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 INCOME PORTFOLIO
FLEX PORTFOLIO MULTIFLEX PORTFOLIO
INTERNATIONAL VALUE PORTFOLIO REAL ESTATE PORTFOLIO
CASH MANAGEMENT PORTFOLIO
Class A and C Shares
- --------------------------------------------------------------------------------
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.
Each Portfolio offers two classes of shares. Class A shares are generally
subject to a front-end sales charge and Class C shares are generally subject to
a contingent deferred sales charge ("CDSC"), provided that Cash Management
Portfolio shares are subject to neither a front-end sales charge nor a CDSC.
- --------------------------------------------------------------------------------
<PAGE>
INVESCO Services, Inc.
Investment Adviser
Manager
Distributor
INVESCO Capital Management, Inc. INVESCO Management & Research,
Inc.^
Sub-Adviser: ^ Equity ^, Sub-Adviser: MultiFlex ^
Income ^,
Flex ^, INVESCO Realty Advisors, Inc.
International Value, Sub-Adviser: ^ Real Estate
and Cash Mangement
Portfolio
- --------------------------------------------------------------------------------
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
This Prospectus is designed to set forth concisely the information
that you should know before investing in Class A or C Shares of the
Portfolios. A Statement of Additional Information for the Fund dated ^ December
31, 1996 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
^ December 31, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY.................................................................... 3
SUMMARY OF FUND EXPENSES................................................... 5
FINANCIAL HIGHLIGHTS....................................................... 7
THE FUND................................................................. ^ 12
INVESTMENT OBJECTIVES AND POLICIES....................................... ^ 12
Equity Portfolio................................................... ^ 12
Income Portfolio................................................... ^ 12
Flex Portfolio..................................................... ^ 14
MultiFlex Portfolio................................................ ^ 15
Real Estate Portfolio.............................................. ^ 17
International Value Portfolio...................................... ^ 18
Cash Management Portfolio.......................................... ^ 19
ADDITIONAL RISK FACTORS AND POLICIES RELEVANT TO THE
PORTFOLIOS......................................................... ^ 19
INVESTMENT RESTRICTIONS.................................................. ^ 26
MANAGEMENT OF THE FUND................................................... ^ 26
THE DISTRIBUTOR.......................................................... ^ 30
PLANS OF DISTRIBUTION.................................................... ^ 30
INVESCO ADVISOR FUNDS, INC. SHAREHOLDER SERVICES GUIDE................... ^ 32
HOW TO BUY SHARES.................................................. ^ 32
Purchase Alternatives........................................ ^ 33
Buying Class A Shares........................................ ^ 33
Buying Class C Shares........................................ ^ 36
General Information.......................................... ^ 37
HOW TO REDEEM SHARES............................................... ^ 37
To Sell Through Your Broker-Dealer........................... ^ 37
To Sell Directly to the Fund................................. ^ 37
Redemption by Letter, Telephone and Check.................... ^ 37
Systematic Withdrawal Plan................................... ^ 39
General Information.......................................... ^ 39
HOW TO EXCHANGE SHARES............................................. ^ 39
Automatic Monthly Exchange................................... ^ 40
BankDraft.................................................... ^ 40
<PAGE>
COMPUTATION OF NET ASSET VALUE........................................... ^ 40
CAPITALIZATION........................................................... ^ 42
DISTRIBUTIONS AND TAX INFORMATION........................................ ^ 42
Distributions...................................................... ^ 42
Federal Taxes...................................................... ^ 43
Automatic Dividend Reinvestment Plan............................... ^ 43
SHAREHOLDER REPORTS...................................................... ^ 44
PERFORMANCE INFORMATION.................................................. ^ 44
MISCELLANEOUS............................................................ ^ 45
LEGAL OPINIONS........................................................... ^ 45
<PAGE>
PROSPECTUS SUMMARY
THE FUND:
INVESCO Advisor Funds, Inc., an open-end, diversified management investment
company, consists of Class A and C shares of 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").
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.
PURCHASE ALTERNATIVES:
Each of the Portfolios offers two classes of shares, Class A and Class C.
For Cash Management Portfolio, both Class A and Class C shares are offered at
net asset value with no initial sales charge. No contingent deferred sales
charge ("CDSC") is imposed upon redemption of shares of either class of this
Portfolio, except in certain cases when the shares were purchased in an
exchange, and its assets are not subject to any service or distribution fees.
(See "Redemptions.") For the other Portfolios, the two classes have the
following features:
Class A Shares: Class A shares are sold with an initial sales charge of up
to 5.50% of the offering price for all Portfolios ^(4.75%
for Income Portfolio) and are subject to an ongoing service
fee calculated at an annual rate of 0.35% of the average
daily net assets of the Portfolio's Class A shares (0.25%
for Income Portfolio). The initial sales charge may be
waived or reduced in certain circumstances. Shares
purchased pursuant to waiver of the initial sales charge
are subject to a contingent deferred sales charge ("CDSC")
of 1.00% if redeemed within 18 months of purchase in
certain circumstances. (See "Buying Class A Shares.")
Class C Shares: Class C shares do not incur an initial sales charge when
purchased but are subject to a CDSC of 1.00% if redeemed
within 1 year of purchase for all Portfolios ^(0.60% for
Income ^ Portfolio) and are subject to an ongoing service
fee of 0.25% and an ongoing distribution fee calculated at
an annual rate of 0.75% (0.35% distribution fee for Income
Portfolio) of the Portfolio's average daily net assets of
Class C shares of the Portfolio.
