarterly to the selling
broker-dealer. Additionally, the plan authorizes each applicable Portfolio,
subject to the annual limitations described above, to pay the Distributor (or
other broker-dealers): (1) the costs and expenses incurred in preparation,
printing and distribution of the Fund's prospectuses, statements of additional
information and sales literature; (2) amounts from time to time to support
marketing shares of the Fund through programs with broker-dealers selling Fund
shares; and (3) overhead expenses which ^ include the costs of ISI's personnel
whose primary responsibilities involve marketing the Fund. In addition, the plan
provides that the Portfolios may pay, subject to the annual limitations, such
other distribution costs and expenses as the Directors may from time to time
specify. The Distributor may pay additional amounts up to 0.25% on assets
serviced by a dealer from its own resources to dealers or others who meet
designated eligibility criteria relating to sales of Fund shares, or who provide
administrative or informational assistance to shareholders.
The plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or by vote of a majority of the outstanding voting securities of
the applicable Portfolio. Any change in ^ a plan that would materially increase
the distribution expenses of the Portfolio provided for in the plan requires
shareholder approval; otherwise, the plan may be amended by a majority of the
Directors, including the Rule 12b-1 Directors.
<PAGE>
For so long as the plan is in effect, the Portfolios will be required to
commit the selection and nomination of candidates for Independent Directors to
the discretion of the Rule 12b-1 Directors.
The total amounts paid by each Portfolio under the foregoing arrangements
for any year may not exceed the maximum plan limit specified above, and the
amounts and purposes of expenditures under the plan must be reported to the Rule
12b-1 Directors quarterly. The Rule 12b-1 Directors may require or approve
changes in the implementation or operation of the plan and may also require that
total expenditures by each applicable Portfolio under the plan be kept within
limits lower than the maximum amount permitted by the plan as stated above.
Until January 1, 1992, under the plan of distribution then in effect for
the Equity, Income and Flex Portfolios, and subject to the plan's then-existing
limit on quarterly expenditures (i.e., 0.3125% of average daily net assets), a
commission equal to 4% of the total price paid to each Portfolio for each sale
of Portfolio shares effected through the Distributor (other than the Cash
Management Portfolio) was paid by the Distributor to other broker-dealers making
such sales. Thus, the Distributor from time to time, particularly in the early
years of the Portfolios' operations, incurred marketing expenses for which it
may be reimbursed from 12b-1 plan payments, but for which the Distributor has
not been reimbursed to date ("unreimbursed distribution expenses"). Such
unreimbursed distribution expenses have been paid to the Distributor by means of
contingent deferred sales charges paid upon redemption of shares purchased prior
to January 1, 1992, and from the amounts generated from each Portfolio's plan of
distribution which were not applied to the payment of current distribution fees
or other current distribution expenses. Payments from the prior contingent
deferred sales charge have been discontinued. Redemptions of shares purchased on
or after May 1, 1995 are subject to a 1% contingent deferred sales charge on
redemptions made within one year of purchase, which is paid to the Distributor
to defray its expenses related to providing distribution-related services to the
Fund.
DISTRIBUTIONS AND TAX INFORMATION
Distributions
It is the intention of the Equity, Income, Flex, MultiFlex, ^ Real Estate
and International Value Portfolios to distribute to its respective shareholders
all of the applicable Portfolio's net investment income and net realized capital
gains, if any. The Equity, Flex, MultiFlex, and Real Estate Portfolios will make
periodic distributions of its net investment income (including any net
short-term capital gain) during the months of March, June, September and
December and will make an annual distribution of realized net capital gain
during the month of December. The International Value Portfolio will make
semiannual distributions of net investment income (including any net short-term
capital gain) during the months of June and December and will make an annual
<PAGE>
distribution of realized net capital gain during the month of December. ^ The
Income Portfolio will make monthly distributions of its net investment income
(including any net short-term capital gain), and will make an annual
distribution of its realized net capital gain during the month of December. The
net income of the Cash Management Portfolio is declared daily and its dividends
will be distributed monthly. Net realized capital gains, if any, will be
distributed during the month of December. All such distributions will be
reinvested automatically in additional shares (or fractions thereof) of each
applicable Portfolio pursuant to each Portfolio's Automatic Dividend
Reinvestment Plan unless a shareholder has elected not to participate in this
plan or has elected to terminate his participation in the plan and to receive
his distributions in excess of ten dollars in cash. Shareholders of the Cash
Management Portfolio who redeem all of their shares at any time during the month
will be paid all dividends accrued through the date of redemption. Shareholders
of the Cash Management Portfolio who redeem less than all of their shares will
be paid the proceeds of the redemption in cash, and dividends with respect to
the redeemed shares will be reinvested in additional shares (unless the
shareholder has elected not to participate in the Portfolio's Automatic Dividend
Reinvestment Plan or has elected to terminate his participation in such plan).
(See "Automatic Dividend Reinvestment Plan" in the Prospectus.)
Federal Taxes
Each Portfolio of the Fund intends to be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Accordingly, a Portfolio generally must, among other things, (a) derive
in each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, and gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) derive in each taxable year less than 30% of its gross income
from the sale or other disposition of certain assets held less than three
months, namely: (i) stock or securities; (ii) options, futures, or forward
contracts (other than those on foreign currencies); or (iii) foreign currencies
(or options, futures, or forward contracts on foreign currencies) that are not
directly related to the Portfolio's principal business of investing in stock or
securities (or options and futures with respect to stock or securities) (the
"30% Limitation"); and (c) diversify its holdings so that, at the end of each
fiscal quarter, (i) at least 50% of the market value of the Portfolio's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Portfolio's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities and the securities of other regulated investment
companies).
<PAGE>
As a regulated investment company, a Portfolio generally will not be
subject to U.S. federal income tax on income and gains that it distributes to
shareholders, if at least 90% of each Portfolio's investment company taxable
income (which includes, among other items, dividends, interest and the excess of
any short-term capital gains over long-term capital losses) for the taxable year
is distributed. The Portfolios intend to distribute substantially all of such
income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Portfolio level. To avoid the tax, each Portfolio must distribute during
each calendar year, (1) at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (2) at least 98% of
its capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for a one-year period generally ending on October 31 of the calendar
year, and (3) all ordinary income and capital gains for previous years that were
not distributed during such years. To avoid application of the excise tax, each
Portfolio intends to make distributions in accordance with the calendar year
distribution requirements. A distribution will be treated as paid on December 31
of the current calendar year if it is declared by the Portfolio in October,
November or December of the year with a record date in such a month and paid by
the Portfolio during January of the following year. Such distributions will be
taxable to shareholders in the calendar year the distributions are declared,
rather than the calendar year in which the distributions are received.
Options, Futures and Foreign Currency Forward Contracts
Some of the options, futures and foreign currency forward contracts in
which a Portfolio may invest may be "section 1256 contracts." Gains (or losses)
on these contracts generally are considered to be 60% long-term and 40%
short-term capital gains or losses; however foreign currency gains or losses
arising from certain section 1256 contracts are ordinary in character. Also,
section 1256 contracts held by a Portfolio at the end of each taxable year (and
on certain other dates prescribed in the Code) are "marked to market" with the
result that unrealized gains or losses are treated as though they were realized.
The transactions in options, futures and forward contracts undertaken by a
Portfolio may result in "straddles" for federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by a
Portfolio. In addition, losses realized by a Portfolio on positions that are
part of a straddle may be deferred under the straddle rules, rather than being
taken into account in calculating the taxable income for the taxable year in
which such losses are realized. Because only a few regulations implementing the
straddle rules have been promulgated, the consequences of such transactions to a
Portfolio are not entirely clear. The straddle rules may increase the amount of
short-term capital gain realized by a Portfolio, which is taxed as ordinary
income when distributed to shareholders.
<PAGE>
A Portfolio may make one or more of the elections available under the Code
which are applicable to straddles. If a Portfolio makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
The 30% Limitation and the diversification requirements applicable to each
Portfolio's assets may limit the extent to which a Portfolio will be able to
engage in transactions in options, futures and forward contracts.
Swap Agreements
The MultiFlex and International Value Portfolios may enter into swap
agreements. The rules governing the tax aspects of swap agreements are in a
developing stage and are not entirely clear in certain respects. Accordingly,
while a Portfolio intends to account for such transactions in a manner deemed to
be appropriate, the Internal Revenue Service might not accept such treatment. If
it did not, the status of the Fund as a regulated investment company might be
affected. The Fund intends to monitor developments in this area. Certain
requirements that must be met under the Code in order for the Fund to qualify as
a regulated investment company may limit the extent to which the Portfolio will
be able to engage in swap agreements.
Currency Fluctuations -- "Section 988" Gains or Losses
Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Portfolio accrues income or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Portfolio actually collects such receivables or pays such liabilities generally
are treated as ordinary income or ordinary loss. Similarly, on disposition of
some investments, including debt securities denominated in a foreign currency
and certain forward contracts, gains or losses attributable to fluctuations in
the value of the foreign currency between the date of acquisition of the
security and the date of disposition also are treated as ordinary gain or loss.
These gains and losses, referred to under the Code as "section 988" gains or
losses, increase or decrease the amount of a Portfolio's investment company
taxable income available to be distributed to its shareholders as ordinary
income. If section 988 losses exceed other investment company taxable income
during a taxable year, the
<PAGE>
Portfolio would not be able to make any ordinary dividend distributions, or
distributions made before the losses were realized would be recharacterized as a
return of capital to shareholders, rather than as an ordinary dividend, reducing
each shareholder's basis in his or her Portfolio shares.
Investment in Passive Foreign Investment Companies
A Portfolio may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a Portfolio receives a so-called "excess
distribution" with respect to PFIC stock, the Portfolio itself may be subject to
a tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Portfolio to shareholders. In general, under the
PFIC rules, an excess distribution is treated as having been realized ratably
over the period during which the Portfolio held the PFIC shares. The Portfolio
itself will be subject to tax on the portion, if any, of an excess distribution
that is so allocated to prior Portfolio taxable years and an interest factor
will be added to the tax, as if the tax had been payable in such prior taxable
years. Certain distributions from a PFIC as well as gain from the sale of PFIC
shares are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.
A Portfolio may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Portfolio generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election may be
available that would involve marking to market the Portfolio's PFIC shares at
the end of each taxable year (and on certain other dates prescribed in the
Code), with the result that unrealized gains are treated as though they were
realized. If this election were made, tax at the Portfolio level under the PFIC
rules would generally be eliminated, but the Portfolio could, in limited
circumstances, incur nondeductible interest charges. A Portfolio's intention to
qualify annually as a regulated investment company may limit its elections with
respect to PFIC shares.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject a
Portfolio itself to tax on certain income from PFIC shares, the amount that must
be distributed to shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not invest in PFIC shares.
<PAGE>
Debt Securities Acquired at a Discount
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Portfolio may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Portfolio in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. A Portfolio may make one
or more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by a Portfolio may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, a Portfolio will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. A Portfolio may make one or more of the elections applicable
to debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
A Portfolio generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Portfolio. Cash to pay such dividends may be obtained from
sales proceeds of securities held by the Portfolio or by borrowing.
Distributions
With respect to tax-exempt shareholders, distributions from the Portfolios
will not be subject to federal income taxation to the extent permitted under the
applicable tax-exemption. With respect to shareholders that are not exempt from
federal taxation, distributions of investment company taxable income are taxable
to a U.S. shareholder as ordinary income, whether paid in cash or shares.
Dividends paid by a Portfolio to a corporate shareholder, to the extent such
<PAGE>
dividends are attributable to dividends received from U.S. corporations, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by a Portfolio as capital gain dividends, are taxable as long-term capital
gains, whether paid in cash or in shares, regardless of how long the shareholder
has held the Portfolio's shares and are not eligible for the dividends received
deduction. Shareholders will be notified annually as to the U.S. federal tax
status of distributions.
If the net asset value of shares is reduced below a shareholder's cost as
a result of a distribution by a Portfolio, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of a Portfolio just
prior to a distribution. The price of shares purchased at this time may reflect
the amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
Disposition of Shares
With respect to tax-exempt shareholders, a redemption, sale or exchange of
shares of a Portfolio will not be subject to federal income taxation to the
extent permitted under the applicable tax-exemption. Upon a redemption, sale or
exchange of his or her shares of a Portfolio, a shareholder that is not exempt
from federal income taxation will realize a taxable gain or loss depending upon
his or her basis in the shares. However, it is not expected that dispositions of
Cash Management Portfolio shares will give rise to a gain or loss, if that
Portfolio maintains a net asset value per share of one dollar. A gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and generally will be long-term or short-term, depending
upon the shareholder's holding period for the shares. Any loss realized on a
redemption, sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including through reinvestment of dividends) within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on
the sale of a Portfolio's shares held by the shareholder for six months or less
will be treated for tax purposes as a long-term capital loss to the extent of
any distributions of capital gain dividends received or treated as having been
received by the shareholder with respect to such shares.
Backup Withholding
Each Portfolio will be required to report to the Internal Revenue Service
(the "IRS") all distributions and, with the exception of the Cash Management
Portfolio, will also be required to report gross proceeds from the redemption of
the Portfolio's shares, except in the case of certain exempt shareholders. All
distributions and proceeds from the redemption of Portfolio shares
<PAGE>
(with the exception of Cash Management Portfolio shares) will be subject to
withholding of federal income tax at a rate of 31% ("backup withholding") in the
case of non-exempt shareholders if (1) the shareholder fails to furnish the
Portfolio with and to certify the shareholder's correct taxpayer identification
number or social security number, (2) the IRS notifies the shareholder or the
Portfolio that the shareholder has failed to report properly certain interest
and dividend income to the IRS and to respond to notices to that effect, or (3)
when required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding. If the withholding provisions are applicable, any
such distributions or proceeds, whether reinvested in additional shares or taken
in cash, will be reduced by the amounts required to be withheld.
Other Taxation
Distributions may also be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Portfolios or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Portfolio.
SERVICES PROVIDED BY THE FUND
Systematic Withdrawal Plan
As described in the Prospectus, the Fund offers a Systematic Withdrawal
Plan. All dividends and distributions on shares owned by shareholders
participating in this Plan are reinvested in additional shares. Since withdrawal
payments represent the proceeds from sales of shares, the amount of
shareholders' investments in a Portfolio 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 25th day of each month preceding payment and payments will be mailed
within five business days thereafter.
The Systematic Withdrawal Plan involves the use of principal and is not a
guaranteed annuity. Payments under such Plan do not represent income or a return
on investment.
A Systematic Withdrawal Plan may be terminated at any time by directing a
written request to the Transfer Agent. Upon termination, all future dividends
and capital gain distributions will be reinvested in additional shares unless a
shareholder requests otherwise.
<PAGE>
Exchange Privilege
As discussed in the Prospectus, the Fund offers shareholders the privilege
of exchanging shares of their respective Portfolio for shares of the other
Portfolios. Any gain or loss realized on an exchange is recognized for federal
income tax purposes. This privilege is not an option or right to purchase
securities, but is a revocable privilege permitted under the present policies of
each of the Portfolios and is not available in any state or other jurisdiction
where the shares 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 Prospectus.
The exchange of shares of one of these Portfolios for shares of another
Portfolio is treated for federal income tax purposes as a sale of the shares
given in exchange and an investor (other than a tax-exempt investor) may,
therefore, realize a taxable gain or loss. The Portfolios reserve the right,
upon 60 days' notice to shareholders, to impose reasonable fees and restrictions
with respect to the exchange privilege and to modify or terminate the exchange
privilege. Except for those limited instances where redemptions of the exchanged
security are suspended under Section 22(e) of the 1940 Act, or where sales of
the Portfolio into which the shareholder is exchanging are temporarily
suspended, notice of all such modifications or termination of the exchange
privilege will be given at least 60 days prior to the date of termination or the
effective date of the modification.
Automatic Dividend Reinvestment Plan
For convenience of the shareholders and to permit shareholders to increase
their shareholdings in the Portfolios in which they have invested, each
Portfolio maintains an Automatic Dividend Reinvestment Plan. For a discussion of
this plan, see "Automatic Dividend Reinvestment Plan" in the Prospectus.
Automatic Monthly Exchange
For convenience of the shareholders, each Portfolio maintains an automatic
monthly exchange program. For a discussion of this plan, see "Automatic Monthly
Exchange" in the Prospectus.
BankDraft
As discussed in the Prospectus, the Portfolios offer shareholders who wish
to maintain a schedule of monthly investments the option of drawing a
preauthorized amount from the shareholder's bank account to purchase shares. See
"BankDraft" in the Prospectus for additional information on this program.
<PAGE>
BROKERAGE AND PORTFOLIO TRANSACTIONS
The Adviser or sub-advisers will arrange for the placement of orders and
the execution of portfolio transactions for each of the Portfolios. Various
brokerage firms may be used to carry out portfolio transactions. The Adviser and
sub-advisers have agreed, in selecting brokers and dealers to be used in
portfolio transactions, to give primary consideration to the broker's or
dealer's ability to provide the best execution of the transaction at prices most
favorable to the Portfolios. When such transactions involve listed securities,
the Adviser and sub-advisers take into consideration the advisability of
effecting the transaction with a broker or dealer which is not a member of the
securities exchange on which the security is listed, i.e., a third market
transaction, or effecting the transaction in the institutional or fourth market.
In over-the-counter market transactions, the Adviser and sub-advisers attempt to
deal with the primary market maker and thereby avoid payment of a brokerage
commission. However, in situations where in the Adviser's or sub-advisers'
judgment execution through some other broker is likely to result in a savings or
other advantage to the Portfolio, such broker will be used.
With respect to fixed and variable income securities, such portfolio
securities generally will be purchased or sold to parties acting as either
principal or agent. Newly issued securities normally will be purchased directly
from the issuer or from an underwriter acting as principal. Other purchases will
be placed with those dealers whom the Adviser or sub-advisers believe will
provide the best execution of the transaction at prices most favorable to the
applicable Portfolio. Usually, no brokerage commissions (as such) are paid by
the Portfolio for such transactions, although the price paid usually includes an
undisclosed compensation to the dealer. The prices paid to the underwriters of
newly-issued securities normally include a concession paid by the issuer to the
underwriter. Purchases of after-market securities from dealers normally are
executed at a price between bid and asked prices.
Subject to the primary consideration of best execution at prices most
favorable to the applicable Portfolio, the Adviser or sub-advisers may, in the
allocation of such investment transaction business, consider the general
research and investment information and other services provided by the brokers
and dealers, although they have adopted no formula for such allocation. These
research and investment information services make available to the Adviser and
sub-advisers the views and information of individuals and research staffs of
many securities firms for the Adviser's or sub-advisers' analysis and
consideration. Although such information may be a useful supplement to the
Adviser's and sub-advisers' own investment information, the value of such
research and services is not expected to reduce materially the expenses of the
Adviser or sub-advisers in the performance of its services under the Agreements
and will not reduce the advisory fee payable to the Adviser by the Portfolios.
In recognition of the value of the above-described brokerage and research
<PAGE>
services provided by certain brokers, the Portfolios' Adviser or sub- advisers,
consistent with the standard of seeking to obtain the best execution on
portfolio transactions, may place orders with such brokers for the execution of
transactions for the Portfolios on which the commissions or discounts are in
excess of those which other brokers might have charged for effecting the same
transactions.
The Adviser and sub-advisers may also follow a policy of considering sales
of shares of the Portfolios as a factor in the selection of broker-dealers to
execute portfolio transactions, subject to the primary consideration of best
execution discussed above.
On occasions when the Adviser or sub-advisers deem the purchase or sale of
a security to be in the best interest of a Portfolio as well as other customers,
the Adviser or sub-advisers, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so purchased or sold for such
parties in order to obtain best execution and lower brokerage commissions. In
such event, allocation of the shares so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Adviser or
sub-advisers in the manner it considers to be most equitable and consistent with
its fiduciary obligations to all such customers, including the applicable
Portfolio. In some cases the aggregation of securities to be sold or purchased
could have a detrimental effect on the price of the security insofar as a
Portfolio is concerned. However, in other cases, the ability of a Portfolio to
participate in volume transactions will be beneficial to the Portfolio.