Certain minimum purchase requirements apply. 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.")
REDEMPTIONS:
Shareholders can redeem their shares in a Portfolio any day the New York
Stock Exchange is open, either directly ^ through the Fund's transfer agent or
through the shareholder's securities dealer of record. A Portfolio will only
redeem shares for which it has received payment. (See ^"INVESCO Advisor Funds,
Inc. Shareholder Services Guide - How to Redeem ^ Shares.")
<PAGE>
Class A Shares: Only shares purchased pursuant to a waiver of the initial
sales charge are subject to a contingent deferred sales
charge ^("CDSC") of 1.00% if redeemed within 18 months of
purchase in certain circumstances. This CDSC does not
apply to wrap fee client accounts. (See "Buying Class A
Shares.")
Class C Shares: A CDSC is applicable to shares purchased 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 shares of the
Cash Management Portfolio if the redeemed shares were
exchanged from another Portfolio and the one-year holding
period in a Portfolio other than Cash Management Portfolio
has not been completed. There is no CDSC applicable to
redemptions of 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 ^ FPS Services, Inc.(the "Transfer Agent") on
behalf of those shareholders, 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. (See "INVESCO Advisor Funds, Inc. Shareholder
Services Guide - How to Redeem Shares.")
RISK FACTORS AND POLICIES:
Certain of the Portfolios may engage in investment techniques that involve
risks described more fully under "Additional Risk Factors and Policies Relevant
to the Portfolios." For instance, all of the Portfolios, except the Real Estate
^ and Cash Management Portfolios, may invest in securities of foreign issuers,
which may be subject to additional risk factors, including foreign currency
<PAGE>
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 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."
SUMMARY OF FUND EXPENSES
Shareholder Transaction Expenses:
Class A Shares Class C Shares
-------------- --------------
Maximum Front-End Sales Charge
Imposed on Purchase of Shares
(as a percentage of offering
price)(1)
^ Cash Management Portfolio NONE NONE
Income Portfolio ^ 4.75% NONE
Other Portfolios 5.50% NONE
Contingent Deferred Sales NONE* First year equal
Charge(as a percentage of to "12b-1" column
original purchase price or shown below in
redemption price, whichever Class C; elimin-
is lower) ated thereafter
Annual Operating Expenses (as a percentage of average net assets):
Class A Shares
--------------
Total
Other Operating
Portfolio Advisory Fees 12b-1 Fees(1) Expenses(2) Expenses
- --------- ------------- ------------- ----------- ---------
Equity Portfolio 0.75% 0.35% 0.46% 1.56%
Income Portfolio (3) 0.40% 0.25% 0.46% 1.11%
Flex Portfolio 0.75% 0.35% 0.46% 1.56%
MultiFlex Portfolio 1.00% 0.35% 0.46% 1.81%
Real Estate Portfolio 0.90% 0.35% 0.46% ^ 1.71%
International Value
Portfolio 1.00% 0.35% 0.46% 1.81%
Cash Management Portfolio 0.50% NONE* 0.46% 0.96%
<PAGE>
Class C Shares
--------------
Total
Other Operating
Portfolio Advisory Fees 12b-1 Fees(1) Expenses(2) Expenses
------------- ------------- ----------- ---------
Equity Portfolio 0.75% 1.00% 0.46% 2.21%
Income Portfolio (3) 0.40% 0.60% 0.46% 1.46%
Flex Portfolio 0.75% 1.00% 0.46% 2.21%
MultiFlex Portfolio 1.00% 1.00% 0.46% 2.46%
Real Estate Portfolio 0.90% 1.00% 0.46% 2.36%
International Value
Portfolio 1.00% 1.00% 0.46% 2.46%
Cash Management Portfolio 0.50% NONE* 0.46% 0.96%
(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%, 0.25%, 0.46%, and ^ 1.36%
for Class A shares, and 0.65%, 0.60%, 0.46% and 1.71% for Class C shares,
respectively, calculated on the basis of average daily net assets of the
respective class. During 1995, the Portfolio incurred one-time reorganization
expenses of 0.10%. (See "Management of the Fund.")
*A deferred sales charge of 1.00% is assessed on redemptions of Class A
shares within 18 months of purchase that were purchased without an initial sales
charge as part of an investment of $1 million or more. (See ^"INVESCO Advisor
Funds, Inc. Shareholder Services Guide - How to Buy Shares, Buying Class A ^
Shares.")
**A CDSC may be assessed against redemptions of Cash Management Portfolio
shares that were purchased by exchange of shares from another Portfolio held
less than one year. (See "INVESCO Advisor Funds, Inc. Shareholder Services Guide
- - How to Exchange Shares.")
<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
Class A $72 $104 $138 $232
Class C $32 $69 $118 $254
Income Portfolio
Class A $58 $81 $106 $176
Class C $21 $46 $80 $175
Flex Portfolio
Class A $72 $104 $138 $232
Class C $32 $69 $118 $254
MultiFlex Portfolio
Class A $75 $111 $150 $258
Class C $35 $77 $131 $280
Real Estate Portfolio
Class A ^ $74 ^ $108 ^ $145 ^ $248
Class C $34 $74 $126 $270
International Value Portfolio
Class A $74 $111 $150 $258
Class C $35 $77 $131 $280
Cash Management Portfolio
Classes A and C $10 $31 $53 $118
A shareholder would pay the following expenses on the same investment,
assuming no redemption:
<PAGE>
1 Year 3 Years 5 Years 10 Years
------ ------- -------- --------
Equity Portfolio
Class A $72 ^ $104 ^$138 ^ $232
Class C $22 $69 $118 $254
Income Portfolio
Class A $58 $81 $106 $176
Class C $15 $46 $80 $175
Flex Portfolio
Class A $72 ^$104 ^ $138 ^ $232
Class C $22 $69 $118 $254
MultiFlex Portfolio
Class A $74 ^ $111 ^ $150 ^ $258
Class C $25 $77 $131 $280
Real Estate Portfolio
Class A ^ $74 ^ $108 ^ $145 ^ $248
Class C $24 $74 $126 $270
International Value Portfolio
Class A $74 ^ $111 ^ $150 ^ $258
Class C $25 $77 $131 $280
Cash Management Portfolio
Classes A and C $10 $31 $53 $118
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 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.
FINANCIAL HIGHLIGHTS
The following financial information for Class C shares 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,
<PAGE>
which is incorporated by reference into the Statement of Additional
Information. All of these materials 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. Financial information is not presented for
Class A as no Class A shares were publicly issued as of the date of the
Prospectus.
<PAGE>
Equity Portfolio
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -
beginning of period $55.83 $59.61 $63.27 $63.38 $54.70 $62.01 $56.89 $54.16 ^ $56.0 5$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%
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 asset* 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%
</TABLE>
*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.
<PAGE>
Income Portfolio
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
<PAGE>
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 asset* 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%
</TABLE>
* 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.^
<PAGE>
Flex Portfolio
(For a Share Outstanding Throughout Each Period) (Continued)
<TABLE>
<CAPTION>
Period
Year Ended December 31 ^ Ended
-------------------------------------------------------------- -------
1995 1994 1993 1992 1991 1990 1989 1988*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 asset** 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>
*From February 24, ^ 1988, commencement of operations, to December 31, 1988.
#Not Annualized.
**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 Each Period) (Continued)
Period
<TABLE>
<CAPTION>
November 17
to December
Year Ended December 31 31, 1993
----------------------- -----------
1995 1994 1993*
<S> <C> <C> <C>
Net asset value -
beginning of period $39.13 $40.16 $40.00
----------------------- -----------
INVESTMENT OPERATIONS
New 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%
</TABLE>
*Commencement of Operations.
#Not Annualized.
+Annualized.
<PAGE>
Real Estate Portfolio
(For a Share Outstanding Throughout Each Period) (Continued)
For the period
May 1, 1995* to
December 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 (000's omitted)^ $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.
#Not Annualized.
+Annualized.
<PAGE>
International Value Portfolio
(For a Share Outstanding Throughout Each Period) (Continued)
For the period
May 1, 1995* to
December 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
(000's ^ omitted) $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.
#Not annualized.
+Annualized.
<PAGE>
Cash Management Portfolio
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION> Year Ended December 31
----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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% 3.04% 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 asset* 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 ("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,
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.
<PAGE>
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
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."
<PAGE>
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 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.
<PAGE>
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 Depository 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 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, possess higher rates of return
on 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
<PAGE>
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 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
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.
<PAGE>
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
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,
<PAGE>
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
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.
<PAGE>
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, a diversified
portfolio is 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.
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.
<PAGE>
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 database
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
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.
<PAGE>
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 intends to operate in accordance with the investment
restrictions and requirements imposed by federal rules and regulatory
interpretations applicable to money market funds, as they may be amended from
time to time. These rules, generally, restrict the Portfolio's investments to
high-quality short-term, liquid securities which are determined to present
minimal credit risk, and set specific limits on the Portfolio's dollar-weighted
average portfolio maturity.
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 ^ Investment Company Act of 1940 (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 Portfolio'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 that the Portfolio will be able to maintain
its rights to such collateral upon default of the issuer of the
<PAGE>
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 agreements. 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, limitations 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
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.
<PAGE>
Since certain Portfolios are authorized to invest in securities denominated
or quoted in currencies other than the U.S. dollar, as well as ADRs with respect
to such securities, changes in foreign currency exchange rates relative to the
U.S. dollar will affect the value of such ADRs and 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
and ADRs.
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 involve 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
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,
<PAGE>
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.
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
<PAGE>
"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
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
<PAGE>
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.
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.
<PAGE>
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 Portfolio 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.
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
<PAGE>
risks associated with the direct ownership of real estate, including
difficulties in valuing and trading real estate, 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 Portfolio may invest up to
5% of assets 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 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 securities or
payment-in-kind securities (which pay interest in the form of additional
securities), the market prices of such securities are affected to a greater
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extent by interest rate changes, and therefore tend to be more volatile
than securities which pay interest periodically and in cash. Moreover, 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 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.
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
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 or liquid securities 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.
<PAGE>
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.
(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.
General. No assurance is or can be given that any Portfolio 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 each Portfolio's
assets, 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 the Portfolios' investment objectives and 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 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
<PAGE>
which the shareholder considered appropriate at the time of investment in the
Portfolio. 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.
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 currently offers two 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"), 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.