For the fiscal years ended December 31, 1995, 1994, and 1993 ^, the Equity
Portfolio paid total brokerage commissions of $86,189, $64,780, and $129,353 ^,
respectively. For the fiscal year ended December 31, ^ 1995, the Equity
Portfolio paid ^ $0 to brokers providing research services for this Portfolio.
For the fiscal years ended December 31, 1995, 1994^ and 1993 ^, the Flex
Portfolio paid total brokerage commissions of $116,550, $96,813, and $155,513, ^
respectively. For the fiscal year ended December 31, ^ 1995, the Flex Portfolio
paid ^ $0 to brokers providing research services for this Portfolio. For the
fiscal years ended December 31, 1995, 1994 and 1993, the MultiFlex Portfolio
paid total brokerage commissions of $247,023, $269,827 and $10,450. For the
fiscal year ended December 31, ^ 1995, the MultiFlex Portfolio paid ^ $83,028 to
brokers providing research services for this Portfolio. ^ For the period ended
December 31, 1995, the Real Estate and International Value Portfolios paid total
brokerage commissions of $15,119 and $5,884, respectively, and the Real Estate
Portfolio paid $381 to brokers for research services. The Real Estate and
International Value Portfolios commenced operations on May 1, 1995. There were
no brokerage commissions paid to affiliated broker-dealers during the fiscal
years ended December 31, 1995, 1994, or 1993 ^, by any of the Portfolios.
During the fiscal years ended December 31, 1995, 1994, and 1993, ^ the
Equity Portfolio's portfolio turnover rates were 17%, 21%, ^ and ^ 47%,
<PAGE>
respectively^; the Income Portfolio's portfolio turnover rates were 24%, 59%, ^
and ^ 92%, respectively^; the Flex Portfolio's portfolio turnover rates were ^
5%, 36%, and 27%, respectively; and the MultiFlex Portfolio's portfolio turnover
rates were ^ 50%, 81% and 0.5%, respectively. For the period ended December 31,
1995, the Real Estate and International Value ^ Portfolios' portfolio turnover
rates were 7% and 2%, respectively. The Real Estate and International Value
Portfolios commenced operations on May 1, 1995.
At December 31, ^ 1995, certain of the Portfolios held securities of the
Fund's regular brokers or dealers, or their parents, as follows:
Value of Securities
Portfolio ^ Broker or Dealer ^at December 31,^ 1995
- --------- ------------------ ----------------------
Equity Portfolio ^ Morgan Stanley Group ^ $1,491,563
Flex Portfolio ^ Morgan Stanley Group ^ $4,031,250
MultiFlex Portfolio ^ Bear Stearns Co., Inc. $800,023
Dean Witter Discover ^ & Co.^ $499,307
Morgan Stanley Group $540,187
PERFORMANCE INFORMATION
The ^ Portfolios may from time to time include figures indicating their
yield and total return in advertisements or reports to shareholders or
prospective investors. Following is information on how those figures are
computed.
Yield
(a) Cash Management Portfolio
The Cash Management Portfolio may advertise its "yield" and "effective
yield." Both figures are based on historical earnings and are not intended to
indicate future performance.
The "yield" of the Cash Management Portfolio is the income on a single
share of the Portfolio over a seven-day base period (which period will be stated
in the advertisement), which income is then "annualized." That is, the income
generated in the seven-day base period is assumed to be generated each week over
a 52-week period and is shown as a percentage of the investment. The yield does
not reflect capital changes but does reflect a deduction for expenses. More
technically, the change (exclusive of capital changes) in the value of a single
share for a specified seven-day period, less prorated expenses for that period,
is stated as a percentage of the share value at the beginning of that period
("base period return"). This figure is then annualized by multiplying it by
365/7 and carrying the result to at least the nearest hundredth of one percent.
"Effective yield" is calculated similarly but, when annualized, the income
earned on a share is assumed to be reinvested. The effective yield on a share is
<PAGE>
thus higher than the yield because it reflects the compounding of reinvested
income. More technically, effective yield is calculated as follows, using the
same base period return figure that is used in the yield calculation:
Effective yield = [(base period return + 1) 365/7] - 1
Based on the seven-day period ended December 31, 1995, the yield for the
Cash Management Portfolio was 4.60%, and the effective yield was 4.76%. Average
portfolio maturity for that period was 19 days.
(b) Portfolios other than Cash Management Portfolio
Portfolios other than Cash Management may advertise "yield," "dividend
yield" and "distribution yield." Quotations of yield for these Portfolios will
be based on all investment income per share earned during a particular 30-day
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share (which includes the maximum sales
charge) on the last day of the period, according to the following formula:
<PAGE>
Yield = 2[(a-b + 1)6 -1]
cd
where a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements or
waivers),
c = the average daily number of shares outstanding during
period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of
the period.
For the 30-day period ended December 31, 1995, the Portfolios' yields
were:
Income Portfolio 2.92%
Real Estate Portfolio 1.64%
Dividend yield is a measure of investment return during a specified period
based on dividends actually paid by a Portfolio during that period. Dividend
yield is calculated by totalling the dividends paid by a Portfolio from its net
investment income during the specified period and dividing that sum by the net
asset value per share of the Portfolio on the last day of the period.
Distribution yield is computed in the same way, but includes distributions paid
from capital gains realized by the Portfolio, as well as dividends from its net
investment income. Where the dividend or distribution yield is calculated for a
period of less than a year, results may be annualized by using the following
calculation method:
Total dividends/distributions paid by the Portfolio during the specified
period are divided by the net asset value of a Portfolio share on the last
day of the specified period. This result is divided by the number of days
in the specified period and the result is multiplied by 365.
The dividend yields for each of the Portfolios (other than Cash Management
Portfolio) for the 30-day period ended December 31, 1995 were as follows:
Income Portfolio 4.71%
Real Estate Portfolio 2.14%*
The distribution yields for each of the Portfolios (other than Cash
Management Portfolio) for the 30-day period ended December 31, 1995 were as
follows:
Income Portfolio 4.71%
Real Estate Portfolio 2.14%*
*Annualized
<PAGE>
Total Return
Portfolios other than Cash Management Portfolio may advertise their
"average annual total return" and their "total return." Average annual total
return and total return figures represent the increase (or decrease) in the
value of an investment in the Fund over a specified period. Both calculations
assume that all income dividends and capital gains distributions during the
period are reinvested at net asset value in additional shares of the respective
Portfolio.
Quotations of the average annual total return reflect the deduction of a
proportional share of Portfolio expenses on an annual basis. The results which
are annualized, represent an average annual compound rate of return on a
hypothetical investment in the Portfolio over a period of 1, 5 and 10 years
ending on the most recent calendar quarter calculated pursuant to the following
formula:
P(1 + T)n = ERV
where P = a hypothetical initial payment of $1,000
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period.
The average annual total return as of December 31, 1995 for each of the
Portfolios for the periods listed below were as follows:
Since
Portfolio 1 Year 5 Years 10 Years Inception
- --------- ------ ------- -------- ---------
Equity 30.28% 15.39% 12.19% 13.53%
Income 21.12% 8.51% 7.67% 8.92%
Flex 27.30% 13.73% 0.00% 11.05%*
MultiFlex 21.58% 0.00% 0.00% 9.54%**
Real Estate 9.12% 0.00% 0.00% 9.12%***
International Value 11.28% 0.00% 0.00% 11.28%***
- -----------------------
* From 02-24-88 (commencement of operations) ^(7.85 years).
** From 11-17-93 (commencement of operations) ^(2.13 years).
*** From ^ 05-01-95 (commencement of operations) ^(0.67 years).
<PAGE>
^One ^Five ^Ten
Year Years Years
---- ----- -----
Equity Portfolio
Based on the average annual
compound rates of return
listed above over these
periods, you could have expected
the following redeemable values
on a $1,000 investment assuming
redemption at the end of each time
period (December 31, 1995) $1,293 $2,046 $3,159 ^
You could have expected the following
values assuming no redemption at the
end of each time period
(December 31, 1995) $1,303 $2,046 $3,159 ^
One ^Five ^Ten
Year Years Years
---- ----- -----
Income Portfolio
Based on the average annual
compound rates of return
listed above over these
periods, you could have expected
the following redeemable values
on a $1,000 investment assuming
redemption at the end of each time
period (December 31, 1995) $1,201 $1,504 $2,094 ^
You could have expected the following
values assuming no redemption at the
end of each time period
(December 31, 1995) $1,211 $1,504 $2,094 ^
One Five
Year ^ Years
---- -------
Flex Portfolio
Based on the average annual
compound rates of return
listed above over these
periods, you could have expected
the following redeemable values
on a ^ $1,000 investment assuming
redemption at the end of each time
period ^(December 31, 1995) $1,263 $1,903 ^
You could have expected the following
^ values assuming no redemption at the
end of each time period
(December 31, ^ 1995) $1,273 $1,903
<PAGE>
^ Quotations of total return, which are not annualized, represent
historical earnings and asset value fluctuations. Total return is based on past
performance and is not a guarantee of future results. The following table
provides the actual total rates of return for each of the Portfolios (other than
the Cash Management Portfolio ^) for the fiscal years ended December 31, ^ 1995,
1994, 1993 and 1992. These rates of return are net of all expenses and assume
all dividends and distributions by the Portfolios have been reinvested on the
reinvestment dates during each period.
^ Real Internation-
Equity Income Flex MultiFlex Estate al Value
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- --------- ---------
1995 30.28% 21.12% 27.30% 21.58% 9.12%** 11.28%**
1994 2.69% -1.80% 0.64% -1.02% 0.00% 0.00%
1993 9.16% 7.39% 10.48% 0.46%* 0.00% 0.00%
1992 4.84% 4.74% 7.72% 0.00% 0.00% 0.00%
* Since November 17, 1993 (commencement of operations).
** Since May 1, 1995 (commencement of operations).
Performance information for a Portfolio reflects only the performance of a
hypothetical investment in that Portfolio during the particular time period on
which the calculations are based. Performance information should be considered
in light of the Portfolio's investment objectives and policies, the types of
quality of the Portfolio's portfolio investments, market conditions during the
particular time period and operating expenses. Such information should not be
considered as a representation of a Portfolio's future performance.
MISCELLANEOUS
Principal Shareholders
As of ^ April 1, 1996, the following entities owned of record or
beneficially 5% or more of the shares of a Portfolio:
Name and Address of Number Percent
Beneficial Owner ^ Portfolio ^of Shares ^of Class
- ------------------- ----------- ---------- ---------
Merrill Lynch Pierce Equity 274,091 16.77%
Fenner & Smith Income 54,903 9.18%
Trade Account Flex 791,046 11.85%
4800 Deer Lake Drive MultiFlex 375,412 9.23%
Jacksonville, FL 32216 Real ^ Estate ^ 10,400 5.24%
^ International 226,320 45.62%*
^ Value
<PAGE>
Southtrust Estate & Cash Management 7,496,576 39.05*
Trust Company of
Georgia, Trustee for
INVESCO ^ Capital
Management, Inc.
Profit Sharing Money
Purchase Pension ^ Plan
^ 79 West Paces Ferry Road NW
Atlanta, GA ^ 30305
^*Beneficial Owner may be deemed to control the ^ Portfolio by virtue of its
ownership ^ percentage of the outstanding securities of that Portfolio^.
As of ^ April 1, 1996, the officers and Directors of the Fund, as a group,
owned less than 1% of the outstanding shares of the Portfolios.
Net Asset Value
The net asset value per share of the Portfolios will not be calculated on
days that the New York Stock Exchange is closed. These days presently include
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day
and Christmas Day.
The Custodian
United Missouri Bank, 928 Grand Avenue, Kansas City, Missouri, is
custodian of the portfolio securities and cash of the Portfolios and maintains
certain records on behalf of the Portfolios. Subject to the prior approval of
the Board of Directors, the custodian may, in the future, use the services of
subcustodians as to one or more of the Portfolios.
Independent Accountants
Price Waterhouse LLP, 950 Seventeenth Street, Denver, Colorado serves as
the independent accountants for each of the Portfolios, providing services
including audit of the annual financial statements, and preparation of tax
returns filed on behalf of the Portfolios.
Financial Statements
The Fund's audited financial statements^ and the notes thereto for the
fiscal year ended December 31, ^ 1995 and the report of Price Waterhouse LLP^
with respect to such financial statements are incorporated herein by reference
from the Fund's Annual Report to Shareholders for the fiscal year ended December
31, 1995.
<PAGE>
APPENDIX A
Some of the terms used in the Fund's Prospectus and this Statement of
Additional Information are described below.
The term "money market" refers to the marketplace composed of the
financial institutions which handle the purchase and sale of liquid, short-term,
high-grade debt instruments. The money market is not a single entity, but
consists of numerous separate markets, each of which deals in a different type
of short-term debt instrument. These include U.S. Government obligations,
commercial paper, certificates of deposit and bankers' acceptances, which are
generally referred to as money market instruments.
U.S. Government obligations are debt securities (including bills, notes
and bonds) issued by the U.S. Treasury or issued by an agency or instrumentality
of the U.S. Government which is established under the authority of an Act of
Congress. Such agencies or instrumentalities include, but are not limited to,
the Federal National Mortgage Association, Government National Mortgage
Association, the Federal Farm Credit Bank, and the Federal Home Loan Bank.
Although all obligations of agencies, authorities and instrumentalities are not
direct obligations of the U.S. Treasury, payment of the interest and principal
on these obligations is generally backed directly or indirectly by the U.S.
Government. This support can range from the backing of the full faith and credit
of the United States to U.S. Treasury guarantees, or to the backing solely of
the issuing instrumentality itself. In the case of securities not backed by the
full faith and credit of the United States, the investor must look principally
to the agency issuing or guaranteeing the obligation for ultimate repayment, and
may not be able to assert a claim against the United States itself in the event
the agency or instrumentality does not meet its commitments.
Bank obligations include certificates of deposit which are negotiable
certificates evidencing the indebtedness of a commercial bank to repay funds
deposited with it for a definite period of time (usually from 14 days to one
year) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft which has been drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face amount
of the instrument upon maturity.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
Commercial paper consists of short-term (usually one to 180 days)
unsecured promissory notes issued by corporations in order to finance their
current operations.
Corporate debt obligations are bonds and notes issued by corporations and
other business organizations, including business trusts, in order to finance
their long-term credit needs.
<PAGE>
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return.
Mortgage-backed securities are interests in a pool of mortgage loans. Most
mortgage securities are pass-through securities, which means that they provide
investors with payments consisting of both principal and interest as mortgages
in the underlying mortgage pool are paid off by the borrowers. The dominant
issuers or guarantors of mortgage securities are the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
Collateralized mortgage obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed and mortgage pass-through securities.
Similar to a bond, interest and pre-paid principal on a CMO are paid, in most
cases, semi-annually. CMOs may be collateralized by whole mortgage loans but are
more typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured into multiple classes,
with each class bearing a different stated maturity. Monthly payments of
principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes receive
principal only after the first class has been retired.
Municipal bonds are debt obligations which generally have a maturity at
the time of issue in excess of one year and are issued to obtain funds for
various public purposes. The two principal classifications of municipal bonds
are "general obligation" and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities, or, in some
cases, from the proceeds of a special excise or specific revenue source.
Industrial development bonds or private activity bonds are issued by or on
behalf of public authorities to obtain funds for privately operated facilities
and are, in most cases, revenue bonds which do not generally carry the pledge of
the full faith and credit of the issuer of such bonds, but depend for payment on
the ability of the industrial user to meet its obligations (or any property
pledged as security).
Zero coupon bonds are debt obligations issued without any requirement for
the periodic payment of interest. Zero coupon bonds are issued at a significant
discount from face value. The discount approximates the total amount of interest
the bonds would accrue and compound over the period until maturity at a rate of
interest reflecting the market rate at the time of issuance. A Portfolio, if it
holds zero coupon bonds in its portfolio, however, would recognize income
currently for Federal tax purposes in the amount of the unpaid, accrued interest
(determined under tax rules) and generally would be required to distribute
dividends representing such income to shareholders currently, even though funds
representing such income would not have been received by the
<PAGE>
Portfolio. Cash to pay dividends representing unpaid, accrued interest may be
obtained from sales proceeds of portfolio securities and Portfolio shares and
from loan proceeds. Because interest on zero coupon obligations is not paid to
the Portfolio on a current basis but is in effect compounded, the value of the
securities of this type is subject to greater fluctuations in response to
changing interest rates than the value of debt obligations which distribute
income regularly.
Ratings of Corporate Debt Obligations Except as to the Cash Management
Portfolio, Portfolio purchases of taxable obligations are not limited to those
obligations rated within the four highest categories by Moody's and S&P.
However, the Flex Portfolio's and Income Portfolio's standards for investment
grade obligations are generally similar to those standards included in the four
highest categories by Moody's and S&P. The Cash Management Portfolio will limit
its investments to those obligations within the two highest categories. The
Relative Return Bond Portfolio may invest up to 10% of Portfolio assets in
corporate bonds rated below Baa by Moody's or below BBB by S&P but rated at
least Ba by Moody's or BB by S&P. The MultiFlex Portfolio may invest up to 5% of
Portfolio assets in corporate bonds rated below Baa by Moody's or below BBB by
S&P, but rated at least Ba by Moody's or BB by S&P.
The characteristics of corporate debt obligations rated by Moody's are
generally as follows:
Aaa -- Bonds which are 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 edge." 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 which are 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 risks appear somewhat larger than in Aaa securities.
A -- Bonds which are 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 which are 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
<PAGE>
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements.
The future of such bonds cannot be considered as well assured.
B -- Bonds which are rated B generally lack characteristics of a desirable
investment.
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.
Ca -- Bonds rated Ca are speculative to a high degree.
C -- Bonds rated C are the lowest rated class of bonds and are regarded as
having extremely poor prospects.
The characteristics of corporate debt obligations rated by S&P are
generally as follows:
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 -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB -- Debt rated BB is predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with terms of the obligation.
BB indicates the lowest degree of speculation; CC indicates the highest degree
of speculation.
BB,B,CCC,CC -- Debt in these ratings is predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with terms
of the obligation. BB indicates the lowest degree of speculation and CC the
highest.
A bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
<PAGE>
The ratings are based on current information furnished by the issuer or
obtained by the rating services from other sources which they consider reliable.
The ratings may be changed, suspended or withdrawn as a result of changes in or
unavailability of, such information, or for other reasons.
Ratings of Commercial Paper. Cash Management Portfolio purchases are
limited to those instruments rated A-1 by S&P and Prime 1 by Moody's.
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: liquidity ratios are adequate to meet cash requirements; the
issuer's long-term debt is rated "A" or better; the issuer has access to at
least two additional channels of borrowing; and basic earnings and cash flow
have an upward trend with allowances made for unusual circumstances. Typically,
the issuer's industry is well established and the issuer has a strong position
within the industry.
Commercial paper rated Prime 1 by Moody's is the highest commercial paper
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and consumer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative strength or
weakness of the above factors determine how the issuer's commercial paper is
rated within various categories.
Determination of Credit Quality of Unrated Securities. In determining
whether an unrated debt security is of comparable quality to a rated security,
the sub-adviser may consider the following factors, among others:
(1) other securities of the issuer that are rated;
(2) the issuer's liquidity, debt structure, repayment
schedules, and external credit support facilities;
(3) the reliability and quality of the issuer's management;
(4) the length to maturity of the security and the percentage
of the portfolio represented by securities of that
issuer;
(5) the issuer's earnings and cash flow trends;
<PAGE>
(6) the issuer's industry, the issuer's position in its
industry, and an appraisal of speculative risks which may
be inherent in the industry;
(7) the financial strength of the issuer's parent and its
relationship with the issuer;
(8) the extent and reliability of credit support, including a letter of
credit or third party guarantee applicable to payment of principal
and interest;
(9) the issuer's ability to repay its debt from cash sources or asset
liquidation in the event that the issuer's backup credit facilities
are unavailable;
(10) other factors deemed relevant by the subadviser.
<PAGE>
^ Part C
Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
1. Financial statements and schedules included in
Prospectus (Part A):
<TABLE>
<CAPTION>
<S> <C>
Financial information ^ for the last 10 years or since 15-26
inception, as applicable, for Equity, Income ^, Flex, Cash
Management, MultiFlex, Real Estate and International Value
Portfolios ^ through the period ended December 31, ^ 1995.