<PAGE>
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
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
Portfolio Manager Capital 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. Terrence Irrgang, Portfolio Manager, ICM (April 1992 to present);
C.F.A. Consultant, Towers, Perrin, Forster & Crosby
Assistant Portfolio (Oct. 1988 to April 1992). Manager Chartered
Manager Financial Analyst. Atlanta Society of Financial
Analysts. Mr. Irrgang has assisted in managing
the Equity Portfolio since July 1993.
<PAGE>
Income Portfolio
James O. Baker, Portfolio Manager, ICM (Oct. 1992 to present);
C.F.A. Portfolio Manager, Willis Investment Counsel
Portfolio Manager (Dec. 1990 to Oct. 1992); Broker, Morgan Keegan
(Dec. 1989 to Dec. 1990); Broker, Drexel
Burnham Lambert (April 1985 to Dec. 1990).
Chartered Financial Analyst. 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
Assistant Portfolio present). Chartered Financial Analyst.
Manager Chartered Investment Counselor. Atlanta Society
of Financial Analysts. Mr. Jenkins has assisted
in managing the Income Portfolio since 1989.
Flex Portfolio
Edward C. Mitchell, President and Director, ICM (Jan. 1992 to
Jr., C.F.A. present); Vice President and Director, ICM
Portfolio Manager (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
C.F.A. present); Mutual Fund Sales, ISI (Feb. 1986
Assistant Portfolio to March 1991). Chartered Financial
Manager Analyst. Atlanta Society of Financial Analysts.
Mr. Griffin has assisted in managing the Flex
Portfolio since July 1993.
<PAGE>
MultiFlex Portfolio
Robert S. Slotpole Vice President and Portfolio Manager, IMR
^ Portfolio Manager (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 decisions 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.
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
^ Portfolio Manager 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, Vice President, ICM (Dec. 1991 to present);
Jr. Portfolio Manager, ICM (Jan. 1987 to
^ Portfolio Manager 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.
<PAGE>
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 rendered to the Equity, Income, Flex, Cash Management and
International Value Portfolios by ICM under those Portfolios' Sub-Advisory
Agreements, ISI pays to ICM a sub-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 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 rendered to the MultiFlex Portfolio by IMR under that
Portfolio's Sub-Advisory Agreement, ISI pays to IMR a sub-advisory fee which is
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 rendered to the Real Estate Portfolio by IRA under that
Portfolio's Sub-Advisory Agreement, ISI pays to IRA a sub-advisory fee which is
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.
<PAGE>
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 0.45% 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
not exceed 1.55% for Class A and 2.20% for Class C; on the next $500 million of
net assets, expenses shall not exceed 1.50% for Class A and 2.15% for Class C;
on the next $1 billion of net assets, expenses shall not exceed 1.45% for Class
A and 2.10% for Class C; and on all assets over $2 billion, expenses shall not
exceed 1.40% for Class A and 2.05% for Class C. 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 1.80% for Class A and 2.45% for
Class C; on the next $400 million of net assets, expenses shall not exceed 1.75%
for Class A and 2.40% for Class C ; on the next $500 million, expenses shall not
exceed 1.70% for Class A and 2.35% for Class C; on the next $1 billion of net
assets, expenses shall not exceed 1.65% for Class A and 2.30% for Class C; and
on all assets over $2 billion, expenses shall not exceed 1.60% for Class A and
2.25% for Class C. If, in any calendar quarter, the average net assets of the
Real Estate Portfolio are less than $500 million, expenses shall not exceed
1.70% for Class A and 2.35% for Class C; on the next $500 million, expenses
shall not exceed 1.65% for Class A and 2.30% for Class C; and on all assets over
$1 billion, expenses shall not exceed 1.60% for Class A and 2.25% for Class C.
In any calendar year, the expenses of the Income Portfolio may not exceed 1.35%
for Class A and 1.70% for Class C, and the expenses of the Cash Management
Portfolio may not exceed 0.95% 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 shall not exceed 1.10% for Class A and 1.45% for
Class C of average net assets per annum.
<PAGE>
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 and the telephone number is (800)
972-9030.
The Distributor will be reimbursed for distribution-related expenses by the
Equity, Income, Flex, MultiFlex, Real Estate and International Value Portfolios
pursuant to the plans of distribution promulgated pursuant to Rule 12b-1 under
the 1940 Act, as described under "Plans 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.
PLANS 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 have adopted plans of
distribution for each Class. The Cash Management Portfolio has not adopted a
plan of distribution for either class.
Class A Distribution Plan. The Class A Plan provides that each Portfolio (except
the Cash Management and Income Portfolios) may make payments to ISI which may
not exceed a maximum annual rate of 0.35% of the average daily net assets of the
Portfolios attributable to Class A shares, to cover certain distribution and
maintenance expenses. The Income Portfolio payments under the Class A Plan may
not exceed a maximum annual rate of 0.25% of that Fund's average daily net
assets. In general, these amounts, up to a maximum annual rate of 0.25% are used
for the payment to broker-dealers (including, for this purpose, certain other
qualifying financial institutions) as a "service fee" for providing account
maintenance or personal service to existing shareholders. The directors are
authorized to reduce the amount of payments or to suspend the Plan for such
periods as they may determine.