</TABLE>
2. Financial statements and schedules included in
Statement of Additional Information (Part B):
^ The following audited financial statements of the Fund and
the notes thereto for the fiscal year ended December 31, 1995
and the report of Price Waterhouse LLP with respect to such
financial statements are incorporated in the Statement of
Additional Information by reference from the Fund's Annual
Report to Shareholders ^ for the fiscal year ended December
31, 1995: Statement of Investment Securities as of December
31, 1995; Statement of Assets and Liabilities as of December
31, 1995; Statement of Operations for the fiscal period ended
December 31, 1995; ^ Statement of Changes in Net Assets for
each of the two years ended December 31, ^ 1995 and December
31, 1994; as applicable; ^ Financial ^ Highlights for the
periods set forth above.
3. Financial statements and schedules included in Part
C:
^ None: Schedules have been omitted as all
information has been presented in the financial
statements.
(b) Exhibits:
1. (a) Amended and Restated Articles of
Incorporation ^ dated March 7, 1995,
previously filed with Post-Effective
Amendment No. 24 to the Registrant's
Registration Statement on May 1, 1995, and
herein incorporated by reference.
(b) Articles of Amendment to the Articles of
Incorporation.*
<PAGE>
2. (a) By-Laws of Registrant, as amended^,
previously filed with Post-Effective
Amendment No. 24 to the Registrant's
Registration Statement on May 1, 1995, and
herein incorporated by reference.
3. ^ Not applicable.
4. Not applicable.
5. (a) Form of Investment Advisory Agreement between
Registrant and INVESCO Services, Inc. ^ dated
as of July 1, 1993, previously filed with
Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on April
30, 1993 and herein incorporated by
reference. Form of Investment ^ Advisory
Agreement between ^ Registrant and INVESCO
Services, Inc. dated as of July 1, 1993, as
amended November 1, 1993, previously filed
with Post-Effective Amendment No. 20 to the
Registrant's Registration Statement on
September 10, 1993 and herein incorporated by
reference. Investment Advisory Agreement
between Registrant and INVESCO Services,
Inc., dated as of July 1, 1993, as amended
November 1, 1993, previously filed with Post-
Effective Amendment No. 21 to the
Registrant's Registration Statement on
November 3, 1993 and herein incorporated by
reference. Investment Advisory Agreement
between Registrant and INVESCO Services, Inc.
dated as of July 1, 1993, as amended April
19, 1995^, previously filed with Post-
Effective Amendment No. 24 to the
Registrant's Registration Statement on May 1,
1995 and herein incorporated by reference.*
Investment Advisory Agreement between
Registrant and INVESCO Services, Inc., dated
as of July 1, 1993, as amended February 16,
1996.*
^(b) Form of Sub-Advisory Agreement between
INVESCO Services, Inc. and INVESCO Capital
Management, Inc. dated as of July 1, 1993,
previously filed with Post-Effective
Amendment No. 19 to the Registrant's
Registration Statement on April 30, 1993 and
herein incorporated by reference. Form of ^
Sub-Advisory Agreement between ^ INVESCO
Services, Inc. and INVESCO Capital
Management, Inc. dated as of July 1, 1993, as
amended November 1, 1993, previously filed
with Post-Effective Amendment No. 20 to the
Registrant's Registration Statement on
September 10, 1993 and herein incorporated by
<PAGE>
reference. Sub-Advisory Agreement between INVESCO
Services, Inc. and INVESCO Capital Management,
Inc., dated as of July 1, 1993, as amended
November 1, 1993, previously filed with
Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on
November 3, 1993 and herein incorporated
by reference. Sub-Advisory Agreement between INVESCO
Services, Inc. and INVESCO Capital Management, Inc.
dated as of July 1, 1993, as amended April 19, 1995,
previously filed with Post-Effective Amendment No.
24 to the Registrant's Registration Statement on
May 1, 1995 and herein incorporated by reference.*
Sub-Advisory Agreement between INVESCO Services, Inc.
and INVESCO Capital Management, Inc., dated as of
July 1, 1993, as amended February 16, 1996.*
(c) Form of Sub-Advisory Agreement between
INVESCO Services, Inc. and INVESCO Management
& Research, Inc. dated as of November 1,
1993, previously filed with Post-Effective
Amendment No. 20 to the Registrant's
Registration Statement on September 10, 1993
and herein incorporated by reference. Sub-
Advisory Agreement between INVESCO Services,
Inc. and INVESCO Management & Research, Inc.,
dated as of November 1, 1993^, previously
filed with Post-Effective Amendment No. 21 to
the Registrant's Registration Statement on
November 3, 1993 and herein incorporated by
reference. Sub-Advisory Agreement between
INVESCO Services, Inc. and INVESCO Management
& Research, Inc. dated as of November 1,
previously filed with Post-Effective
Amendment No. 24 to the Registrant's
Registration Statement on May 1, 1995 and
herein incorporated by reference.* Sub-
Advisory Agreement between INVESCO Services,
Inc. and INVESCO Capital Management, Inc.,
dated as of November 1, 1993, as amended
February 16, 1996.*
^(d) Sub-Advisory Agreement between INVESCO
Services, Inc. and INVESCO Realty Advisors,
Inc. dated as of April 19, 1995 previously
filed with Post-Effective Amendment No. 24 to
the Registrant's Registration Statement on
May 1, 1995 and herein incorporated by
reference.* Sub-Advisory Agreement between
INVESCO Services, Inc. and INVESCO Realty
Advisors, Inc., dated as of April 19, 1995,
as amended February 16, 1996.*
6. (a) Form of Distribution Agreement between ^
Registration and INVESCO Services, Inc.,
dated as of July 1, 1993 previously filed
with Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on April
30, 1993 and herein incorporated by
reference. Form of Distribution Agreement
between Registrant and INVESCO Services,
<PAGE>
Inc., dated as of July 1, 1993, as amended November 1,
1993, previously filed with Post-Effective Amendment
No. 20 to the Registrant's Registration Statement on
September 10, 1993 and herein incorporated by
reference. Distribution Agreement between Registrant
and INVESCO Services, Inc. dated as of July 1, 1993, as
amended November 1, 1993, previously filed with
Post-Effective Amendment No. 21 to the Registrant's
Registration Statement on November 3, 1993 and herein
incorporated by reference. Distribution Agreement
between Registrant and INVESCO Services, Inc., dated
as of July 1, 1993, as amended April 19, ^ 1995,
previously filed with Post-Effective Amendment No. 24
to the Registrant's Registration Statement on May 1,
1995 and herein incorporated by reference.*
Distribution Agreement between Registrant and INVESCO
Services, Inc. dated as of July 1, 1993, as amended
February 16, 1996.*
7. Defined Benefit Deferred Compensation Plan for Non-
Interested Directors and Trustees.*
8. Form of Custodian Agreement between Registrant and
United Missouri Bank of Kansas City, N.S., dated as
of November 1, 1993, previously filed with Post-
Effective Amendment No. 20 to the Registrant's
Registration Statement on September 10, 1993 and
herein incorporated by reference. Custodian
Agreement between Registrant and United Missouri
Bank of Kansas City, N.S., dated as of November 1,
1993, previously filed with Post-Effective
Amendment No. 22 to the Registrant' Registration
Statement on April 28, 1994 and herein incorporated
by reference. Form of Custodian Agreement between
Registrant and United Missouri Bank, dated May 1,
1995, previously filed with Post-Effective
Amendment No. 24 to the Registrant's Registration
Statement on May 1, 1995 and herein incorporated by
reference.*
9. Form of Operating Services Agreement between
Registrant and INVESCO Services, Inc., dated as of
July 1, 1993, previously filed with Post-Effective
Amendment No. 19 to the Registrant's Registration
Statement on April 30, 1993 and herein incorporated
by reference. Form of Operating Services Agreement
between Registrant and INVESCO Services, Inc.,
dated as of July 1, 1993, as amended November 1,
1993, previously filed with Post-Effective
Amendment No. 20 to the Registrant's Registration
Statement on September 10, 1993 and herein
incorporated by reference. Operating Services
Agreement between Registrant and INVESCO Services,
Inc., dated as of July 1, 1993, as amended November
1, 1993, previously filed with Post-Effective
Amendment No. 21 to the Registrant's Registration
Statement on November 3, 1993 and herein
incorporated by reference. Operating Services
Agreement between Registrant and INVESCO Services,
Inc., dated as of July 1, 1993, as amended April 19, 1995,
<PAGE>
previously filed with Post-Effective Amendment No. 24 to
the Registrant's Registration Statement on May 1, 1995 and
herein incorporated by reference.* Operating Services
Agreement between Registrant and INVESCO Services, Inc.,
dated as of July 1, 1993, as amended February 16, 1996.*
10. Opinion as to legality of the shares, incorporated
herein by reference.
11. Consent of Independent Accountants. *
12. ^ Not applicable.
13. ^ Not applicable.
14. ^ Not applicable.
15. Form of Plan and Agreement of Distribution pursuant
to Rule 12b-1 between the Registrant and ^ INVESCO
Services, Inc., dated as of July 1, 1993,
previously filed with Post-Effective Amendment No.
19 to the Registrant's Registration Statement on
April 30, 1993 and herein incorporated by
reference. Form of Plan and Agreement of
Distribution pursuant to Rule 12b-1 between the
Registrant and INVESCO Services, Inc., dated as of
July 1, 1993, as amended November 1, 1993
previously filed with Post-Effective Amendment No.
20 to the Registrant's Registration Statement on
September 10, 1993 and herein incorporated by
reference. Plan and Agreement of Distribution
pursuant to Rule 12b-1 between the Registrant and
INVESCO Services, Inc., dated as of July 1, 1993,
as amended November 1, 1993, previously filed with
Post-Effective Amendment No. 21 to the Registrant's
Registration Statement on November 3, 1993 and
herein incorporated by reference. Plan and
Agreement of Distribution pursuant to Rule 12b-1
between the Registrant and INVESCO Services, Inc.,
dated as of July 1, 1993, as amended April 19,
1995^, previously filed with Post-Effective
Amendment No. 24 to the Registrant's Registration
Statement on May 1, 1995 and herein incorporated by
reference.* Plan and Agreement of Distribution
pursuant to Rule 12b-1 between the Registrant and
INVESCO Services, Inc., dated as of July 1, 1993,
as amended February 16, 1996.*
16. (a) Schedule for computation of total return ^.*
^(b) Schedule for computation of yield.*
(c) Schedule for computation of dividend yield.*
(d) Schedule for computation of distribution
yield.*
<PAGE>
17. (a) Financial Data Schedule^ for the year ended
December 31, 1995 for the Equity Portfolio.*
(b) Financial Data Schedule for the year ended
December 31, 1995 for the Income Portfolio.*
(c) Financial Data Schedule for the year ended
December 31, 1995 for the Flex Portfolio.*
(d) Financial Data Schedule for the year ended
December 31, 1995 for the Cash Management
Portfolio.*
(e) Financial Data Schedule for the year ended
December 31, 1995 for the Multiflex
Portfolio.*
(f) Financial Data Schedule for the period ended
December 31, 1995 for the Real Estate
Portfolio.*
(g) Financial Data Schedule for the period ended
December 31, 1995 for the International Value
Portfolio.*
*Filed on EDGAR.
<PAGE>
Item 25. Persons Controlled by or Under Common Control With
Registrant
No person is controlled by, or under common control with, the
Registrant.
Item 26. Number of Holders of Securities
As of ^ February 29, 1996, the number of record holders of each
class of securities of the Registrant was as follows:
Number of
Name of Portfolio Title of Class Recordholders
----------------- -------------- -------------
Equity Portfolio Common ^ 1,314
Income Portfolio Common ^ 511
Flex Portfolio Common ^ 4,368
MultiFlex Portfolio Common ^ 2,902
^ Real Estate Portfolio Common ^ 304
International Value Portfolio Common ^ 452
Cash Management Portfolio Common ^ 341
Item 27. Indemnification
Section 2-418 of the General Corporation Law of the State of
Maryland, Article VI of the Registrant's Charter filed as Exhibit 1,
Article VII of the Registrant's By-Laws filed as Exhibit 2, and the
Investment Advisory Agreement filed as Exhibit 5(a), provide, or
will provide, for indemnification.
The Registrant's Articles of Incorporation (Article VI) provide that
the Registrant shall indemnify (a) its directors to the fullest
extent permitted by law now or hereafter in force, including the
advance of expenses under the procedures provided under such laws;
(b) its officers to the same extent it shall indemnify its
directors; and (c) its officers who are not directors to such
further extent as shall be authorized by the Board of Directors and
be consistent with law, provided, however, that such indemnification
shall not be construed to protect any director or officer against
any liability to which such director or officer would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his or her office.
The Registrant's By-laws (Article VII) provide that the Registrant
shall indemnify any director and/or officer who was or is threatened
to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or
officer of the Registrant, or is or was serving at the request of
the Registrant as a director or officer of another corporation,
<PAGE>
partnership, joint venture, trust or other enterprise, against all
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding to the maximum
extent permitted by law.
With respect to indemnification of officers and directors, Section
2-418 of the Maryland General Corporation Law provides that a
corporation may indemnify any director who is made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an
action by or in the right of the Registrant) by reason of service in
that capacity, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement and expenses actually and reasonably
incurred by him in connection with such action, suit or proceeding
unless (1) it is established that the act or omission of the
director was material to the matter giving rise to the proceeding,
and (a) was committed in bad faith or (b) was the result of active
and deliberate dishonesty; or (2) the director actually received an
improper personal benefit of money, property, or services; or (3) in
the case of any criminal action or proceeding, had reasonable cause
to believe that the act or omission was unlawful. A court of
appropriate jurisdiction may, however, except in proceedings by or
in the right of the Registrant or in which liability has been
adjudged by reason of the person receiving an improper personal
benefit, order such indemnification as the court shall deem proper
if it determines that the director is fairly and reasonably entitled
to indemnification in view of all the relevant circumstances,
whether or not the director has met the requisite standards of
conduct. Under Section 2-418, the Registrant shall also indemnify
officers, employees, and agents of the Registrant to the same extent
that it shall indemnify directors, and officers, employees and
agents who are not directors to such further extent, consistent with
law, as may be provided by general or specific action of the Board
of Directors or contract. Pursuant to Section 2-418 of the Maryland
General Corporation Law, the termination of any action, suit or
proceeding by judgment, order or settlement does not create a
presumption that the person did not meet the requisite standard of
conduct required by Section 2-418. The termination of any action,
suit or proceeding by conviction, or a plea of nolo contendere or
its equivalent, or an entry of an order of probation prior to
judgment, creates a rebuttable presumption that the person did not
meet the requisite standard of conduct.
Insofar as indemnification for liability arising under
the Securities Act of 1933 (the "Act") may be permitted to
<PAGE>
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of Investment Adviser and
Sub-Adviser
See "Management of the Fund" in the Prospectus and "The Advisory and
Sub-Advisory Agreements" in the Statement of Additional Information
for information regarding the business of the investment adviser and
sub-advisers. For information as to the business, profession,
vocation or employment of a substantial nature of each of the
officers and directors of INVESCO Services, Inc., INVESCO Capital
Management, Inc., INVESCO Management & Research, Inc., and INVESCO
Realty Advisors, Inc., reference is made to Form ADV filed under the
Investment Advisers Act of 1940 by INVESCO Services, Inc., INVESCO
Capital Management, Inc., and INVESCO Realty Advisors, Inc., herein
incorporated by reference.
<PAGE>
Item 29. Principal Underwriters
(a) None.
(b)
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Underwriter Registrant
- ------------------ ------------- -------------
Hubert L. Harris, Jr. President and President and
1315 Peachtree Street, N.E. Director Director
Atlanta, Georgia 30309
Tony D. Green Secretary, Vice N/A
1355 Peachtree Street, N.E. President-Operations
Atlanta, Georgia 30309 and Director
David Hartley Treasurer N/A
1315 Peachtree Street, N.E.
Atlanta, Georgia 30309
John P. Stewart Senior Vice President N/A
1355 Peachtree Street, N.E. and General Manager
Atlanta, Georgia 30309
Michael J. Hanley Senior Vice President N/A
1355 Peachtree Street, N.E. and National Sales
Atlanta, Georgia 30309 Manager
Item 30. Location of Accounts and Records
Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-1(b) and 31a-2(a) under the 1940 Act at
its offices at 1315 Peachtree Street, N.E., Atlanta, Georgia 30309.
Certain records, including records relating to Registrant's
shareholders and the physical possession of its securities, may be
maintained pursuant to Rule 31a-3 at the offices of Registrant's
Transfer Agent, Fund/Plan Services, Inc., 2 West Elm Street,
Conshohocken, Pennsylvania 19428, and at the offices of the
custodian, United Missouri Bank, 928 Grand Avenue, Kansas City,
Missouri 64141.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to
whom a prospectus is delivered with a copy of
<PAGE>
Registrant's latest annual report to shareholders upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
post-effective amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Denver, County of Denver, and State of
Colorado, on the 19th day of April, 1996.
Attest: INVESCO Advisor Funds, Inc.
/s/ Tony D. Green /s/ Hubert L. Harris, Jr.
- ------------------------------------ --------------------------------
Tony D. Green, Secretary Hubert L. Harris, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment to Registrant's Registration Statement has been signed
by the following persons in the capacities indicated on this 19th day of April,
1996.
/s/ Hubert L. Harris, Jr. /s/ Lawrence H. Budner
- ------------------------------------ --------------------------------
Hubert L. Harris, Jr., President Lawrence H. Budner, Director*
(Chief Executive Officer and Chief
Financial and Accounting Officer)
and Director
/s/ Tony D. Green /s/ Daniel D. Chabris
- ------------------------------------ --------------------------------
Tony D. Green, Treasurer Daniel D. Chabris, Director*
(Chief Financial and Accounting Officer)
/s/ Victor L. Andrews /s/ Fred A. Deering
- ------------------------------------ --------------------------------
Victor L. Andrews, Director* Fred A. Deering, Director*
/s/ Bob R. Baker /s/ A. D. Frazier, Jr.
- ------------------------------------ --------------------------------
Bob R. Baker, Director* A. D. Frazier, Jr., Director*
/s/ Frank M. Bishop /s/ Kenneth T. King, Director
- ------------------------------------ --------------------------------
Frank M. Bishop, Director* Kenneth T. King, Director*
/s/ Charles W. Brady /s/ John W. McIntyre
- ------------------------------------ --------------------------------
Charles W. Brady, Director* John W. McIntyre, Director*
By* /s/ Glen A. Payne By* /s/ Edward F. O'Keefe
--------------------------------- -----------------------------
Glen A. Payne Edward F. O'Koofe
Attorney in Fact Attorney in Fact
* Original Powers of Attorney authorizing Edward F. O'Keefe and Glen A. Payne,
and each of them, to execute this post-effective amendment to the Registration
Statement of the Registrant on behalf of the above-named directors and officers
of the Registrant have been filed with the Securities and Exchange Commission on
April 12 and May 14, 1990, May 27, 1992 and April 22, 1996.
<PAGE>
Exhibit Index
Page in
Exhibit Number Registration Statement
- -------------- ----------------------
1(b) 134
5(a) 135
5(b) 143
5(c) 150
5(d) 158
6 167
7 176
8 183
11 187
15 188
16(a) 193
16(b) 195
16(c) 196
16(d) 197
17(a) 198
17(b) 199
17(c) 200
17(d) 201
17(e) 202
17(f) 203
17(g) 204
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
THE EBI FUNDS, INC.
The EBI Funds, Inc., a corporation organized and existing under and by
virtue of the laws of the State of Maryland,
DOES HEREBY CERTIFY:
FIRST: The name of the Corporation (hereinafter called the "Corporation")
is:
The EBI Funds, Inc.
SECOND: The Certificate of Incorporatin of the Corporation is hereby
amended by striking out Article I thereof and by substituting in lieu of said
Article the following new Article:
Article I.
The name of the Corporatin is INVESCO Advisor Funds, Inc.
THIRD: That said amendment was duly adopted by the board of directors of
the Corporation.
INVESCO ADVISOR FUNDS, INC.
By: /s/ Tony D. Green, Secretary
-----------------------------
Tony D. Green, Secretary
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, as made the 1st day of July 1993 and amended the 1st day
of November 1993, in Atlanta, Georgia, by and between INVESCO Services, Inc.