Class C Distribution Plan. The Class C Plan provides that each Portfolio (except
the Cash Management Portfolio) may make payments to ISI which may not exceed a
maximum daily rate of 0.60% of the Income Portfolio's average daily net assets
attributable to its Class C shares, and 1.0% of the other Portfolios' average
daily net assets attributable to their respective Class C shares, to cover
<PAGE>
certain distribution and maintenance expenses. This expense includes the payment
calculated at an annual rate 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 directors are authorized to reduce the
amount of payments or to suspend the Plan for such periods as they may
determine.
Although Class C shares are sold without an initial sales charge, ISI may
pay a sales commission to dealers who sell Class C 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 qualifying financial institutions) for services
provided in connection with sales of Class C shares and the maintenance of
shareholder accounts, ISI makes quarterly payments to qualifying dealers and
financial institutions based on the average net asset value of Class C 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 Class C
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^ or
qualifying financial institution additional quarterly payments will not be made
until after the first full year.
General. ISI may suspend or modify the payments made to dealers or other
qualifying financial institutions under the Plans described above, and such
payments are subject to the continuation of the Distribution Plans by the
directors, the terms of selling or shareholder servicing agreements between
dealers and ISI, and any applicable limits imposed by the NASD. For additional
information concerning the Fund's plans 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 Investment
- ------ ------------------ ---------------------
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.
<PAGE>
By mail: Make check payable to Use stub from most recent
the appropriate statement, attach check
Portfolio and enclose payable to that Portfolio
with fully completed and mail to:
account application and ^
mail to: INVESCO Advisor Funds,
^ Inc.
INVESCO Advisor Funds, c/o FPS Services, Inc.
Inc. 3200 Horizon Drive
c/o FPS Services, Inc. P.O. Box 61503
3200 Horizon Drive King of Prussia, PA
P.O. Box 61503 19406-0903
King of Prussia, PA
19406-0903 ^ or in a payment
envelope to:
Please be sure your
financial consultant INVESCO Advisor Funds,
has properly and Inc.
accurately completed P.O. Box 412797
the section for their Kansas City, MO 64141-
name and firm 2797
information to assure
we may properly assist
the consultant in
servicing your account.
^ By Wire: Have your financial Wire as noted under
consultant call 800- "Initial Investment."
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
<PAGE>
Equity UMB #740108006
Income UMB #740109004
Flex UMB #740110002
^ Multi
Flex UMB #740106000
Real
Estate UMB #740105002
Inter-
national ^
Value UMB #740103007
Cash ^ Man-
agement UMB #740111000
For account of (client
name and class of
shares) and account
number obtained by your
financial consultant
from the phone call.
Shareholder services toll free telephone number of the Fund is ^(800)
554-1156. Investors may call their financial consultant or the Distributor for
assistance in completing the required application or other authorization forms,
^(800) 972-9030. The Fund reserves the right to reject any purchase order.
Purchase Alternatives
Each Portfolio offers two classes of shares. Each class of shares of a
Portfolio represents an identical interest in the investment portfolio of that
Portfolio and has the same rights, except that each class will bear its own
distribution and shareholder servicing charges. The income attributable to each
class and the dividends payable on the shares of each class will be reduced by
the amount of the distribution fee or service fee, if any, payable by that
class.
In deciding which class of shares to purchase, you should consider, among
other things, (1) the length of time you expect to hold your shares, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or upon redemption) and the amount of the distribution or service fees
applicable to the class of shares, (3) whether you qualify for the reduction or
waiver of any applicable sales charge, (4) ^ that no exchange privileges exist
between the classes, (5) the eligibility requirements that may apply to
purchasing a particular class of shares, and (6) the services made available to
you by your investment professional. For more information about these
alternatives, consult your investment professional or ISI. Sales personnel may
receive different compensation for selling different classes. (See ^"Buying
Class A Shares^" and ^"Buying Class C ^ Shares".)
<PAGE>
Generally, the minimum investment in Class A and Class C shares will be
$1,000 and $25,000, respectively, except that the minimum investment for Cash
Management is $1,000 for both classes. (See ^ "Buying Class A Shares^" and
^"Buying Class C ^ Shares".)
Buying Class A Shares
Class A shares of Cash Management Portfolio are offered without a sales
charge. Class A shares of Equity, Flex, MultiFlex, Real Estate and International
Value Portfolios are offered to the public at the net asset value next
determined plus a sales charge as follows:
<TABLE>
<CAPTION>
Amount of Sales
Charge reallowed
to dealers as a
Sales Charge as Sales Charge as percentage of
Amount of Transaction a Percentage of a Percentage of the Offering
At Offering Price Offering Price Amount Invested Price*
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 5.50% 5.82% 4.75%
$25,000 but less than $50,000 5.25 5.54 4.50 ^
$50,000 but less than $100,000 4.75 4.99 ^ 4.00
$100,000 but less than $250,000 3.75 3.90 3.00
$250,000 but less than $500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
Class A shares of Income Portfolio are offered to the public at the net
asset value next determined plus a sales charge as follows:
Amount of Sales
Charge reallowed
to dealers as a
Sales Charge as Sales Charge as percentage of
Amount of Transaction a Percentage of a Percentage of the Offering
At Offering Price Offering Price Amount Invested Price*
- -------------------------------------------------------------------------------------------------
Less than $50,000 4.75% 4.99% 4.00%
$50,000 but less than $100,000 4.00 4.17 3.25
$100,000 but less than $250,000 3.75 3.93 3.00
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
* At the discretion of ISI, however, the entire sales charge may at times be
reallowed to dealers. The Staff of the Securities and Exchange Commission has
indicated that dealers who receive more than 90% of the sales charge may be
considered underwriters.
<PAGE>
There is no initial sales charge on purchases of Class A shares of $1
million or more; however, a contingent deferred sales charge ("CDSC") of 1.00%
is imposed on redemptions of such shares within 18 months after purchase, unless
waived (see "Sales Information," below). ISI will pay authorized dealers, and
other qualifying financial institutions except wrap fee client accounts, 1% of
the first $1.99 million of such purchases, plus 0.50% on the next $3 million,
plus 0.25% on the next $45 million, plus 0.15% on amounts thereafter. A CDSC
will be imposed on the proceeds of a redemption of such shares if redeemed
within 18 months of purchase, based on the lower of the shares' cost or current
net asset value. In addition, shares purchased by certain investors investing $1
million or more that have made arrangements with ISI and whose dealer of record
waived the commission, as described above, are not subject to the CDSC. In
determining whether a CDSC is payable, the Fund will first redeem shares not
subject to any charge. 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.") No CDSC
is imposed on the redemption of shares acquired through reinvestment of income
dividends or capital gains distributions. ISI receives the entire amount of the
CDSC to defray its expenses in providing certain distribution-related services
to the Fund, including the payment of a sales commission to selling dealer or ^
qualifying financial institution, as described above.
Sales Information
The initial sales charge for Class A shares will be waived for the
following shareholders or transactions:
(1) officers and directors of the Fund, ISI, officers,
directors and full-time employees of ISI, its parent
entities and their wholly-owned subsidiaries ("Related
Entities"); certain employee benefit plans for employees
of ISI and Related Entities; or the spouse, siblings,
children, parents, or grandparents (collectively,
"relatives") of any such person, or any trust or
individual retirement account or self-employed retirement
plan for the benefit of any such person or relative; or
the estate of any such person or relative, if such sales
are made for investment purposes (such shares may not be
resold except to the Fund);
(2) a broker-dealer or other qualifying financial institution or an
agent or employee of the same that has a sales agreement with the
Distributor, purchasing for his/her own account or an account of a
relative of any such person, or any trust or individual
retirement account or self-employed retirement plan for
the benefit of any such person or relative; or the estate
of any such person or relative, if such sales are made
for investment purposes (such shares may not be resold
except to the Fund). To qualify, the Distributor or
Transfer Agent must be notified at the time of purchase;
<PAGE>
(3) shares purchased for the following types of retirement
plan accounts: (i) retirement plans qualified under
section 401(k) of the Code; (ii) master plans described
in section 403(b) of the Code (except rollover accounts
and as noted below); (iii) deferred compensation plans
described in section 457 of the Code; or (iv) or other
such plans as may be promulgated by the Code; such plans
qualify for purchase at net asset value provided that (1)
the initial investment amount invested in the fund(s) is
at least $1,000,000, or the sponsor signs a $1,000,000
LOI, (2) the plan has at least 100 eligible employees, or
(3) all the plan's transactions are executed through a
single omnibus account per fund and the financial
institution or service organization has entered into an
agreement with INVESCO Services, with respect to their
use of the INVESCO Advisor Funds in connection with such
accounts. Section 403(b) plans sponsored by public
educational institutions will not be eligible for net
asset value purchase based on the aggregate investment
made by the plan or the number of eligible employees.
Participants in such plans will be eligible for reduced
sales charges based solely on the aggregate value of
their individual investments in the applicable INVESCO
Advisor Funds.
(4) shares purchased by registered investment advisers on
behalf of fee-based accounts or by broker-dealers and
banks that have sales agreements with the Fund, which
shares have been purchased on behalf of wrap fee client
accounts and for which such registered investment
advisers or broker-dealers and banks perform advisory,
custodial, recordkeeping or other services;
(5) officers, directors and full-time employees of ^ FPS Services, Inc.
(Transfer Agent), its parent entities and their wholly-owned
subsidiaries.
(6) discretionary advised clients of INVESCO PLC and any of
its affiliated subsidiaries.
Any applicable CDSC is waived for redemptions of Class A shares purchased
at net asset value as described above, or for the following: (i) redemptions as
a result of shareholder death or disability (as defined in the Internal Revenue
Code of 1986, as amended) (the ^"Code"); (ii) continuing, periodic withdrawals
under the Systematic Withdrawal Plan, up to an annual total of 10% of the value
of a shareholder's account; (iii) 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 Code following attainment of
age 59 1/2; and (iv) 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.
<PAGE>
No sales charge is imposed on Class A shares acquired through reinvestment
of income dividends or capital gains distributions.
Reduced Sales Charges
A reduction of sales charge rates may be obtained for participants in any
of the discount programs described below. These programs allow a shareholder to
receive a reduced offering price based upon the assets held or pledged by the
shareholder. The term "shareholder" refers to (1) an individual, (2) an
individual and spouse purchasing shares of the Fund for their own account or for
the trust or custodial accounts of their minor children, or (3) a fiduciary
purchasing for any single trust, estate or fiduciary account, including employee
benefit plans of a single employer.