(the "Adviser"), a Georgia corporation, and The EBI Funds, Inc., a Maryland
corporation (the "Fund"), amended the 19th day of April 1995, is hereby further
amended this 16th day of February, 1996, for the purposes of (1) implementing,
the unanimous decision made by the Board of Directors of the Company on July 17,
1995, and effective October 1, 1995, to reduce the Income Portfolio's fee as
provided in paragraph 5 of this agreement; (2) implementing the decision made by
shareholders of the Relative Return Bond Portfolio at the Special Shareholder
meeting on December 14, 1995, effective December 15, 1995, to allow the Income
Portfolio to acquire all of its assets and to terminate by deleting Relative
Return Bond Portfolio from this Agreement; and (3) implementing the unanimous
decision made by the Board of Directors of the Fund on April 17, 1995, and
effective January 15, 1996, to change the name of the Fund to INVESCO Advisor
Funds, Inc.
W I T N E S S E T H :
WHEREAS, the Fund is a corporation organized under the laws of the State of
Maryland; and
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as a diversified, open-end management
investment company and currently has one class of shares which is divided into
seven series (the "Shares"), and which may be divided into additional series,
each representing an interest in a separate portfolio of investments (such
series as are presently structured being designated as the Equity Portfolio,
Income Portfolio, Flex Portfolio, MultiFlex Portfolio, Real Estate Portfolio,
International Value Portfolio and Cash Management Portfolio, hereinafter
referred to as the "Series"); and
WHEREAS, the Fund desires that the Adviser manage its investment
operations and provide it with certain other services, and the Adviser desires
to manage said operations and to provide such other services;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Investment Management Services. The Adviser hereby agrees to manage the
investment operations of the Fund's Series, subject to the terms of this
Agreement and to the supervision of the Fund's directors (the "Directors"). The
Adviser agrees to perform, or arrange for the performance of, the following
specific services for the Fund:
<PAGE>
(a) to manage the investment and reinvestment of all the
assets, now or hereafter acquired, of the Fund's Series, and to execute all
purchases and sales of portfolio securities;
(b) to maintain a continuous investment program for the Fund's
Series, consistent with (i) the Series' investment policies as set forth in the
Fund's Articles of Incorporation, Bylaws, and Registration Statement, as from
time to time amended, under the Investment Company Act of 1940, as amended
(hereinafter referred to as the "Investment Company Act"), and in any Prospectus
and/or Statement of Additional Information of the Fund, as from time to time
amended and in use under the Securities Act of 1933, as amended, and (ii) the
Fund's status as a regulated investment company under the Internal Revenue Code
of 1986, as amended;
(c) to determine what securities are to be purchased or sold
for the Fund's Series, unless otherwise directed by the Directors of the Fund,
and to execute transactions accordingly;
(d) to provide to the Fund's Series the benefit of all of the
investment analyses and research, the reviews of current economic conditions and
of trends, and the consideration of long-range investment policy now or
hereafter generally available to investment advisory customers of the Adviser;
(e) to determine what portion of the Fund's Series should be
invested in the various types of securities authorized for purchase by the Fund;
and
(f) to make recommendations as to the manner in which voting
rights, rights to consent to Fund action and any other rights pertaining to the
Series' securities shall be exercised.
With respect to execution of transactions for the Fund's
Series, the Adviser is authorized to employ such brokers or dealers as may, in
the Adviser's best judgment, implement the policy of the Fund to obtain prompt
and reliable execution at the most favorable price obtainable. In assigning an
execution or negotiating the commission to be paid therefor, the Adviser is
authorized to consider the full range and quality of a broker's services which
benefit the Fund, including but not limited to research and analytical
capabilities, reliability of performance, sale of Fund shares, and financial
soundness and responsibility. Research services prepared and furnished by
brokers through which the Adviser effects securities transactions on behalf of
the Fund may be used by the Adviser in servicing all of its accounts, and not
all such services may be used by the Adviser in connection with the Fund. In the
selection of a broker or dealer for execution of any negotiated transaction,
the Adviser shall have no duty or obligation to seek advance competitive bidding
for the most favorable negotiated commission rate for such transaction; or to
select any broker solely on the basis of its purported or "posted" commission
- 2 -
<PAGE>
rate for such transaction, provided, however, that the Adviser shall consider
such "posted" commission rates, if any, together with any other information
available at the time as to the level of commissions known to be charged on
comparable transactions by other qualified brokerage firms, as well as all other
relevant factors and circumstances, including the size of any contemporaneous
market in such securities, the importance to the Fund of speed, efficiency, and
confidentiality of execution, the execution capabilities required by the
circumstances of the particular transactions, and the apparent knowledge or
familiarity with sources from or to whom such securities may be purchased or
sold. Where the commission rate reflects services, reliability and other
relevant factors in addition to the cost of execution, the Adviser shall have
the burden of demonstrating that such expenditures were bona fide and for the
benefit of the Fund. Fund transactions may be effected through qualified
broker-dealers who recommend the Fund to their clients, or who act as agent in
the purchase of the Fund's shares for their clients. When a number of brokers
and dealers can provide comparable best price and execution on a particular
transaction, the Adviser may consider the sale of Fund shares by a broker or
dealer in selecting among qualified broker-dealers.
2. Other Services and Facilities. The Adviser shall, in addition, supply
at its own expense all supervisory and administrative services and facilities
necessary in connection with the day-to-day operations of the Fund's Series
(except those associated with the preparation and maintenance of certain
required books and records and certain sub-accounting services, which services
and facilities are provided under separate Accounting Services, Transfer Agency
and Administrative Services Agreements between the Adviser and Fund/Plan
Services, Inc., and those operational services which are necessary for the
day-to-day operations of the Fund's Series, which services are provided under a
separate Operating Services Agreement dated July 1, 1993 as amended November 1,
1993 and April 19, 1995, between the Fund and the Adviser (the "Operating
Services Agreement")). These services shall include, but not be limited to:
supplying the Fund with officers, clerical staff and other employees, if any,
who are necessary in connection with the Fund's operations; furnishing office
space, facilities, equipment, and supplies; conducting periodic compliance
reviews of the Fund's operations; preparation and review of certain required
documents, reports and filings (including required reports to the Securities and
Exchange Commission (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 the books and records required to be prepared and
maintained by the Fund pursuant to Rule 31a-1(b)(4), (5), (9), and (10) under
the Investment Company Act. All books and records prepared and maintained by the
Adviser for the Fund under this Agreement shall be
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<PAGE>
the property of the Fund and, upon request therefor, the Adviser shall surrender
to the Fund such of the books and records so requested.
3. Payment of Costs and Expenses. The Adviser shall bear the costs and
expenses of all personnel, facilities, equipment and supplies reasonably
necessary to provide the services required to be provided by the Adviser under
this Agreement. The Adviser shall pay all of the costs and expenses associated
with the Fund's operations and activities, except those expressly assumed by the
Fund under this Agreement, which shall consist of:
(a) all brokers' commissions, issue and transfer taxes, and other
costs chargeable to the Fund in connection with securities transactions to which
the Fund is a party or in connection with securities owned by the Fund's Series;
(b) the interest on indebtedness, if any, incurred by the Fund;
(c) extraordinary expenses, including unexpected franchise or income
taxes, or business license and other corporate fees (not including SEC and state
securities registration fees) that are not anticipated which the Fund will be
required to pay to federal, state, county, city, or other governmental agents,
and fees and disbursements of Fund counsel in connection with litigation by or
against the Fund;
(d) the expenses of distributing shares of the Fund but only if and
to the extent permissible under a plan of distribution adopted by the Fund
pursuant to Rule 12b-1 under the Investment Company Act; and
(e) all fees paid by the Fund for operational services which are
necessary for the day-to-day operations of the Fund's Series under the Operating
Services Agreement.
4. Use of Affiliated Companies. In connection with the rendering of the
services required to be provided by the Adviser under this Agreement, the
Adviser may, to the extent it deems appropriate and subject to compliance with
the requirements of applicable laws and regulations, and upon receipt of written
approval of the Fund, make use of its affiliated companies and their employees;
provided that the Adviser shall supervise and remain fully responsible for all
such services in accordance with and to the extent provided by this Agreement,
and further provided that all costs and expenses associated with the providing
of services by any such companies or employees and required by this Agreement to
be borne by the Adviser shall be borne by the Adviser or its affiliated
companies.
- 4 -
<PAGE>
5. Compensation of the Adviser. For the services to be rendered and the
charges and expenses to be assumed by the Adviser hereunder, the Fund shall pay
to the Adviser an advisory fee which will be computed daily and paid as of the
last day of each month, using for each daily calculation the most recently
determined net asset value of each of the Fund's Series, as determined by
valuations made in accordance with the Fund's procedures for calculating its net
asset value as described in the Fund's Prospectus and/or Statement of Additional
Information. The advisory fee to the Adviser shall be computed at the following
annual rates: 0.75% of the daily net assets of the Equity Portfolio and Flex
Portfolio; 0.90% of the daily net assets of the Real Estate Portfolio; 1.0% of
the daily net assets of the MultiFlex Portfolio and the International Value
Portfolio;0.65% of the daily net assets of the Income Portfolio, and 0.50% of
the daily net assets of the Cash Management Portfolio. During any period when
the determination of the Fund's net asset value is suspended by the Directors of
the Fund, the net asset value of a share of the Fund as of the last business day
prior to such suspension shall, for the purpose of this Paragraph 5, be deemed
to be the net asset value at the close of each succeeding business day until it
is again determined.
No advisory fee shall be paid to the Adviser with respect to any
assets of the Fund's Series which may be invested in any other investment
company for which the Adviser serves as investment adviser. The fee provided for
hereunder shall be prorated in any month in which this Agreement is not in
effect for the entire month. If, in any given year, the sum of a Series'
expenses exceeds the state-imposed annual expense limitation to which the Fund
is subject, the Adviser will be required to reimburse that Series for such
excess expenses promptly. Interest, taxes and extraordinary items such as
litigation costs are not deemed expenses for purposes of this paragraph and
shall be borne by that Series in any event. Expenditures, including costs
incurred in connection with the purchase or sale of portfolio securities, which
are capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and shall
not be deemed to be expenses for purposes of this paragraph.
6. Avoidance of Inconsistent Positions and Compliance with Laws. In
connection with purchases or sales of securities for the investment portfolios
of the Fund's Series, neither the Adviser nor its officers or employees will
either act as a principal or agent for any party other than the Fund's Series or
receive any commissions. The Adviser will comply with all applicable laws in
acting hereunder including, without limitation, the Investment Company Act; the
Investment Advisers Act of 1940, as amended; and all rules and regulations duly
promulgated under the foregoing.
7. Duration and Termination. This Agreement has been approved by a majority
of the outstanding voting securities of the Fund's Series, and shall become
- 5 -
<PAGE>
effective as of the date so written above, and unless sooner terminated as
hereinafter provided, shall remain in force for an initial term ending two years
from the date of execution, and from year to year thereafter, but only as long
as such continuance is specifically approved at least annually (i) by a vote of
a majority of the outstanding voting securities of the Fund's Series or by the
Directors of the Fund, and (ii) by a majority of the Directors of the Fund who
are not interested persons of the Adviser or the Fund by votes cast in person at
a meeting called for the purpose of voting on such approval.
This Agreement may, on 60 days' prior written notice, be terminated
without the payment of any penalty, by the Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Fund's Series, as the
case may be, or by the Adviser. This Agreement shall immediately terminate in
the event of its assignment, unless an order is issued by the SEC conditionally
or unconditionally exempting such assignment from the provisions of Section
15(a) of the Investment Company Act, in which event this Agreement shall remain
in full force and effect subject to the terms and provisions of said order. In
interpreting the provisions of this paragraph 7, the definitions contained in
Section 2(a) of the Investment Company Act and the applicable rules under the
Investment Company Act (particularly the definitions of "interested person,"
"assignment" and "vote of a majority of the outstanding voting securities")
shall be applied.
The Adviser agrees to furnish to the Directors of the Fund such
information on an annual basis as may reasonably be necessary to evaluate the
terms of this Agreement.
Termination of this Agreement shall not affect the right of the
Adviser to receive payments on any unpaid balance of the compensation described
in paragraph 5 earned prior to such termination.
8. Non-Exclusive Services. The Adviser shall, during the term of this
Agreement, be entitled to render investment advisory services to others,
including, without limitation, other investment companies with similar
objectives to those of the Fund's Series. The Adviser may, when it deems such to
be advisable, aggregate orders for its other customers together with any
securities of the same type to be sold or purchased for the Fund's Series in
order to obtain best execution and lower brokerage commissions. In such event,
the Adviser shall allocate the shares so purchased or sold, as well as the
expenses incurred in the transaction, in the manner it considers to be most
equitable and consistent with its fiduciary obligations to the Fund's Series and
the Adviser's other customers. It is understood that directors, officers,
employees and shareholders of the Fund are or may become interested in the
Adviser and its affiliates, as directors, officers, employees and shareholders
- 6 -
<PAGE>
or otherwise and that directors, officers, employees and shareholders of the
Adviser, INVESCO Capital Management, Inc., and their affiliates are or may
become interested in the Fund as directors, officers and employees.
9. Miscellaneous Provisions.
Notice. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.
Amendments Hereof. No provision of this Agreement may be orally
changed or discharged, but may only be modified by an instrument in writing
signed by the Fund and the Adviser. In addition, no amendment to this Agreement
shall be effective unless approved by (1) the vote of a majority of the
Directors of the Fund, including a majority of the Directors who are not parties
to this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such amendment, and (2) the vote of
a majority of the outstanding voting securities of any of the Fund's Series as
to which such amendment is applicable (other than an amendment which can be
effective without shareholder approval under applicable law).
Severability. Each provision of this Agreement is intended to be
severable. If any provision of this Agreement shall be held illegal or made
invalid by a court decision, statute, rule or otherwise, such illegality or
invalidity shall not affect the validity or enforceability of the remainder of
this Agreement.
Headings. The headings in this Agreement are inserted for
convenience and identification only and are in no way intended to describe,
interpret, define or limit the size, extent or intent of this Agreement or any
provision hereof.
Applicable Law. This Agreement shall be construed in accordance with
the laws of the State of Georgia. To the extent that the applicable laws of the
State of Georgia, or any of the provisions herein, conflict with applicable
provisions of the Investment Company Act, the latter shall control.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the Adviser and the Fund each has caused this
Agreement to be duly executed on its behalf by an officer thereunto duly
authorized, on the date first above written.
THE EBI FUNDS, INC.
ATTEST: By: /s/ Hubert L. Harris
--------------------------
President
/s/ Tony D. Green
- -------------------------
Secretary
INVESCO SERVICES, INC.
ATTEST:
By: /s/ John P. Stewart, Jr.
-------------------------
Senior Vice President
/s/ Tony G. Green
- -------------------------
Secretary
- 8 -
SUB-ADVISORY AGREEMENT
AGREEMENT made this 1st day of July, 1993 and amended the 1st day of
November 1993, by and between INVESCO Services, Inc. ("ISI"), a Georgia
corporation, and INVESCO CAPITAL MANAGEMENT, Inc., a Delaware corporation (the
"Sub-Adviser"), amended the 19th day of April, 1995,is hereby further amended
this 16th day of February, 1996, for the sole purpose of implementing the
unanimous decision made by the Board of Directors of The EBI Funds, Inc. on
April 17, 1995, and effective January 15, 1996, to rename The EBI Funds, Inc.
to INVESCO Advisor Funds, Inc.
W I T N E S S E T H:
WHEREAS, INVESCO Advisor Funds, Inc. (the "Fund"), is engaged in business
as a diversified, open-end management investment company registered under the
Investment Company Act of 1940, as amended (hereinafter referred to as the
"Investment Company Act") and currently has one class of shares which is divided
into various series (the "Shares"), and which may be divided into additional
series, each representing an interest in a separate portfolio of investments;
and
WHEREAS, ISI and the Sub-Adviser are engaged principally in rendering
investment advisory services and are registered as investment advisers under the
Investment Advisers Act of 1940; and
WHEREAS, ISI has entered into an Investment Advisory Agreement with the
Fund (the "ISI Investment Advisory Agreement"), pursuant to which ISI is
required to provide investment and advisory services to the Fund's series, and,
upon receipt of written approval of the Fund, is authorized to retain companies
which are affiliated with ISI to provide such services; and
WHEREAS, the Sub-Adviser is willing to provide investment advisory
services to five of the Fund's eight series (the Equity Portfolio, the Income
Portfolio, the Flex Portfolio, the International Value Portfolio and the Cash
Management Portfolio series, hereinafter referred to as the "Series"), on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, ISI and the Sub-Adviser hereby agree as follows:
ARTICLE I
DUTIES OF THE SUB-ADVISER
ISI hereby employs the Sub-Adviser to act as investment adviser to the
Fund and to furnish the investment advisory services described below, subject to
the broad supervision of ISI and the Board of Directors of the Fund, for the
<PAGE>
period and on the terms and conditions set forth in this Agreement. The
Sub-Adviser hereby accepts such assignment and agrees during such period, at its
own expense, to render such services and to assume the obligations herein set
forth for the compensation provided for herein. The Sub-Adviser shall for all
purposes herein be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized herein, shall have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund.
The Sub-Adviser hereby agrees to manage the investment operations of the
Fund's Series, subject to the supervision of the Fund's directors (the
"Directors") and ISI. Specifically, the Sub-Adviser agrees to perform the
following services:
(a) to manage the investment and reinvestment of all the assets, now or
hereafter acquired, of the Fund's Series, and to execute all purchases and sales
of portfolios securities;
(b) to maintain a continuous investment program for the Fund's Series,
consistent with (i) the Series' investment policies as set forth in the Fund's
Articles of Incorporation, Bylaws, and Registration Statement, as from time to
time amended, under the Investment Company Act of 1940, and in any Prospectus
and/or Statement of Additional Information of the Fund, as from time to time
amended and in use under the Securities Act of 1933, as amended, and (ii) the
Fund's status as a regulated investment company under the Internal Revenue Code
of 1986, as amended;
(c) to determine what securities are to be purchased or sold for the Fund's
Series, unless otherwise directed by the Directors of the Fund or ISI, and to
execute transactions accordingly;
(d) to provide to the Fund's Series the benefit of all of the investment
analysis and research, the reviews of current economic conditions and of trends,
and the consideration of long-range investment policy now or hereafter generally
available to investment advisory customers of the Sub-Adviser;
(e) to determine what portion of the Fund's Series should be invested in
the various types of securities authorized for purchase by the Series; and
(f) to make recommendations as to the manner in which voting rights, rights
to consent to Fund action and any other rights pertaining to the Series'
securities shall be exercised.
With respect to execution of transactions for the Fund's Series, the
Sub-Adviser is authorized to employ such brokers or dealers as may, in the
Sub-Adviser's best judgment, implement the policy of the Fund to obtain prompt
and reliable execution at the most favorable price obtainable. In assigning an
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<PAGE>
execution or negotiating the commission to be paid therefor, the Sub-Adviser is
authorized to consider the full range and quality of a broker's services which
benefit the Fund, including but not limited to research and analytical
capabilities, reliability of performance, sale of Fund shares, and financial
soundness and responsibility. Research services prepared and furnished by
brokers through which the Sub-Adviser effects securities transactions on behalf
of the Fund may be used by the Sub-Adviser in servicing all of its accounts, and
not all such services may be used by the Sub-Adviser in connection with the
Fund. In the selection of a broker or dealer for execution of any negotiated
transaction, the Sub-Adviser shall have no duty or obligation to seek advance
competitive bidding for the most favorable negotiated commission rate for such
transaction, or to select any broker solely on the basis of its purported or
"posted" commission rate for such transaction, provided, however, that the
Sub-Adviser shall consider such "posted" commission rates, if any, together with
any other information available at the time as to the level of commissions known
to be charged on comparable transactions by other qualified brokerage firms, as
well as all other relevant factors and circumstances, including the size of any
contemporaneous market in such securities, the importance to the Fund of speed,
efficiency, and confidentiality of execution, the execution capabilities
required by the circumstances of the particular transactions, and the apparent
knowledge or familiarity with sources from or to whom such securities may be
purchased or sold. Where the commission rate reflects services, reliability and
other relevant factors in addition to the cost of execution, the Sub-Adviser
shall have the burden of demonstrating that such expenditures were bona fide and
for the benefit of the Fund. Fund transactions may be effected through qualified
broker-dealers who recommend the Fund to their clients, or who act as agent in
the purchase of the Fund's shares for their clients. When a number of brokers
and dealers can provide comparable best price and execution on a particular
transaction, the Sub-Adviser may consider the sale of Fund shares by a broker or
dealer in selecting among qualified broker-dealers.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
The Sub-Adviser assumes and shall pay for maintaining the staff and
personnel necessary to perform its obligations under this Agreement, and shall,
at its own expense, provide the office space, equipment and facilities necessary
to perform its obligations under this Agreement. Except to the extent expressly
assumed by the Sub-Adviser herein and except to the extent required by law to be
paid by the Sub-Adviser, ISI and/or the Fund shall pay all costs and expenses in
connection with the operations of the Fund's Series.
- 3 -
<PAGE>
ARTICLE III
COMPENSATION OF THE SUB-ADVISER
For the services rendered, the facilities furnished and expenses assumed
by the Sub-Adviser, ISI shall pay to the Sub-Adviser a fee, computed daily and
paid as of the last day of each month, using for each daily calculation the most
recently determined net asset value of the Fund's Series, as determined by a
valuation made in accordance with the Fund's procedures for calculating its net
asset value as described in the Fund's Prospectus and/or Statement of Additional
Information. The advisory fee to the Sub-Adviser shall be computed at the
following annual rates: 0.20% of the Equity Portfolio and the Flex Portfolio
Series' daily net assets; 0.10% of the Income Portfolio and Cash Management
Portfolio Series' daily net assets; and the following for the International
Value Portfolio Series: 0.35% on the first $50 million of assets, 0.30% on the
next $50 million of assets and 0.25% on daily net assets in excess of $100
million. During any period when the determination of the Series' net asset value
is suspended by the Directors of the Fund, the net asset value of a share of the
Fund's Series as of the last business day prior to such suspension shall, for
the purpose of this Article III, be deemed to be the net asset value at the
close of each succeeding business day until it is again determined. However, no
such fee shall be paid to the Sub-Adviser with respect to any assets of the
Fund's Series which may be invested in any other investment company for which
the Sub-Adviser serves as investment adviser or sub adviser. The fee provided
for hereunder shall be prorated in any month in which this Agreement is not in
effect for the entire month. The Sub-Adviser shall be entitled to receive fees
hereunder only for such periods as the ISI Investment Advisory Agreement remains
in effect.
ARTICLE IV
ACTIVITIES OF THE SUB-ADVISER
The services of the Sub-Adviser to the Fund are not to be deemed to be
exclusive, the Sub-Adviser and any person controlled by or under common control
with the Sub-Adviser (for purposes of this Article IV referred to as
"affiliates") being free to render services to others. It is understood that
directors, officers, employees and shareholders of the Fund are or may become
interested in the Sub-Adviser and its affiliates, as directors, officers,
employees and shareholders or otherwise and that directors, officers, employees
and shareholders of the Sub-Adviser, ISI and their affiliates are or may become
interested in the Fund as directors, officers and employees.
- 4 -
<PAGE>
ARTICLE V
AVOIDANCE OF INCONSISTENT POSITIONS
AND COMPLIANCE WITH APPLICABLE LAWS
In connection with purchases or sales of securities for the investment
portfolio of the Fund's Series, neither the Sub-Adviser nor any of its
directors, officers or employees will either act as a principal or agent for any
party other than the Fund's Series or receive any commissions. The Sub-Adviser
will comply with all applicable laws in acting hereunder including, without
limitation, the Investment Company Act; the Investment Advisers Act of 1940, as
amended; and all rules and regulations duly promulgated under the foregoing.
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement having been approved by a majority of the outstanding
voting securities of the Fund's Series, shall become effective as of the date so
written above, and shall remain in force for an initial term of two years from
the date of execution, and from year to year thereafter until its termination in
accordance with this Article VI, but only so long as such continuance is
specifically approved at least annually by (i) the Directors of the Fund, or by
the vote of a majority of the outstanding voting securities of the Fund's
Series, and (ii) a majority of those Directors who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by ISI, by the Fund by vote of the Directors of the Fund or by vote of
a majority of the outstanding voting securities of the Fund's Series, or by the
Sub-Adviser. A termination by ISI or the Sub-Adviser shall require sixty days'
written notice to the other party and to the Fund, and a termination by the Fund
shall require such notice to each of the parties. This Agreement shall
automatically terminate in the event of its assignment to the extent required by
the Investment Company Act and the rules thereunder.
The Sub-Adviser agrees to furnish to the Directors of the Fund such
information on an annual basis as may reasonably be necessary to evaluate the
terms of this Agreement.
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Article III hereof earned prior to such termination.
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<PAGE>
ARTICLE VII
AMENDMENTS OF THIS AGREEMENT
No provision of this Agreement may be orally changed or discharged, but
may only be modified by an instrument in writing signed by the Sub-Adviser and
ISI. In addition, no amendment to this Agreement shall be effective unless
approved by (1) the vote of a majority of the Directors of the Fund, including a
majority of the Directors who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such amendment, and (2) the vote of a majority of the outstanding
voting securities of any of the Fund's Series as to which such amendment is
applicable (other than an amendment which can be effective without shareholder
approval under applicable law).
ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS
In interpreting the provisions of this Agreement, the terms "vote of a
majority of the outstanding voting securities," "assignments," "affiliated
person" and "interested person," when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
ARTICLE IX
GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State
of Georgia and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of Georgia, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
ARTICLE X
MISCELLANEOUS
Notice. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.
Severability. Each provision of this Agreement is intended to be severable.
If any provision of this Agreement shall be held illegal or made invalid by a
- 6 -
<PAGE>
court decision, statute, rule or otherwise, such illegality or invalidity shall
not affect the validity or enforceability of the remainder of this Agreement.
Headings. The headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret, define or
limit the size, extent or intent of this Agreement or any provision hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
INVESCO SERVICES, INC.
ATTEST: By: /s/ Hubert L. Harris, Jr.
---------------------------
Hubert L. Harris, Jr.
/s/ Tony D. Green President
- -------------------------
Secretary
INVESCO CAPITAL MANAGEMENT, INC.
ATTEST: By: /s/ Charles W. Brady
---------------------------
/s/ Luis A. Aguilar
- --------------------------
Secretary
- 7 -
` SUB-ADVISORY AGREEMENT
AGREEMENT made this 1st day of November, 1993, by and between INVESCO
Services, Inc. ("ISI"), a Georgia corporation, and INVESCO MANAGEMENT &
RESEARCH, Inc., a Massachusetts corporation (the "Sub-Adviser") is hereby
amended this 16th day of February, 1996 for the purposes of (1) implementing the
decision made by shareholders of the Relative Return Bond Portfolio at a Special
Shareholder Meeting on December 14, 1995, and effective December 15, 1995, to
allow the Income Portfolio to acquire all its assets and to terminate by
deleting the Relative Return Bond Portfolio from this Agreement; and (2)
implementing the unanimous decision made by the Board of Directors of The EBI
Funds, Inc. on April 17, 1995 and effective January 15, 1996, to rename the Fund
to INVESCO Advisor Funds, Inc.
W I T N E S S E T H:
WHEREAS, THE EBI FUNDS, INC. (the "Fund") is engaged in business as a
diversified, open-end management investment company registered under the
Investment Company Act of 1940, as amended (hereinafter referred to as the
"Investment Company Act") and currently has one class of shares which is divided
into various series (the "Shares"), and which may be divided into additional
series, each representing an interest in a separate portfolio of investments;
and
WHEREAS, ISI and the Sub-Adviser are engaged principally in rendering
investment advisory services and are registered as investment advisers under the
Investment Advisers Act of 1940; and
WHEREAS, ISI has entered into an Investment Advisory Agreement with the
Fund (the "ISI Investment Advisory Agreement"), pursuant to which ISI is
required to provide investment and advisory services to the Fund's series, and,
upon receipt of written approval of the Fund, is authorized to retain companies
which are affiliated with ISI to provide such services; and
WHEREAS, the Sub-Adviser is willing to provide investment advisory
services to one of the Fund's series (the EBI MultiFlex Fund, hereinafter
referred to as the "Series") on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, ISI and the Sub-Adviser hereby agree as follows:
<PAGE>
ARTICLE I
DUTIES OF THE SUB-ADVISER
ISI hereby employs the Sub-Adviser to act as investment adviser to the
Fund and to furnish the investment advisory services described below, subject to
the broad supervision of ISI and the Board of Directors of the Fund, for the
period and on the terms and conditions set forth in this Agreement. The
Sub-Adviser hereby accepts such assignment and agrees during such period, at its
own expense, to render such services and to assume the obligations herein set
forth for the compensation provided for herein. The Sub-Adviser shall for all
purposes herein be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized herein, shall have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund.
The Sub-Adviser hereby agrees to manage the investment operations of the
Fund's Series, subject to the supervision of the Fund's directors (the
"Directors") and ISI. Specifically, the Sub-Adviser agrees to perform the
following services:
(a) to manage the investment and reinvestment of all the
assets, now or hereafter acquired, of the Fund's Series, and to
execute all purchases and sales of portfolios securities;
(b) to maintain a continuous investment program for the Fund's Series,
consistent with (i) the Series' investment policies as set forth in the Fund's
Articles of Incorporation, Bylaws, and Registration Statement, as from time to
time amended, under the Investment Company Act of 1940, and in any prospectus
and/or statement of additional information of the Fund, as from time to time
amended and in use under the Securities Act of 1933, as amended, and (ii) the
Fund's status as a regulated investment company under the Internal Revenue Code
of 1986, as amended;
(c) to determine what securities are to be purchased or sold for the
Fund's Series, unless otherwise directed by the Directors of the Fund or ISI,
and to execute transactions accordingly;
(d) to provide to the Fund's Series the benefit of all of the investment
analysis and research, the reviews of current economic conditions and of trends,
and the consideration of long-range investment policy now or hereafter generally
available to investment advisory customers of the Sub-Adviser;
(e) to determine what portion of the Fund's Series should be invested in
the various types of securities authorized for purchase by the Series; and
- 2 -
<PAGE>
(f) to make recommendations as to the manner in which voting rights, rights
to consent to Fund action and any other rights pertaining to the Series'
securities shall be exercised.
With respect to execution of transactions for the Fund's Series, the
Sub-Adviser is authorized to employ such brokers or dealers as may, in the
Sub-Adviser's best judgment, implement the policy of the Fund to obtain prompt
and reliable execution at the most favorable price obtainable. In assigning an
execution or negotiating the commission to be paid therefor, the Sub-Adviser is
authorized to consider the full range and quality of a broker's services which
benefit the Fund, including but not limited to research and analytical
capabilities, reliability of performance, sale of Fund shares, and financial
soundness and responsibility. Research services prepared and furnished by
brokers through which the Sub-Adviser effects securities transactions on behalf
of the Fund may be used by the Sub-Adviser in servicing all of its accounts, and
not all such services may be used by the Sub-Adviser in connection with the
Fund. In the selection of a broker or dealer for execution of any negotiated
transaction, the Sub-Adviser shall have no duty or obligation to seek advance
competitive bidding for the most favorable negotiated commission rate for such
transaction, or to select any broker solely on the basis of its purported or
"posted" commission rate for such transaction, provided, however, that the
Sub-Adviser shall consider such "posted" commission rates, if any, together with
any other information available at the time as to the level of commissions known
to be charged on comparable transactions by other qualified brokerage firms, as
well as all other relevant factors and circumstances, including the size of any
contemporaneous market in such securities, the importance to the Fund of speed,
efficiency, and confidentiality of execution, the execution capabilities
required by the circumstances of the particular transactions, and the apparent
knowledge or familiarity with sources from or to whom such securities may be
purchased or sold. Where the commission rate reflects services, reliability and
other relevant factors in addition to the cost of execution, the Sub-Adviser
shall have the burden of demonstrating that such expenditures were bona fide and
for the benefit of the Fund. Fund transactions may be effected through qualified
broker-dealers who recommend the Fund to their clients, or who act as agent in
the purchase of the Fund's shares for their clients. When a number of brokers
and dealers can provide comparable best price and execution on a particular
transaction, the Fund's adviser may consider the sale of Fund shares by a broker
or dealer in selecting among qualified broker-dealers.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
The Sub-Adviser assumes and shall pay for maintaining the staff and
personnel necessary to perform its obligations under this
- 3 -
<PAGE>
Agreement, and shall, at its own expense, provide the office space, equipment
and facilities necessary to perform its obligations under this Agreement. Except
to the extent expressly assumed by the Sub-Adviser herein and except to the
extent required by law to be paid by the Sub-Adviser, ISI and/or the Fund shall
pay all costs and expenses in connection with the operations of the Fund's
Series.
ARTICLE III
COMPENSATION OF THE SUB-ADVISER
For the services rendered, the facilities furnished and expenses assumed
by the Sub-Adviser, ISI shall pay to the Sub-Adviser a fee, computed daily and
paid as of the last day of each month, using for each daily calculation the most
recently determined net asset value of the Fund's Series, as determined by a
valuation made in accordance with the Fund's procedures for calculating its net
asset value as described in the Fund's Prospectus and/or Statement of Additional
Information. The advisory fee to the Sub-Adviser shall be computed at the
following annual rates: for the MultiFlex Fund Series, 0.30% of the Series'
daily net assets on the first $100 million of net assets, 0.25% of daily net
assets on the next $400 million of net assets, and 0.20% of daily net assets on
assets in excess of $500 million; for the Relative Return Bond Fund Series,
0.10% of the Series' daily net assets. During any period when the determination
of the Series' net asset value is suspended by the Directors of the Fund, the
net asset value of a share of the Fund's Series as of the last business day
prior to such suspension shall, for the purpose of this Article III, be deemed
to be the net asset value at the close of each succeeding business day until it
is again determined. However, no such fee shall be paid to the Sub-Adviser with
respect to any assets of the Fund's Series which may be invested in any other
investment company for which the Sub-Adviser serves as investment adviser or sub
adviser. The fee provided for hereunder shall be prorated in any month in which
this Agreement is not in effect for the entire month. The Sub-Adviser shall be
entitled to receive fees hereunder only for such periods as the ISI Investment
Advisory Agreement remains in effect.
ARTICLE IV
ACTIVITIES OF THE SUB-ADVISER
The services of the Sub-Adviser to the Fund are not to be deemed to be
exclusive, the Sub-Adviser and any person controlled by or under common control
with the Sub-Adviser (for purposes of this Article IV referred to as
"affiliates") being free to render services to others. It is understood that
directors, officers, employees and shareholders of the Fund are or may become
interested in the Sub-Adviser and its affiliates, as directors, officers,
- 4 -
<PAGE>
employees and shareholders or otherwise and that directors, officers, employees
and shareholders of the Sub-Adviser, ISI and their affiliates are or may become
interested in the Fund as directors, officers and employees.
ARTICLE V
AVOIDANCE OF INCONSISTENT POSITIONS
AND COMPLIANCE WITH APPLICABLE LAWS
In connection with purchases or sales of securities for the investment
portfolio of the Fund's Series, neither the Sub-Adviser nor any of its
directors, officers or employees will either act as a principal or agent for any
party other than the Fund's Series or receive any commissions. The Sub-Adviser
will comply with all applicable laws in acting hereunder including, without
limitation, the Investment Company Act; the Investment Advisers Act of 1940, as
amended; and all rules and regulations duly promulgated under the foregoing.
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement having been approved by a majority of the outstanding
voting securities of the Fund's Series, shall become effective as of the date so
written above, and shall remain in force for an initial term of two years from
the date of execution, and from year to year thereafter until its termination in
accordance with this Article VI, but only so long as such continuance is
specifically approved at least annually by (i) the Directors of the Fund, or by
the vote of a majority of the outstanding voting securities of the Fund's
Series, and (ii) a majority of those Directors who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by ISI, the Fund by vote of the Directors of the Fund, or by vote of a
majority of the outstanding voting securities of the Fund's Series, or by the
Sub-Adviser. A termination by ISI or the Sub-Adviser shall require sixty days'
written notice to the other party and to the Fund, and a termination by the Fund
shall require such notice to each of the parties. This Agreement shall
automatically terminate in the event of its assignment to the extent required by
the Investment Company Act and the Rules thereunder.
The Sub-Adviser agrees to furnish to the Directors of the Fund such
information on an annual basis as may reasonably be necessary to evaluate the
terms of this Agreement.
- 5 -
<PAGE>
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Article III hereof earned prior to such termination.
- 6 -
<PAGE>
ARTICLE VII
AMENDMENTS OF THIS AGREEMENT
No provision of this Agreement may be orally changed or discharged, but
may only be modified by an instrument in writing signed by the Sub-Adviser and
ISI. In addition, no amendment to this Agreement shall be effective unless
approved by (1) the vote of a majority of the Directors of the Fund, including a
majority of the Directors who are not parties to this Agreement or interested
persons of any such party cast in person at a meeting called for the purpose of
voting on such amendment and (2) the vote of a majority of the outstanding
voting securities of any of the Fund's Series as to which such amendment is
applicable (other than an amendment which can be effective without shareholder
approval under applicable law).
ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS
In interpreting the provisions of this Agreement, the terms "vote of a
majority of the outstanding voting securities," "assignments," "affiliated
person" and "interested person," when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
ARTICLE IX
GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State
of Georgia and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of Georgia, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
ARTICLE X
MISCELLANEOUS
Notice. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.
Severability. Each provision of this Agreement is intended to be severable.
If any provision of this Agreement shall be held illegal or made invalid by a
- 7 -
<PAGE>
court decision, statute, rule or otherwise, such illegality or invalidity shall
not affect the validity or enforceability of the remainder of this Agreement.
Headings. The headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret, define or
limit the size, extent or intent of this Agreement or any provision hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
INVESCO SERVICES, INC.
ATTEST: By: /s/ Hubert L. Harris, Jr.
--------------------------
President
/s/ Tony D. Green
- ------------------------
Secretary
INVESCO MANAGEMENT & RESEARCH, INC.
ATTEST:
By: /s/ Frank J. Keeler
----------------------------
President
/s/ John D. Craven
- ------------------------
Secretary
- 8 -
SUB-ADVISORY AGREEMENT
AGREEMENT made this 19th day of April, 1995, by and between INVESCO
Services, Inc. ("ISI"), a Georgia corporation, and INVESCO Realty Advisors,
Inc., a Texas corporation (the "Sub-Adviser"), is hereby amended this 16th day
of February, 1996, for the sole purpose of implementing the unanimous decision
made by the Board of Directors of The EBI Funds, Inc. on April 17, 1995, and
effective January 15, 1996, to rename The EBI Funds, Inc. to INVESCO Advisor
Funds, Inc.