Letter of Intent
By initially investing $1,000 and submitting a Letter of Intent to ISI or
the Transfer Agent, a shareholder may purchase shares of the Fund over a
13-month period at the reduced sales charge applying to the aggregate amount of
the intended purchases stated in the Letter. The Letter may apply to purchases
made up to 90 days before the date of the Letter. It is the shareholder's
responsibility to notify the Transfer Agent at the time the Letter is submitted
that there are prior purchases that may apply.
The Transfer Agent will hold in escrow 5% of the amount invested pursuant
to the Letter of Intent until the investment contemplated by the Letter is
completed within the 13-month period. The 13-month period begins on the date of
the earliest purchase. If the intended investment is not completed, the Transfer
Agent will redeem an appropriate number of the escrowed shares in order to
realize the difference between the sales charge on the shares purchased at the
reduced rate and the sales charge applicable to total shares purchased.
Right of Accumulation
For shareholders who already have an account with the Fund, reduced sales
charges based upon the Portfolio's sales charge schedule are applicable to
subsequent purchases. The sales charge on each additional purchase is determined
by adding the current market value of the shares the shareholder currently owns
of all classes to the amount being invested. The reduced sales charge is
applicable only to current purchases. It is the shareholder's responsibility to
notify the Transfer Agent at the time of subsequent purchases that the account
is eligible for the Right of Accumulation and to provide account numbers of
related accounts, with an explanation of the account relationship, to the
Transfer Agent.
Reinstatement Privilege
The Reinstatement Privilege permits shareholders who have redeemed Class A
shares of a Portfolio to reinvest the proceeds of that redemption, within 120
days from the date of redemption, without an initial sales charge. It is the
shareholder's responsibility to notify the Transfer Agent in order to exercise
the Reinstatement Privilege.
<PAGE>
<TABLE>
<CAPTION>
Class A Minimum Investment
Initial Additional
------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Non IRA IRA Non IRA IRA
Portfolio Symbol* Cusip Account Account Account Account
- --------- ------- ----- ------- ------- ------- -------
Equity IAEAX 460936818 $1,000 $250 $100 $100
Flex IAFAX 460936776 $1,000 $250 $100 $100
MultiFlex IAMAX 460936792 $1,000 $250 $100 $100
Real Estate IARAX 460936784 $1,000 $250 $100 $100
International Value IAVAX 460936750 $1,000 $250 $100 $100
Income IAIAX 460936768 $1,000 $250 $100 $100
Cash Management 460936826 $1,000 $250 $100 $100
- ------------------------
*Proposed
</TABLE>
<PAGE>
Buying Class C Shares
Shares of Class C are sold without an initial sales charge, although a CDSC
is generally imposed on redemptions within one year of purchase (except,
generally, for Cash Management Portfolio).
Contingent Deferred Sales Charges. Class C shares of each Portfolio, except
the Cash Management Portfolio, that are purchased by new investors 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. 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 and the one-year holding period has not been completed. 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.
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.
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.
The CDSC on Class C shares 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
<PAGE>
IRA, a self-employed individual retirement plan (so-called "Keogh Plan") or
a custodial account under Section 403(b) of the 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 and other qualifying financial institution, assuming no
commission was paid at the time of purchase, 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.
<TABLE>
<CAPTION>
Class C Minimum Investment
Initial Additional
------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
^ Portfolio Non IRA IRA Non IRA IRA
- ----------- Symbol Cusip Account Account Account Account
-------- --------- -------- --------- --------- ---------
Equity IAECX 460936305 $25,000 ^ $10,000 $1,000 $250
Flex IAFCX 460936842 $25,000 ^ $10,000 $1,000 $250
MultiFlex IAMFX 460936503 $25,000 ^ $10,000 $1,000 $250
Real Estate IARCX* 460936701 $25,000 ^ $10,000 $1,000 $250
International Value IAVCX 460936883 $25,000 ^ $10,000 $1,000 $250
Income IAICX 460936867 $25,000 ^ $10,000 $1,000 $250
Cash Management 460936107 $1,000 ^ $10,000 $1,000 $250
- ---------------------
*Proposed
</TABLE>
<PAGE>
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.
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."
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 to the Fund
Requests for redemption may be submitted directly to the Fund by letter or,
under certain circumstances, by telephone.
Redemption by Letter
A signature guarantee from a national bank or an 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;
<PAGE>
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 the party 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. 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.
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/her 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.
<PAGE>
The Fund reserves the right to modify or terminate the telephone redemption
privilege at any time without notice.
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, both Class A and C, 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. These checks can be used like any other check. When these checks
are presented for payment, a sufficient number of full and fractional shares
will be redeemed to cover the amount of the check. Dividends on the amounts
being redeemed by check are earned until the check clears the bank. If the
amount of the check is greater than the account value, the check will be
returned, and the shareholder may be subject to extra charges (presently
estimated to be approximately $20.00 per returned check). Shareholders will
incur a CDSC to the same extent as with other types of redemption if sufficient
non-CDSC shares are not in the account. A shareholder account cannot 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 of Class A and C
whose accounts total $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 on the first business day following the 25th if the 25th
is not a normal business day on the New York Stock Exchange. Changes concerning
the Systematic Withdrawal Plan must be received by the Transfer Agent at least
two weeks prior to the next scheduled withdrawal. No CDSC is assessed on
withdrawals under this Plan up to an annual total of 10% of the value of the
shareholder's
<PAGE>
account. 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.
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 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.
The Fund reserves the right to redeem shares in kind as authorized by the
Board of Directors. See the Statement of Additional Information for more
information concerning redemptions.