W I T N E S S E T H:
WHEREAS, INVESCO Advisor Funds, , Inc. (the "Fund") is engaged in business
as a diversified, open-end management investment company registered under the
Investment Company Act of 1940, as amended (hereinafter referred to as the
"Investment Company Act") and currently has one class of shares which is divided
into various series (the "Shares"), and which may be divided into additional
series, each representing an interest in a separate portfolio of investments;
and
WHEREAS, ISI and the Sub-Adviser are engaged principally in rendering
investment advisory services and are registered as investment advisers under the
Investment Advisers Act of 1940; and
WHEREAS, ISI has entered into an Investment Advisory Agreement with the
Fund (the "ISI Investment Advisory Agreement"), pursuant to which ISI is
required to provide investment and advisory services to the Fund's series, and,
upon receipt of written approval of the Fund, is authorized to retain companies
which are affiliated with ISI to provide such services; and
WHEREAS, the Sub-Adviser is willing to provide investment advisory
services to those series of the Fund set forth in the appendix hereto,
hereinafter referred to as the "Series") on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, ISI and the Sub-Adviser hereby agree as follows:
ARTICLE I
DUTIES OF THE SUB-ADVISER
ISI hereby employs the Sub-Adviser to act as investment adviser to the
Series and to furnish the investment advisory services described below, subject
to the broad supervision of ISI and the Board of Directors of the Fund, for the
period and on the terms and conditions set forth in this Agreement. The
Sub-Adviser hereby accepts such assignment and agrees during such period, at its
own expense, to render such services and to assume the obligations
-1-
<PAGE>
herein set forth for the compensation provided for herein. The Sub-Adviser shall
for all purposes herein be deemed to be an independent contractor and, unless
otherwise expressly provided or authorized herein, shall have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
The Sub-Adviser hereby agrees to manage the investment operations of the
Series, subject to the supervision of the Fund's directors (the "Directors") and
ISI. Specifically, the Sub-Adviser agrees to perform the following services:
(a) to manage the investment and reinvestment of all the assets, now or
hereafter acquired, of the Series, and to execute all purchases and sales of
portfolios securities;
(b) to maintain a continuous investment program for the Series, consistent
with (i) the Series' investment policies as set forth in the Fund's Articles of
Incorporation, Bylaws, and Registration Statement, as from time to time amended,
under the Investment Company Act of 1940, and in any Prospectus and/or Statement
of Additional Information of the Fund, as from time to time amended and in use
under the Securities Act of 1933, as amended, and (ii) the Fund's status as a
regulated investment company under the Internal Revenue Code of 1986, as
amended;
(c) to determine what securities are to be purchased or sold for the
Series, unless otherwise directed by the Directors of the Fund or ISI, and to
execute transactions accordingly;
(d) to provide to the Series the benefit of all of the investment analysis
and research, the reviews of current economic conditions and of trends, and the
consideration of long-range investment policy now or hereafter generally
available to investment advisory customers of the Sub-Adviser;
(e) to determine what portion of the Series should be invested in the
various types of securities authorized for purchase by the Series; and
(f) to make recommendations as to the manner in which voting rights, rights
to consent to Fund action and any other rights pertaining to the Series'
securities shall be exercised.
With respect to execution of transactions for the Series, the Sub-Adviser
is authorized to employ such brokers or dealers as may, in the Sub-Adviser's
best judgment, implement the policy of the Fund to obtain prompt and reliable
execution at the most favorable price obtainable. In assigning an execution or
negotiating the commission to be paid therefor, the Sub-Adviser is authorized to
consider the full range and quality of a broker's services which benefit the
- 2 -
<PAGE>
Fund, including but not limited to research and analytical capabilities,
reliability of performance, sale of Fund shares, and financial soundness and
responsibility. Research services prepared and furnished by brokers through
which the Sub-Adviser effects securities transactions on behalf of the Series
may be used by the Sub-Adviser in servicing all of its accounts, and not all
such services may be used by the Sub-Adviser in connection with the Fund. In the
selection of a broker or dealer for execution of any negotiated transaction, the
Sub-Adviser shall have no duty or obligation to seek advance competitive bidding
for the most favorable negotiated commission rate for such transaction, or to
select any broker solely on the basis of its purported or "posted" commission
rate for such transaction, provided, however, that the Sub-Adviser shall
consider such "posted" commission rates, if any, together with any other
information available at the time as to the level of commissions known to be
charged on comparable transactions by other qualified brokerage firms, as well
as all other relevant factors and circumstances, including the size of any
contemporaneous market in such securities, the importance to the Fund of speed,
efficiency, and confidentiality of execution, the execution capabilities
required by the circumstances of the particular transactions, and the apparent
knowledge or familiarity with sources from or to whom such securities may be
purchased or sold. Where the commission rate reflects services, reliability and
other relevant factors in addition to the cost of execution, the Sub-Adviser
shall have the burden of demonstrating that such expenditures were bona fide and
for the benefit of the Fund. Transactions may be effected through qualified
broker-dealers who recommend the Fund to their clients, or who act as agent in
the purchase of the Fund's shares for their clients. When a number of brokers
and dealers can provide comparable best price and execution on a particular
transaction, the Sub-Adviser may consider the sale of Fund shares by a broker or
dealer in selecting among qualified broker-dealers.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
The Sub-Adviser assumes and shall pay for maintaining the staff and
personnel necessary to perform its obligations under this Agreement, and shall,
at its own expense, provide the office space, equipment and facilities necessary
to perform its obligations under this Agreement. Except to the extent expressly
assumed by the Sub-Adviser herein and except to the extent required by law to be
paid by the Sub-Adviser, ISI and/or the Fund shall pay all costs and expenses in
connection with the operations of the Series.
- 3 -
<PAGE>
ARTICLE III
COMPENSATION OF THE SUB-ADVISER
For the services rendered, the facilities furnished and expenses assumed by
the Sub-Adviser, ISI shall pay to the Sub-Adviser a fee, computed daily and paid
as of the last day of each month, using for each daily calculation the most
recently determined net asset value of the Series, as determined by a valuation
made in accordance with the Fund's procedures for calculating its net asset
value as described in the Fund's Prospectus and/or Statement of Additional
Information. The advisory fee to the Sub-Adviser shall be computed at the annual
rates set forth in the appendix hereto. During any period when the determination
of the Series' net asset value is suspended by the Directors of the Fund, the
net asset value of a share of the Series as of the last business day prior to
such suspension shall, for the purpose of this Article III, be deemed to be the
net asset value at the close of each succeeding business day until it is again
determined. However, no such fee shall be paid to the Sub-Adviser with respect
to any assets of the Series which may be invested in any other investment
company for which the Sub-Adviser serves as investment adviser or sub-adviser.
The fee provided for hereunder shall be prorated in any month in which this
Agreement is not in effect for the entire month. The Sub-Adviser shall be
entitled to receive fees hereunder only for such periods as the ISI Investment
Advisory Agreement remains in effect.
ARTICLE IV
ACTIVITIES OF THE SUB-ADVISER
The services of the Sub-Adviser to the Fund are not to be deemed to be
exclusive, the Sub-Adviser and any person controlled by or under common control
with the Sub-Adviser (for purposes of this Article IV referred to as
"affiliates") being free to render services to others. It is understood that
directors, officers, employees and shareholders of the Fund are or may become
interested in the Sub-Adviser and its affiliates, as directors, officers,
employees and shareholders or otherwise and that directors, officers, employees
and shareholders of the Sub-Adviser, ISI and their affiliates are or may become
interested in the Fund as directors, officers and employees.
- 4 -
<PAGE>
ARTICLE V
AVOIDANCE OF INCONSISTENT POSITIONS
AND COMPLIANCE WITH APPLICABLE LAWS
In connection with purchases or sales of securities for the investment
portfolio of the Series, neither the Sub-Adviser nor any of its directors,
officers or employees will either act as a principal or agent for any party
other than the Series or receive any commissions. The Sub-Adviser will comply
with all applicable laws in acting hereunder including, without limitation, the
Investment Company Act; the Investment Advisers Act of 1940, as amended; and all
rules and regulations duly promulgated under the foregoing.
- 5 -
<PAGE>
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement having been approved by a majority of the outstanding
voting securities of the Series, shall become effective as of the date so
written above, and shall remain in force for an initial term of two years from
the date of execution, and from year to year thereafter until its termination in
accordance with this Article VI, but only so long as such continuance is
specifically approved at least annually by (i) the Directors of the Fund, or by
the vote of a majority of the outstanding voting securities of the Series, and
(ii) a majority of those Directors who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for the
purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by ISI, by the Fund by vote of the Directors of the Fund or by vote of
a majority of the outstanding voting securities of the Series, or by the
Sub-Adviser. A termination by ISI or the Sub-Adviser shall require sixty days'
written notice to the other party and to the Fund, and a termination by the Fund
shall require such notice to each of the parties. This Agreement shall
automatically terminate in the event of its assignment to the extent required by
the Investment Company Act and the rules thereunder.
The Sub-Adviser agrees to furnish to the Directors of the Fund such
information on an annual basis as may reasonably be necessary to evaluate the
terms of this Agreement.
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Article III hereof earned prior to such termination.
ARTICLE VII
AMENDMENTS OF THIS AGREEMENT
No provision of this Agreement may be orally changed or discharged, but
may only be modified by an instrument in writing signed by the Sub-Adviser and
ISI. In addition, no amendment to this Agreement shall be effective unless
approved by (1) the vote of a majority of the Directors of the Fund, including a
majority of the Directors who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such amendment, and (2) the vote of a majority of the outstanding
voting securities of the Series (other than an amendment which can be effective
without shareholder approval under applicable law).
- 6 -
<PAGE>
ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS
In interpreting the provisions of this Agreement, the terms "vote of a
majority of the outstanding voting securities," "assignments," "affiliated
person" and "interested person," when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
ARTICLE IX
GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State
of Georgia and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of Georgia, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
ARTICLE X
MISCELLANEOUS
Notice. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.
Severability. Each provision of this Agreement is intended to be
severable. If any provision of this Agreement shall be held illegal or made
invalid by a court decision, statute, rule or otherwise, such illegality or
invalidity shall not affect the validity or enforceability of the remainder of
this Agreement.
Headings. The headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret, define or
limit the size, extent or intent of this Agreement or any provision hereof.
- 8 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
INVESCO SERVICES, INC.
ATTEST: By: /s/ John P. Stewart, Jr.
----------------------------
Senior Vice President
/s/ Tony D. Green
- -----------------------
Secretary
INVESCO REALTY ADVISORS, INC.
ATTEST: By: /s/ David A. Ridley
---------------------------
/s/ Shellie M. Sims
- ------------------------
Secretary
- 9 -
<PAGE>
APPENDIX TO SUB-ADVISORY AGREEMENT
Sub-Adviser: INVESCO Realty Advisors, Inc.
Fund Series Fee*
The EBI Funds, Inc. Real Estate Portfolio 0.35% (on assets
up to $100 million); 0.25% (on assets in excess of $100 million)
* Expressed as a percentage of the average daily value of net
assets of the Series.
DISTRIBUTION AGREEMENT
THIS AGREEMENT, as made the 1st day of July, 1993 and amended the 1st day
of November, 1993, between THE EBI FUNDS, INC., a Maryland corporation (the
"Fund"), and INVESCO SERVICES, INC., a Georgia corporation (the "Underwriter"),
amended the 19th day of April, 1995, is hereby further amended the 16th day of
February, 1996, for the purposes of (1) implementing the decision made by
shareholders of the Relative Return Bond Portfolio at the Special Shareholder
meeting on December 14, 1995, effective December 15, 1995, to allow the Income
Portfolio to acquire all of its assets and to terminate by deleting Relative
Return Bond Portfolio from this Agreement; and (2) implementing the unanimous
decision made by the Board of Directors of the Fund on April 17, 1995, effective
January 15, 1996, to change the name of the Fund to INVESCO Advisor Funds, Inc.
W I T N E S S E T H:
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as a diversified, open-end management
investment company and currently has one class of outstanding shares which is
divided into series (Equity Portfolio, Income Portfolio, Flex Portfolio,
MultiFlex Portfolio, , Real Estate Portfolio, International Value Portfolio, and
Cash Management Portfolio; the "Shares"), and which may be divided into
additional series, each representing an interest in a separate portfolio of
investments, and it is in the interest of the Fund to offer the Shares for sale
continuously; and
WHEREAS, the Underwriter is engaged in the business of selling shares of
investment companies either directly to investors or through other securities
dealers; and
WHEREAS, the Fund and the Underwriter wish to enter into an agreement with
each other with respect to the continuous offering of the Shares in order to
promote growth of the Fund and facilitate the distribution of the Shares;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. The Fund hereby appoints the Underwriter its agent for the distribution
of Shares in jurisdictions wherein such Shares may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell Shares directly to purchasers, or (b) issue or sell Shares to the
shareholders of any other investment company, for which the Underwriter or any
affiliate thereof shall act as exclusive distributor, who wish to exchange all
or a portion of their investment in Shares or in shares of such other investment
company for the Shares. Notwithstanding any other provision hereof, the Fund may
terminate, suspend or withdraw the offering of Shares whenever, in its sole
<PAGE>
discretion, it deems such action to be desirable. The Fund reserves the right to
reject any subscription in whole or in part for any reason.
2. The Underwriter hereby agrees to serve as agent for the distribution of
the Shares and agrees that it will use its best efforts with reasonable
promptness to sell such part of the authorized Shares remaining unissued as from
time to time shall be effectively registered under the Securities Act of 1933,
as amended (the "1933 Act"), at such prices and on such terms as hereinafter set
forth, all subject to applicable federal and state securities laws and
regulations. Nothing herein shall be construed to prohibit the Underwriter from
engaging in other related or unrelated businesses.
3. In addition to serving as the Fund's agent in the distribution of the
Shares, the Underwriter shall also provide to the holders of the Shares certain
maintenance, support or similar services ("Shareholder Services"). Such services
shall include, without limitation, answering routine shareholder inquiries
regarding the Fund, assisting shareholders in considering whether to change
dividend options and helping to effectuate such changes, arranging for bank
wires, and providing such other services as the Fund may reasonably request from
time to time. It is expressly understood that the Underwriter or the Fund may
enter into one or more agreements with third parties pursuant to which such
third parties may provide the Shareholder Services provided for in this
paragraph. Nothing herein shall be construed to impose upon the Underwriter any
duty or expense in connection with the services of any registrar, transfer agent
or custodian appointed by the Fund, the computation of the net asset value or
offering price of Shares, the preparation and distribution of notices of
meetings, proxy soliciting material, annual and periodic reports, dividends and
dividend notices, or any other responsibility of the Fund.
4. Except as otherwise specifically provided for in this Agreement, the
Underwriter shall sell the Shares directly to purchasers, or through qualified
broker-dealers or others, in such manner, not inconsistent with the provisions
hereof and the then- effective Registration Statement of the Fund under the 1933
Act (the "Registration Statement") and related Prospectus (the "Prospectus") and
Statement of Additional Information ("SAI") of the Fund as the Underwriter may
determine from time to time; provided that no broker-dealer or other person
shall be appointed or authorized to act as agent of the Fund without the prior
consent of the directors (the "Directors") of the Fund. The Underwriter will
require each broker-dealer to conform to the provisions hereof and of the
Registration Statement (and related Prospectus and SAI) at the time in effect
under the 1933 Act with respect to the public offering price of the Shares. The
Fund will have no obligation to pay any commissions or other remuneration to
such broker-dealers.
- 2 -
<PAGE>
5. The Shares offered for sale or sold by the Underwriter shall be offered
or sold at the net asset value per share determined in accordance with the
then-current Prospectus and/or SAI relating to the sale of the Shares except as
departure from such prices shall be permitted by the then-current Prospectus
and/or SAI of the Fund, in accordance with applicable rules and regulations of
the Securities and Exchange Commission. The price the Fund shall receive for the
Shares purchased from the Fund shall be the net asset value per share of such
Shares, determined in accordance with the Prospectus and/or SAI applicable to
the sale of the Shares.
6. Except as may otherwise be agreed to by the Fund, the Underwriter shall
be responsible for issuing and delivering such confirmations of sales made by it
pursuant to this Agreement as may be required; provided, however, that the
Underwriter or the Fund may utilize the services of other persons or entities
believed by it to be competent to perform such functions. Shares shall be
registered on the transfer books of the Fund in such names and denominations as
the Underwriter may specify.
7. The Fund will execute any and all documents and furnish any and all
information which may be reasonably necessary in connection with the
qualification of the Shares for sale (including the qualification of the Fund as
a broker-dealer where necessary or advisable) in such states as the Underwriter
may reasonably request (it being understood that the Fund shall not be required
without its consent to comply with any requirement which in the opinion of the
Directors of the Fund is unduly burdensome). The Underwriter, at its own
expense, will effect all qualifications of itself as broker or dealer, or
otherwise, under all applicable state or Federal laws required in order that the
Shares may be sold in such states or jurisdictions as the Fund may reasonably
request.
8. The Fund shall prepare and furnish to the Underwriter from time to time
the most recent form of the Prospectus and SAI of the Fund. The Fund authorizes
the Underwriter to use the Prospectus and SAI, in the forms furnished to the
Underwriter from time to time, in connection with the sale of the Shares of the
Fund. The Fund will furnish to the Underwriter from time to time such
information with respect to the Fund and the Shares as the Underwriter may
reasonably request for use in connection with the sale of the Shares. The
Underwriter agrees that it will not use or distribute or authorize the use,
distribution or dissemination by broker-dealers or others in connection with the
sale of the Shares any statements, other than those contained in a current
Prospectus and SAI of the Fund, except such supplemental literature or
advertising as shall be lawful under federal and state securities laws and
regulations, and that it will promptly furnish the Fund with copies of all such
material.
- 3 -
<PAGE>
9. The Underwriter will not make, or authorize any broker-dealers or others
to make, any short sales of the Shares of the Fund or otherwise make any sales
of the Shares unless such sales are made in accordance with a then-current
Prospectus and SAI relating to the sale of the applicable Shares.
10. The Underwriter, as agent of and for the account of the Fund, may
cause the redemption or repurchase of the Shares at such prices and upon such
terms and conditions as shall be specified in a then-current Prospectus and SAI.
In selling, redeeming or repurchasing the Shares for the account of the Fund,
the Underwriter will in all respects conform to the requirements of all state
and federal laws and the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., relating to such sale, redemption or repurchase, as
the case may be. The Underwriter will observe and be bound by all the provisions
of the Articles of Incorporation or Bylaws of the Fund and of any provisions in
the Registration Statement, Prospectus and SAI, as such may be amended or
supplemented from time to time, notice of which shall have been given to the
Underwriter, which at the time in any way require, limit, restrict, prohibit or
otherwise regulate any action on the part of the Underwriter.
11. (a) The Fund shall indemnify, defend and hold harmless the
Underwriter, its officers and directors and any person who controls the
Underwriter within the meaning of the 1933 Act, from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any attorney fees incurred
in connection therewith) which the Underwriter, its officers and directors or
any such controlling person, may incur under the federal securities laws, the
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or any
related Prospectus and/or SAI or arising out of or based upon any alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
Notwithstanding the foregoing, this indemnity agreement, to
the extent that it might require indemnity of the Underwriter or any person who
is an officer, director or controlling person of the Underwriter, shall not
inure to the benefit of the Underwriter or officer, director or controlling
person thereof unless a court of competent jurisdiction shall determine, or it
shall have been determined by controlling precedent, that such result would not
be against public policy as expressed in the federal securities laws and in no
event shall anything contained herein be so construed as to protect the
Underwriter against any liability to the Fund, the Directors or the Fund's
shareholders to which the Underwriter would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under this Agreement.
- 4 -
<PAGE>
This indemnity agreement is expressly conditioned upon the
Fund's being notified of any action brought against the Underwriter, its
officers or directors or any such controlling person, which notification shall
be given by letter or by telegram addressed to the Fund at its principal address
in Atlanta, Georgia and sent to the Fund by the person against whom such action
is brought within ten (10) days after the summons or other first legal process
shall have been served upon the Underwriter, its officers or directors or any
such controlling person. The failure to notify the Fund of any such action shall
not relieve the Fund from any liability which it may have to the person against
whom such action is brought by reason of any such alleged untrue statement or
omission otherwise than on account of the indemnity agreement contained in this
paragraph. The Fund shall be entitled to assume the defense of any suit brought
to enforce such claim, demand, or liability, but in such case the defense shall
be conducted by counsel chosen by the Fund and approved by the Underwriter,
which approval shall not be unreasonably withheld. If the Fund elects to assume
the defense of any such suit and retain counsel approved by the Underwriter, the
defendant or defendants in such suit shall bear the fees and expenses of an
additional counsel obtained by any of them. Should the Fund elect not to assume
the defense of any such suit, or should the Underwriter not approve of counsel
chosen by the Fund, the Fund will reimburse the Underwriter, its officers and
directors or the controlling person or persons named as defendant or defendants
in such suit, for the fees and expenses of any counsel retained by the
Underwriter or them. In addition, the Underwriter shall have the right to employ
counsel to represent it, its officers and directors and any such controlling
person who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Underwriter against the Fund hereunder if
in the reasonable judgment of the Underwriter it is advisable for the
Underwriter, its officers and directors or such controlling person to be
represented by separate counsel, in which event the fees and expenses of such
separate counsel shall be borne by the Fund. This indemnity agreement and the
Fund's representations and warranties in this Agreement shall remain operative
and in full force and effect and shall survive the delivery of any of the Shares
as provided in this Agreement. This indemnity agreement shall inure exclusively
to the benefit of the Underwriter and its successors, the Underwriter's officers
and directors and their respective estates and any such controlling person and
their successors and estates. The Fund shall promptly notify the Underwriter of
the commencement of any litigation or proceeding against it in connection with
the issue and sale of the Shares.
(b) The Underwriter agrees to indemnify, defend and hold harmless
the Fund, its Directors and any person who controls the Fund within the meaning
of the 1933 Act, from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
- 5 -
<PAGE>
or liabilities and any attorney fees incurred in connection therewith) which the
Fund, its Directors or any such controlling person may incur under the federal
securities laws, the common law or otherwise, but only to the extent that such
liability or expense incurred by the Fund, its Directors or such controlling
person resulting from such claims or demands shall arise out of or be based upon
(a) any alleged untrue statement of a material fact contained in information
furnished in writing by the Underwriter to the Fund specifically for use in the
Registration Statement or any related Prospectus and/or SAI or shall arise out
of or be based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement or the
related Prospectus and/or SAI or necessary to make such information not
misleading and (b) any alleged act or omission on the Underwriter's part as the
Fund's agent that has not been expressly authorized by the Fund in writing.
Notwithstanding the foregoing, this indemnity agreement, to
the extent that it might require indemnity of the Fund or any Director or
controlling person of the Fund, shall not inure to the benefit of the Fund or
Director or controlling person thereof unless a court of competent jurisdiction
shall determine, or it shall have been determined by controlling precedent, that
such result would not be against public policy as expressed in the federal
securities laws and in no event shall anything contained herein be so construed
as to protect any Director of the Fund against any liability to the Fund or the
Fund's shareholders to which the Director would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence or reckless disregard of
the duties involved in the conduct of his office.
This indemnity agreement is expressly conditioned upon the
Underwriter's being notified of any action brought against the Fund, its
Directors or any such controlling person, which notification shall be given by
letter or telegram addressed to the Underwriter at its principal office in
Atlanta, Georgia, and sent to the Underwriter by the person against whom such
action is brought, within ten (10) days after the summons or other first legal
process shall have been served upon the Fund, its Directors or any such
controlling person. The failure to notify the Underwriter of any such action
shall not relieve the Underwriter from any liability which it may have to the
person against whom such action is brought by reason of any such alleged untrue
statement or omission otherwise than on account of the indemnity agreement
contained in this paragraph. The Underwriter shall be entitled to assume the
defense of any suit brought to enforce such claim, demand, or liability, but in
such case the defense shall be conducted by counsel chosen by the Underwriter
and approved by the Fund, which approval shall not be unreasonably withheld. If
the Underwriter elects to assume the defense of any such suit and retain counsel
approved by the Fund, the defendant or defendants in such suit shall bear the
- 6 -
<PAGE>
fees and expenses of an additional counsel obtained by any of them. Should the
Underwriter elect not to assume the defense of any such suit, or should the Fund
not approve of counsel chosen by the Underwriter, the Underwriter will reimburse
the Fund, its Directors or the controlling person or persons named as defendant
or defendants in such suit, for the fees and expenses of any counsel retained by
the Fund or them. In addition, the Fund shall have the right to employ counsel
to represent it, its Directors and any such controlling person who may be
subject to liability arising out of any claim in respect of which indemnity may
be sought by the Fund against the Underwriter hereunder if in the reasonable
judgment of the Fund it is advisable for the Fund, its Directors or such
controlling person to be represented by separate counsel, in which event the
fees and expenses of such separate counsel shall be borne by the Underwriter.
This indemnity agreement and the Underwriter's representations and warranties in
this Agreement shall remain operative and in full force and effect and shall
survive the delivery of any of the Shares as provided in this Agreement. This
indemnity agreement shall inure exclusively to the benefit of the Fund and its
successors, the Fund's Directors and their respective estates and any such
controlling person and their successors and estates. The Underwriter shall
promptly notify the Fund of the commencement of any litigation or proceeding
against it in connection with the issue and sale of the Shares.
12. Except as may be provided in one or more other agreements between the
Fund and the Underwriter or third parties, the Fund will pay or cause to be paid
(a) expenses (including the fees and disbursements of its own counsel) of any
registration of the Shares under the 1933 Act, (b) expenses incident to the
issuance of the Shares, and (c) expenses (including the fees and disbursements
of its own counsel) incurred in connection with the preparation, printing and
distribution of the Fund's Prospectuses, SAIs, and periodic and other reports
sent to holders of the Shares in their capacity as such. The Underwriter shall
prepare and provide necessary copies of all sales literature subject to the
Fund's approval thereof.
13. This Agreement having been approved by a majority vote of the
Directors of the Fund, as well as a majority vote of the Directors who, except
for their positions as Directors of the Fund, are not "interested persons" (as
defined in the Investment Company Act) of the Fund and who have no direct or
indirect financial interest in the operation of this Agreement ("Disinterested
Directors"), shall become effective as of the date so written above and shall
continue in effect for an initial term of two years from the date of execution,
and from year to year thereafter, but only so long as such continuance is
specifically approved at least annually (a)(i) by a vote of the Directors of the
Fund or (ii) by a vote of a majority of the outstanding voting securities of the
Fund, and (b) by a vote of a majority of the Disinterested Directors, cast in
person at a meeting called for the purpose of voting on this Agreement.
- 7 -
<PAGE>
Either party hereto may terminate this Agreement on any date,
without the payment of a penalty, by giving the other party at least 60 days'
prior written notice of such termination specifying the date fixed therefor. In
particular, this Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Directors, or by vote of a
majority of the outstanding voting securities of the Fund on not more than 60
days' written notice to the Underwriter.
Without prejudice to any other remedies of the Fund provided for in
this Agreement or otherwise, the Fund may terminate this Agreement at any time
immediately upon the Underwriter's failure to fulfill any of the obligations of
the Underwriter hereunder.
14. This Agreement shall automatically terminate in the event of its
assignment. In interpreting the provisions of this Section 14, the definition of
"assignment" contained in the Investment Company Act shall be applied.
15. This Agreement may not be amended to increase the amount to be spent
by the Fund hereunder without approval of shareholders of the Fund. All material
amendments to the Agreement must be approved by the vote of the Board of
Directors of the Fund, including a majority of the Disinterested Directors, cast
in person at a meeting called for the purpose of voting on such amendment.
16. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.
17. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the Fund and
the Underwriter and, if applicable, approved in the manner required by the
Investment Company Act.
18. Each provision of this Agreement is intended to be severable. If any
provision of this Agreement shall be held illegal or made invalid by a court
decision, statute, rule or otherwise, such illegality or invalidity shall not
affect the validity or enforceability of the remainder of this Agreement.
19. This Agreement and the application and interpretation hereof shall be
governed exclusively by the laws of the State of Georgia.
- 8 -
<PAGE>
IN WITNESS WHEREOF, the Fund and the Underwriter have each caused this
Agreement to be executed on its behalf by an officer thereunto duly authorized
and the Underwriter has caused its corporate seal to be affixed as of the day
and year first above written.
THE EBI FUNDS, INC.
ATTEST: By: /s/ Hubert L. Harris, Jr.
---------------------------
Hubert L. Harris, Jr.
/s/ Tony D. Green President
- ------------------------
Secretary
[CORPORATE SEAL] INVESCO SERVICES, INC.
ATTEST:
By: /s/ John P. Stewart, Jr.
---------------------------
Senior Vice President
/s/ Tony D. Green
- ------------------------
Secretary
- 9 -
DEFINED BENEFIT DEFERRED COMPENSATION PLAN
FOR NON-INTERESTED DIRECTORS AND TRUSTEES
The registered, open-end management investment companies referred to on
Schedule A as the Schedule may hereafter be revised by the addition and deletion
of investment companies (the "Funds") have adopted this Defined Benefit Deferred
Compensation Plan ("Plan") for the benefit of those directors and trustees of
the Funds who are not interested directors or trustees thereof as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended ("Independent
Directors").
1. Eligibility
Each Independent Director who has served as such ("Eligible Service") on
the boards of any of the Funds and their predecessor and successor entities, if
any, or as an Independent Director of the now-defunct investment management
company known as FG Series for an aggregate of at least five years at the time
of his Service Termination Date (as defined in paragraph 2) will be entitled to
receive benefits under the Plan. An Independent Director's period of Eligible
Service commences on the date of election to the board of directors or trustees
of any one or more of the Funds ("Board"). Hereafter, references in this Plan to
Independent Directors shall be deemed to include only those Directors who have
met the Eligible Service requirement for Plan participation.
2. Service Termination and Service Termination Date
a. Service Termination. Service Termination means termination of
service (other than by disability or death) of an Independent Director which
results from the Director's having reached his Service Termination Date.
b. Service Termination Date. An Independent Director's Service
Termination Date is normally the last day of the calendar quarter in which such
Director's seventy-second birthday occurs. A majority of the Board of a Fund may
annually extend a Director's Service Termination Date for a maximum period of
three years, through the date not later than the last day of the calendar
quarter in which such Director's seventy-fifth birthday occurs.
As used in this Plan unless otherwise stipulated, Service Termination Date
shall mean an Independent Director's normal Service Termination Date, or the
Director's extended Service Termination Date, whichever may be applicable to the
Independent Director.
<PAGE>
3. Defined Payments and Benefit
a. Payments. If an Independent Director's Service Termination Date
occurs on a date not later than the last day of the calendar quarter in which
such Director's seventy-fourth birthday occurs, the Independent Director will
receive four quarterly payments during the first twelve months subsequent to his
Service Termination Date (the "First Year Retirement Payments"), with each
payment to be equal to 25 percent of the annual basic retainer payable by each
Fund to the Independent Director on his Service Termination Date (excluding any
fees relating to attending meetings or chairing committees).
b. Benefit. Commencing with the first anniversary of the Service
Termination Date of any Independent Director who has received the First Year
Retirement Payments, and commencing as of the Service Termination Date of an
Independent Director whose Service Termination Date is subsequent to the date of
the last day of the calendar quarter in which such Director's seventy- fourth
birthday occurred, the Independent Director will receive, for the remainder of
his life, a benefit (the "Benefit"), payable quarterly, with each quarterly
payment to be equal to 6.25 percent of the annual basic retainer payable by each
Fund to the Independent Director on his Service Termination Date (excluding any
fees relating to attending meetings or chairing committees).
c. Death Provisions. If an Independent Director's service as a
Director is terminated because of his death subsequent to the last day of the
calendar quarter in which such Director's seventy-second birthday occurred and
prior to the last day of the calendar quarter in which such Director's seventy-
fourth birthday occurs, the designated beneficiary of the Independent Director
shall receive the First Year Retirement Payments and shall, commencing with the
quarter following the quarter in which the last First Year Retirement Payment is
made, receive the Benefit for a period of ten years, with quarterly payments to
be made to the designated beneficiary.
If an Independent Director's service as a Director is terminated because
of his death prior to the last day of the calendar quarter in which such
Director's seventy-second birthday occurs or subsequent to the last day of the
calendar quarter in which such Director's seventy-fourth birthday occurred, the
designated beneficiary of the Independent Director shall receive the Benefit for
a period of ten years, with quarterly payments to be made to the designated
beneficiary commencing in the first quarter following the Director's death.
d. Disability Provisions. If an Independent Director's service
as a Director is terminated because of his disability subsequent to the last day
of the calendar quarter in
- 2 -
<PAGE>
which such Director's seventy-second birthday occurred and prior to the last day
of the calendar quarter in which such Director's seventy-fourth birthday occurs,
the Independent Director shall receive the First Year Retirement Payments and
shall, commencing with the quarter following the quarter in which the last First
Year Retirement Payment is made, receive the Benefit for the remainder of his
life, with quarterly payments to be made to the disabled Independent Director.
If the disabled Independent Director should die before the First Year Retirement
Payments are completed and before forty quarterly Benefit payments are made,
such payments will continue to be made to the Independent Director's designated
beneficiary until the aggregate of the First Year Retirement Payments and forty
quarterly Benefit payments have been made to the disabled Independent Director
and the Director's designated beneficiary.
If an Independent Director's service as a Director is terminated because
of his disability prior to the last day of the calendar quarter in which such
Director's seventy-second birthday occurs or subsequent to the last day of the
calendar quarter in which such Director's seventy-fourth birthday occurred, the
Independent Director shall receive the Benefit for the remainder of his life,
with quarterly payments to be made to the disabled Independent Director
commencing in the first quarter following the Director's termination for
disability. If the disabled Independent Director should die before forty
quarterly payments are made, payments will continue to be made to the
Independent Director's designated beneficiary until the aggregate of forty
quarterly payments has been made to the disabled Independent Director and the
Director's designated beneficiary.
e. Death of Independent Director and Beneficiary. If the Independent
Director and his designated beneficiary should die before the First Year
Retirement Payments and/or a total of forty quarterly Benefit payments are made,
the remaining value of the Independent Director's First Year Retirement Payments
and/or Benefit shall be determined as of the date of the death of the
Independent Director's designated beneficiary and shall be paid to the estate of
the designated beneficiary in one lump sum or in periodic payments, with the
determinations with respect to the value of the First Year Retirement Payments
and/or Benefit and the method and frequency of payment to be made by the
Committee (as defined in paragraph 8.a.) in its sole discretion.
4. Designated Beneficiary
The beneficiary referred to in paragraph 3 may be designated or changed by
the Independent Director without the consent of any prior beneficiary on a form
provided by the Committee (as defined in paragraph 8.a.) and delivered to the
Committee before the Independent Director's death. If no such beneficiary shall
have
- 3 -
<PAGE>
been designated, or if no designated beneficiary shall survive the Independent
Director, the value or remaining value of the Independent Director's First Year
Retirement Payments and/or Benefit shall be determined as of the date of the
death of the Independent Director by the Committee and shall be paid as promptly
as possible in one lump sum to the Independent Director's estate.
5. Disability
An Independent Director shall be deemed to have become disabled for the
purposes of paragraph 3 if the Committee shall find on the basis of medical
evidence satisfactory to it that the Independent Director is disabled, mentally
or physically, as a result of an accident or illness, so as to be prevented from
performing each of the duties which are incumbent upon an Independent Director
in fulfilling his responsibilities as such.
6. Time of Payment
The First Year Retirement Payments and/or the Benefit for each year will
be paid in quarterly installments that are as nearly equal as possible.
7. Payment of First Year Retirement Payments and/or Benefit; Allocation
of Costs
Each Fund is responsible for the payment of the amount of the First Year
Retirement Payments and/or Benefit applicable to the Fund, as well as its
proportionate share of all expenses of administration of the Plan, including
without limitation all accounting and legal fees and expenses and fees and
expenses of any Actuary. The obligations of each Fund to pay such First Year
Retirement Payments and/or Benefit and expenses will not be secured or funded in
any manner, and such obligations will not have any preference over the lawful
claims of each Fund's creditors and shareholders. To the extent that the First
Year Retirement Payments and/or Benefit is paid by more than one Fund, such
costs and expenses will be allocated among such Funds in a manner that is
determined by the Committee to be fair and equitable under the circumstances. To
the extent that one or more of such Funds consist of one or more separate
portfolios, such costs and expenses allocated to any such Fund will thereafter
be allocated among such portfolios by the Board of the Fund in a manner that is
determined by such Board to be fair and equitable under the circumstances.
8. Administration
a. The Committee. Any question involving entitlement to payments
under or the administration of the Plan will be
- 4 -
<PAGE>
referred to a four-person committee (the "Committee") composed of three
Independent Directors designated by all of the Independent Directors of the
Funds and one director of the Funds who is not an Independent Director,
designated by the non-Independent Directors. Except as otherwise provided
herein, the Committee will make all interpretations and determinations necessary
or desirable for the Plan's administration, and such interpretations and
determinations will be final and conclusive. Committee members will be elected
annually.
b. Powers of the Committee. The Committee will represent and act on
behalf of the Funds in respect of the Plan and, subject to the other provisions
of the Plan, the Committee may adopt, amend or repeal bylaws or other
regulations relating to the administration of the Plan, the conduct of the
Committee's affairs, its rights or powers, or the rights or powers of its
members. The Committee will report to the Independent Directors and to the
Boards of the Funds from time to time on its activities in respect of the Plan.
The Committee or persons designated by it will cause such records to be kept as
may be necessary for the administration of the Plan.
9. Miscellaneous Provisions
a. Rights Not Assignable. Other than as is specifically provided in
paragraph 3, the right to receive any payment under the Plan is not transferable
or assignable, and nothing in the Plan shall create any benefit, cause of
action, right of sale, transfer, assignment, pledge, encumbrance, or other such
right in any heirs or the estate of any Independent Director.
b. Amendment, etc. The Committee, with the concurrence of the Board
of any Fund, may as to the specific Fund at any time amend or terminate the Plan
or waive any provision of the Plan; provided, however, that subject to the
limitations imposed by paragraph 7, no amendment, termination or waiver will
impair the rights of an Independent Director to receive the payments which would
have been made to such Independent Director had there been no such amendment,
termination, or waiver.
c. No Right to Reelection. Nothing in the Plan will create any
obligation on the part of the Board of any Fund to nominate any Independent
Director for reelection.
d. Consulting. Subsequent to his Service Termination Date, an
Independent Director may render such services for any Fund, for such
compensation, as may be agreed upon from time to time by such Independent
Director and the Board of the Fund which desires to procure such services.
- 5 -
<PAGE>
e. Effectiveness. The Plan will be effective for all Independent
Directors who have Service Termination Dates occurring on and after October 20,
1993. Periods of Eligible Service shall include periods commencing prior and
subsequent to such date. Upon its adoption by the Board of a Fund, the Plan will
become effective as to that Fund on the date when the Committee determines that
any regulatory approval or advice that may be necessary or appropriate in
connection with the Plan have been obtained.
Adopted October 20, 1993.
Amended October 19, 1994.
\INVESCO\DBDCP-95.EFO
1/9/95
- 6 -
<PAGE>
SCHEDULE A
TO
DEFINED BENEFIT DEFERRED COMPENSATION PLAN
FOR NON-INTERESTED DIRECTORS AND TRUSTEES
INVESCO Diversified Funds, Inc.
INVESCO Dynamics Fund, Inc.
INVESCO Emerging Opportunity Funds, Inc.
INVESCO Growth Fund, Inc.
INVESCO Income Funds, Inc.
INVESCO Industrial Income Fund, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Multiple Asset Funds, Inc.
INVESCO Specialty Funds, Inc.
INVESCO Strategic Portfolios, Inc.
INVESCO Tax-Free Income Funds, Inc.
INVESCO Value Trust
INVESCO Variable Investment Funds, Inc.
The EBI Funds, Inc.
INVESCO Treasurer's Series Trust
\INVESCO\DBDCP-95.EFO
1/17/95
- 7 -
Amendment to Custody Fee Schedule
UMB Bank, n.a.
Institutional Custody Services - Domestic Portfolios
Schedule of Fees
Net Asset Value Charges
A fee to be computed as of month end and payable on the last day of each
month of the portfolios' fiscal year, at the annual rate of:
1.000 basis point on the combined net assets up to and including
250,000,000; plus
.75 basis point on the combined net assets in excess of
250,000,000 up to and including 500,000,000; plus
.50 basis point on the combined net assets in excess of
500,000,000.
Subject to a Minimum Monthly Account Charge of (see attached list for
breakdown):
$300 per account for non-personal accounts
The Personal Accounts will be assessed a $500.00 per account charge per
year. This will be charged on a monthly basis.
Portfolio Transaction Fees
DTC* ................................... $ 5.00
PTC* ................................... $12.00
Fed Book Entry* ........................ $ 8.00
Physical* .............................. $20.00
Third Party (Bank Book Entry)* ......... $15.00
Principal and Interest Payments ........ $ 5.00
Options/Futures ........................ $25.00
*A transaction is any buy, sell, maturity, or free security movement.
Out-of-Pocket Expenses
Include, but are not limited to, FDIC premiums, security transfer fees,
certificate fees and shipping/courier fees or charges.
<PAGE>
INVESCO ACCOUNTS
Non-Personal Accounts
EBI International 740103007
EBI Real Estate 740105002
EBI MultiFlex 740106000
EBI Relative Return 740107008
EBI Equity 740108006
EBI Income 740109004
EBI Flex 740110002
EBI Cash Management 740111000
Treasurers' Money Reserve 740115001
Treasurers' Tax Exempt 740116009
Treasurers' Prime Reserve 740144001
Treasurers' Special Reserve 740145008
Financial Services 690200001
INVESCO Solutions 690224001
Personal Accounts
Ann Amick-Kneece Family 290911015
Debbie Johnson-Kneece Family 290911023
David Kneece-Kneece Family 290911031
Luther Kneece-Kneece Family 290911049
Martha Kneece-Kneece Family 290911056
<PAGE>
UMB Bank, n.a.
Institutional Custody Services - Global Portfolios
Schedule of Fees
- --------------------------------------------------------------------------------
Market Annual Asset Charge (BP) Transaction Charge
- ------ ------------------------ ------------------
Euroclear 3 25
Eurodollar CD's 4 60
Area 1
- ------
Canada 4.5 35
Japan 4.5 35
United Kingdom 4.5 40
Area 2
- ------
Australia 7 60
Austria 7 50
Belgium 7 60
Denmark 7 50
ECU 7 50
Finland 7 50
France 7 60
Germany 7 45
Italy 7 60
Netherlands 7 50
New Zealand 7 85
Norway 7 50
Spain 7 60
Sweden 7 50
Switzerland 7 60
Area 3
- ------
Hong Kong 9 75
Ireland 9 60
Area 4
- ------
Malaysia 12 85
Mexico 12 60
Singapore 12 80
South Africa 12 70
Emerging Markets
- ----------------
Argentina 34 85
Botswana 56 160
Brazil 28 60
Chile 39 100
China 39 135
Colombia 56 110
Czech Republic 56 135
Ghana 56 160
Greece 77 160
Hungary 67 160
India tbd tbd
Indonesia 28 100
Israel 39 70
<PAGE>
Market Annual Asset Charge (BP) Transaction Charge
- ------ ------------------------ ------------------
Jordan 50 160
Morocco 45 85
Nigeria 67 160
Pakistan 34 160
Peru 72 160
Philippines 17 100
Poland 77 135
Portugal 28 160
South Korea 23 85
Sri Lanka 23 85
Taiwan 23 110
Thailand 14 85
Turkey 23 100
Uruguay 67 110
Venezuela 56 85
Zimbabwe 67 160
Misc. Cash Transactions 10
Euroclear - FX Transactions 35
Note: This fee schedule includes subcustodian and asset-based charges which are
normally passed through as an out-of-pocket expense. See attached list to review
additional charges that may apply in specified markets.
Out-of-Pocket Expenses
Including, but not limited to, telex, legal, telephone, postage, and direct
expenses such as tax reclaim processing charges, customized systems programming,
certificate fees, duties, and registration fees.
This fee schedule will commence October 1, 1995, for a period of three years.
INVESCO UMB Bank, n.a.
By: /s/ Tony D. Green By: /s/ Ralph R. Santoro
--------------------------------- -------------------------------------
Name: Tony D. Green Name: Ralph R. Santoro
Title: Senior Vice President Title: Vice President
Date: 9/8/95 Date: 9/22/95
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 26
to the registration statement on Form N-1A (the "Registration Statement") of our
report dated January 19, 1996, relating to the financial statements and
financial highlights appearing in the December 31, 1995 Annual Report to
Shareholders of the INVESCO Advisor Funds, Inc. which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the headings "Independent Accountants" and "Financial Statements" in
the Statement of Additional Information.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
- ------------------------
Denver, Colorado
April 18, 1996
PLAN AND AGREEMENT OF DISTRIBUTION PURSUANT TO RULE 12b-1
PLAN AND AGREEMENT made as of the 1st day of July, 1993 and amended the
1st day of November, 1993, by and between The EBI Funds, Inc., a Maryland
corporation (hereinafter called the "Company") and INVESCO Services, Inc., a
Georgia corporation ("ISI"), amended the 19th day of April, 1995, is hereby
further amended this 16th day of February, 1996, for the purposes of (1)
implementing the unanimous decision made by the Board of Directors of the
Company on July 17, 1995, and effective October 1, 1995, to reduce the Income
Portfolio's fee as provided in paragraph 4 of this Agreement; (2) implementing
the decision made by shareholders of the Relative Return Bond Portfolio at the
Special Shareholder meeting on December 14, 1995, effective December 15, 1995,
to allow the Income Portfolio to acquire all of its assets and to terminate by
deleting Relative Return Bond Portfolio from this Agreement; and (3)
implementing the unanimous decision made by the Board of Directors of the Fund
on April 17, 1995, and effective January 15, 1996, to change the name of the
Company to INVESCO Advisor Funds, Inc.
WHEREAS, the Company engages in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, the Company desires to finance the distribution of the shares of
each of six of its seven Series (the Equity Portfolio, the Income Portfolio, the
Flex Portfolio, the MultiFlex Portfolio, the Real Estate Portfolio, and the
International Value Portfolio; collectively, the "Funds") in accordance with
this Plan and Agreement of Distribution pursuant to Rule 12b-1 under the Act
(the "Plan and Agreement"); and
WHEREAS, ISI desires to be retained to perform services in accordance with
such Plan and Agreement and on said terms and conditions; and
WHEREAS, this Plan and Agreement has been approved by a vote of the board
of directors of the Company, including a majority of the directors who are not
interested persons of the Company, as defined in the Act, and who have no direct
or indirect financial interest in the operation of this Plan and Agreement (the
"Disinterested Directors") cast in person at a meeting called for the purpose of
voting on this Plan and Agreement;
NOW, THEREFORE, the Company hereby adopts the Plan set forth herein and
the Company and ISI hereby enter into this Agreement pursuant to the Plan in
accordance with the requirements of Rule 12b-1 under the Act, and provide and
agree as follows:
1. The Plan is defined as those provisions of this document by which the
Company adopts a Plan pursuant to Rule 12b-1 under the Act and authorizes
payments as described herein. The Agreement is defined as those provisions of
this document by which the Company retains ISI to provide distribution services
<PAGE>
beyond those required by the general Distribution Agreement between the parties,
as are described herein. The Company may retain the Plan notwithstanding
termination of the Agreement. Termination of the Plan will automatically
terminate the Agreement. Each Fund is hereby authorized to utilize its assets to
finance certain activities in connection with distribution of its shares.
2. Subject to the supervision of the board of directors, the Company
hereby retains ISI to promote the distribution of the shares of each of the
Funds by providing services and engaging in activities beyond those specifically
required by the Distribution Agreement between the Company and ISI and to
provide related services. The activities and services to be provided by ISI
hereunder shall include one or more of the following: (a) the payment of
compensation (including trail commissions and incentive compensation) to
investment advisers, securities dealers, financial institutions and other
organizations which render account maintenance or distribution services or
marketing assistance in connection with the distribution of the shares of each
of the Funds; (b) the payment of a service, support or similar fee to investment
advisers, securities dealers, financial institutions and other organizations
which render ongoing account maintenance services in connection with the
distribution of the shares of each of the Funds; (c) the printing and
distribution of statements of additional information, and prospectuses for the
use of potential investors in each Fund; (d) preparing, printing and
distributing sales literature; (e) the providing of advertising and engaging in
other promotional activities, including direct mail solicitation, and
television, radio, newspaper and other media advertisements; (f) the costs
associated with conducting educational conferences and promotional meetings with
representatives of investment advisers, securities dealers, financial
institutions and other organizations at which marketing of the Fund is
discussed; and (g) such other services and activities as may from time to time
be agreed upon by the board of directors of the Company. In addition, prior to
January 1, 1992, ISI paid a commission to broker-dealers selling shares of the
Equity, Income and Flex Portfolios at the time of sale equal to 4% of the total
purchase price, and those Funds were authorized under a Plan of Distribution
adopted pursuant to the provisions of Rule 12b-1 to make quarterly payments to
ISI to be applied to such advanced commission payments. Payments from this Plan
and Agreement may continue to be used for this purpose. With respect to
paragraphs 2(d), 2(e), and 2(f) above, ISI shall be entitled to use Plan and
Agreement payments to offset its overhead expenses which involve the costs of
ISI's personnel whose primary responsibilities involve marketing of the EBI
Funds.
3. ISI hereby undertakes to use its best efforts to promote sales of
shares of each of the Funds to investors by engaging in those activities
specified in paragraph (2) above as may be necessary and as it from time to time
believes will best further sales of such shares.
- 2 -
<PAGE>
4. Each Fund, except the Income Portfolio, shall pay ISI out of its
assets, on a monthly basis, an amount computed at an annual rate of .75 of 1% of
the daily net assets of the Fund during the month, all of which amount must, in
the discretion of ISI, either be used by ISI to provide the Funds with the
marketing activities and distribution services specified in paragraph (2) above,
including using such payments to offset advanced commission payments that have
been paid to broker-dealers for sale of Fund shares, or returned to the Fund.
The Income Portfolio shall pay ISI out if its assets, on a monthly basis, an
amount computed at an annual rate of .35 of 1% of the daily net assets of the
Fund during the month, all of which amount must, in the discretion of ISI,
either be used by ISI to provide the Fund with the marketing activities and
distribution services specified in paragraph (2) above, including using such
payments to offset advanced commission payments that have been paid to
broker-dealers for sale of Fund shares, or returned to the Fund. In addition,
each Fund shall pay ISI out of its assets, on a monthly basis, an amount
computed at an annual rate of .25 of 1% of daily net assets of the Fund during
the month, all of which amount must, in the discretion of ISI, either be used by
ISI to pay the service, support, or similar fee specified in paragraph 2(b)
above, or returned to the Fund. No payments will be made by a Fund hereunder
after the date of termination of the Plan and Agreement.
5. To the extent that expenditures made by ISI out of its own resources to
finance any activity primarily intended to result in the sale of shares of a
Fund, pursuant to this Plan and Agreement or otherwise, may be deemed to
constitute the indirect use of Fund assets, such indirect use of Fund assets is
hereby authorized in addition to any other payments authorized under this Plan
and Agreement.
6. ISI shall provide, and the board of directors of the Company shall
review, at least quarterly a written report of all amounts expended pursuant to
the Plan and Agreement and the purposes for which such expenditures were made.
Upon request, but no less frequently than annually, ISI shall provide to the
board of directors of the Company such information as may reasonably be required
for it to review the continuing appropriate- ness of the Plan and Agreement.
- 3 -
<PAGE>
7. This Plan and Agreement having been approved by a vote of a majority of
the outstanding voting securities of the Fund as defined in the Act, shall each
become effective as of the date so written above, and shall each continue in
effect for a period of one year from the date of such approval unless terminated
as provided below. Thereafter, the Plan and Agreement shall continue in effect
from year to year, provided that the continuance of each is approved at least
annually by a vote of the board of directors of the Company, including a
majority of the Disinterested Directors, cast in person at a meeting called for
the purpose of voting on such continuance. The Plan may be terminated at any
time as to any Fund, without penalty, by the vote of a majority of the
Disinterested Directors or by the vote of a majority of the outstanding voting
securities of the Fund. ISI, or the Company, by vote of a majority of the
Disinterested Directors or of the holders of a majority of the outstanding
voting securities of any Fund, may terminate the Agreement under this Plan as to
such Fund, without penalty, upon 30 days' written notice to the other party. In
the event that neither ISI nor any affiliate of ISI serves the Company as
investment adviser, the Agreement with ISI pursuant to this Plan shall terminate
at such time. The board of directors may determine to approve a continuance of
the Plan, but not a continuance of the Agreement, hereunder.
8. So long as the Plan remains in effect, the selection and nomination of
persons to serve as directors of the Company who are not "interested persons" of
the Company shall be committed to the discretion of the directors then in office
who are not "interested persons" of the Company. However, nothing contained
herein shall prevent the participation of other persons in the selection and
nomination process; provided that a final decision on any such selection or
nomination is within the discretion of, and approved by, a majority of the
directors of the Company then in office who are not "interested persons" of the
Company.
9. This Plan may not be amended to increase the amount to be spent by any
Fund hereunder without approval of shareholders of such Fund. All material
amendments to the Plan and to the Agreement must be approved by the vote of the
board of directors of the Company, including a majority of the Disinterested
Directors, cast in person at a meeting called for the purpose of voting on such
amendment.
10. To the extent that this Plan and Agreement constitutes a Plan of
Distribution adopted pursuant to Rule 12b-1 under the Act, it shall remain in
effect as such, so as to authorize the use by each Fund of its assets in the
amounts and for the purposes set forth herein, notwithstanding the occurrence of
an "assignment," as defined by the Act and the rules thereunder. To the extent
it constitutes an Agreement with ISI pursuant to a Plan it shall terminate
automatically in the event of such "assignment." Upon a termination of the
- 4 -
<PAGE>
Agreement with ISI, the Funds may continue to make payments pursuant to the Plan
only upon the approval of a new Agreement under this Plan and Agreement, which
may or may not be with ISI, or the adoption of other arrangements regarding the
use of the amounts authorized to be paid by the Funds hereunder, by the
Company's board of directors in accordance with the procedures set forth in
paragraph 7 above.
11. The Company shall preserve copies of this Plan and Agreement, together
with minutes of all board of directors' meetings at which the adoption,
amendment or continuance of the Plan were considered (describing the factors
considered and the basis for decision), for a period of not less than six years
from the date of this Plan and Agreement, or for any such reports or minutes, as
the case may be, the first two years in an easily accessible place.
12. This Plan and Agreement shall be construed in accordance with the laws
of the State of Georgia and applicable provisions of the Act. To the extent the
applicable law of the State of Georgia, or any provisions herein, conflict with
the applicable provisions of the Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Plan and Agreement on the day and year first above written.
THE EBI FUNDS, INC.
ATTEST: By: /s/ Hubert L. Harris, Jr.
---------------------------
Hubert L. Harris, Jr.
/s/ Tony D. Green President
- -------------------------
Secretary
INVESCO SERVICES, INC.
By: /s/ John P. Stewart, Jr.
--------------------------
Vice President
ATTEST:
/s/ Tony D. Green
- --------------------------
Secretary
- 5 -
EXHIBIT 16
INVESCO ADVISOR FUNDS, INC.
Total Return Performance Calculation
Single Period Calculation
P = Initial Investment = $25,000
N = Number of periods = 1
NAV at beginning of period (June 30, 1994) = $57.74
NAV at end of period (September 30, 1994) = $60.50
NAV on 09/28/94 (dividend date) = $60.72
Dividend per share = $0.112
# of shares originally purchased = $25,000/$57.74 = 432.975 shares
# shares issued pursuant to dividend reinvestment = ($0.112 x 432.975)/$60.72 =
0.799 shares
ERV = Ending Redeemable Value = (432.975 + 0.799) x $60.50 = $26,243.33
Calculation
P(1 + T)N = ERV
T = (ERV)1/N - 1
P
T = (26,243.33)1/1 - 1
25,000
T = 4.97%
NOTE: Performance is calculated in the same manner as above for each of
INVESCO Advisor Funds, Inc.'s Equity, Income, Flex, MultiFlex,
Relative Return, International Value and Real Estate Portfolios.
<PAGE>
Yield Calculation
YIELD = 2[((((A-B)/C*D) + 1) ^ 6) - 1]
WHERE: A = Dividends + Interest
B = Expenses
C = Average Shares outstanding
D = Maximum price on last day
For Cash Management Portfolio:
A = 168,335.87
B = 46,833.23
C = 581,114.131
D = 45.33
Current Yield = 5.60%
COMPUTATION OF PERFORMANCE DATA
The yield of a Fund refers to the income generated by an investment in the
Fund over a 30-day or one-month period, and is computed by dividing the net
investment income per share earned during the period by the net asset value per
share at the end of the period, then adjusting the result to provide for
semi-annual compounding.
Formula is as follows, where:
a = dividends and interest earned during the period b = expenses accrued
for the period (net of reimbursements) c = the average daily number of
shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
YIELD - 2[(a - b +1) to the 6th power - 1)]
------
cd
The following formulas are used in calculating yield for the Income and Real
Estate Portfolios:
INCOME FUND
2[(145,411.55 - 73,041.93 + 1) to the 6th power - 1)] = 2.92%
--------------------------
572,028.788 (52.22)
REAL ESTATE PORTFOLIO
2[(29,336.13 - 22,352.51 + 1) to the 6th power - 1)] = 1.64%
--------------------------
119,141.557 (43.02)
Computation of Performance Data
Dividend Yield
The yield of a Portfolio refers to a measure of investment return during a
specified period based on dividends actually paid by a Portfolio from its net
investment income during the specified period and dividing that sum by the net
asset value per share of the Portfolio on the last day of the period. Total
dividends paid by the Portfolio during the specified are period are divided by
the net asset value of a Portfolio share on the last day of the specified
period. This result is divided by the number of days in the specified period and
the result is multiplied by 365.
Formula is as follows, where =
a= dividends paid during the period
b= the maximum offering price per share on the last day of the period
c= number days outstanding in period
Dividend Yield = [(a / b) / c] * 365
The following formulas are used in calculating yield for the Income and Real
Estate Portfolios:
Income Portfolio:
[ ($2.459 / $52.22) / 365] * 365 = 4.71%
Real Estate Portfolio
[ ($0.615 / $43.02) / 245] * 365 = 2.14%
Computation of Performance Data
Distribution Yield
The yield of a Portfolio refers to a measure of investment return during a
specified period based on dividends and distributions actually paid by a
Portfolio from its net investment income and capital gains during the specified
period and dividing that sum by the net asset value per share of the Portfolio
on the last day of the period. Total distributions paid by the Portfolio during
the specified are period are divided by the net asset value of a Portfolio share
on the last day of the specified period. This result is divided by the number of
days in the specified period and the result is multiplied by 365.
Formula is as follows, where = a= dividends paid during the period b= capital
gains distributions during the period
c= the maximum offering price per share on the last day of the period
d= number days outstanding in period
Dividend Yield = [(a + b/ c) / d] * 365
The following formulas are used in calculating yield for the Income and Real
Estate Portfolios:
Income Portfolio:
[ ($2.459 + $0.00/ $52.22) / 365] * 365 = 4.71%
Real Estate Portfolio
[ ($0.615 + $0.00/ $43.02) / 245] * 365 = 2.14%
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<NAME> INVESCO ADVISOR FUNDS, INC.
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<NAME> CASH MANAGEMENT PORTFOLIO
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POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Edward F.
O'Keefe and Glen A. Payne, or either of them, as his attorney-in-fact to execute
and to file such Registration Statements under federal and state securities laws
and such Post-Effective Amendments to such Registration Statement of INVESCO
Advisor Funds, Inc. as such attorney-in-fact, or either of them, may deem
appropriate:
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 16th day of April, 1996.
/s/ Frank M. Bishop
--------------------------------
Frank M. Bishop
STATE OF GEORGIA )
)
COUNTY OF FULTON )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by Frank M. Bishop, as a
director of INVESCO Advisor Funds, Inc., this 16th day of April, 1996.
/s/ Maricia A. Kubovetz
---------------------------------
Notary Public, Fulton County, Georgia
My Commission Expires: January 21, 1997
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Edward F.
O'Keefe and Glen A. Payne, or either of them, as his attorney-in-fact to execute
and to file such Registration Statements under federal and state securities laws
and such Post-Effective Amendments to such Registration Statement of INVESCO
Advisor Funds, Inc. as such attorney-in-fact, or either of them, may deem
appropriate:
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 16th day of April, 1996.
/s/ John W. McIntyre
--------------------------------
John W. McIntyre
STATE OF GEORGIA )
)
COUNTY OF FRANKLIN )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by John W. McIntyre, as a
director of INVESCO Advisor Funds, Inc., this 16th day of April, 1996.
/s/ Sue S. Shore
---------------------------------
Notary Public, Franklin County, Georgia
My Commission Expires: December 15, 1999
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Edward F.
O'Keefe and Glen A. Payne, or either of them, as his attorney-in-fact to execute
and to file such Registration Statements under federal and state securities laws
and such Post-Effective Amendments to such Registration Statement of INVESCO
Advisor Funds, Inc. as such attorney-in-fact, or either of them, may deem
appropriate:
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 16th day of April, 1996.
/s/ A.D. Frazier, Jr.
-----------------------------
A. D. Frazier, Jr.
STATE OF GEORGIA )
)
COUNTY OF COBB )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by A. D. Frazier,
Jr., as a director of INVESCO Advisor Funds, Inc., this 16th day of April, 1996.
/s/ B. Sharron Smith
---------------------------------
Notary Public, Cobb County, Georgia
My Commission Expires: January 21, 1997