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 for Classes A
and C; $10,000 for the other Portfolios represented by Class C shares; and
$1,000 for the other Portfolios represented by Class A shares) 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 have 60 days to increase the
shares in his/her account to the minimum level in order to avoid any such
involuntary redemption.
HOW TO EXCHANGE SHARES
Shares of either class may be exchanged for shares of the same class of
another Portfolio, subject to minimum investment requirements of the Portfolio
being acquired. An exchange between Portfolios may involve the recognition of a
gain or loss for federal income tax purposes. Exchanges may be initiated 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.
<PAGE>
Shares of a Portfolio may be exchanged only if they have been held for at
least 15 days. No CDSC will be assessed at the time of an exchange. Any
applicable CDSC will be assessed when the shareholder redeems his or her shares
or has them repurchased without a corresponding purchase of shares in another
Portfolio. If a redeeming shareholder has previously exchanged his shares into
the Cash Management Portfolio from another Portfolio, any CDSC applicable to the
exchanged shares 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 aggregate holding period of the 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 class
of shares of the Portfolio being acquired is 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 have a fixed dollar amount of their
shares automatically exchanged for shares of the same class of any of the other
Portfolios on a monthly basis. This will occur on the 25th of each month, or on
the first business day following the 25th if the 25th is not a regular trading
day on the New York Stock Exchange. The minimum monthly exchange is $100. This
automatic exchange amount can be added to or changed by the shareholder at any
time by writing to the Transfer Agent at least two weeks prior to the 25th of
each month. Further information regarding this service can be obtained by
contacting the Transfer Agent.
<PAGE>
BankDraft
For shareholders who wish to take advantage of systematic monthly
investing, BankDraft will withdraw a preauthorized amount from the shareholder's
bank account to purchase Fund shares. 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.
COMPUTATION OF NET ASSET VALUE
The net asset value per share of each class 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 the class's net asset value
per share. The net asset value per share of shares of each class is determined
at the close of the New York Stock Exchange, currently 4:00 p.m. (Eastern Time).
The value of assets of each class (except for Cash Management Portfolio) 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.
<PAGE>
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 in local currency which is then translated into U.S. dollars from a
quotation service approved by the Board of Directors.
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.
Cash Management Portfolio
The Cash Management Portfolio seeks to maintain a constant net asset value
of $1.00 per share per class. There can be no assurance that the Cash Management
Portfolio will be able to maintain a net asset value of $1.00 per share per
class. 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 per class 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 per class 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>
After portfolio securities are valued as described above, net asset value
for each class of each Portfolio is determined separately by dividing the value
of the total assets attributable to that class, less its liabilities, by the
total number of that class's shares then outstanding. Expenses and fees of each
class, including the fees of ISI, are accrued daily and taken into account for
the purpose of determining net asset value.
CAPITALIZATION
The authorized capital stock of the Fund consists of 10,075,000,000 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;
15,000,000 shares of MultiFlex Portfolio; 20,000,000 shares of Flex Portfolio;
and 10,000,000,000 shares of the Cash Management Portfolio. Authorized shares of
each Portfolio are divided between Class A and Class C shares, as follows:
PORTFOLIO NAME CLASS A SHARES CLASS C SHARES
-------------- -------------- --------------
EQUITY 5,000,000 5,000,000
FLEX 7,500,000 12,500,000
MULTIFLEX 5,000,000 10,000,000
INTERNATIONAL VALUE 5,000,000 5,000,000
REAL ESTATE 5,000,000 5,000,000
INCOME 5,000,000 5,000,000
CASH MANAGEMENT 5,000,000,000 5,000,000,000
The Fund's Articles of Incorporation provide that the obligations and
liabilities of each Portfolio or class, as applicable, are restricted to the
assets of the particular Portfolio or class, as applicable, and generally do not
extend to the assets of the other Portfolios or classes 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 or class are entitled to vote on matters
concerning only that Portfolio or class. (See, also, "Miscellaneous," below.)
Each class of shares is entitled to participate in dividends and distributions
declared by the respective Portfolios and in net assets of such Portfolios upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities applicable to each class, including distribution and shareholder
servicing charges.
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. The per
share dividends and distributions on each class of shares of a Portfolio will be
reduced by expenses allocated to and borne by the class, including service and
distribution fees applicable to that class. 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 they distribute their 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.
<PAGE>
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
cash or in additional shares of a Portfolio, will be taxable and must be
reported by shareholders on their federal income tax returns. 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, ^ FPS
Services, Inc., the Fund's transfer agent (the "Transfer Agent"), is
automatically appointed by the investors to receive all dividends and capital
gain distributions for each class of the respective Portfolios and to reinvest
them in shares (or fractions thereof) of the same class 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
<PAGE>
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
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 and their classes in advertisements and in reports and other
communications to shareholders.
"Average annual total return" and "total return" figures represent the
increase (or decrease) in the value of an investment in the particular Portfolio
and class 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 class. Quotations of average annual
total return represent an average annual compounded rate of return on a
hypothetical investment in the Portfolio and class 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 Management Portfolio may provide quotations
of "yield," "dividend yield," and "distribution yield" for each class.
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 of the class 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 class during that period. Dividend yield
is calculated by totalling the dividends paid by a class during the specified
period and dividing that sum by the net asset value per share of the class 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 class, 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 management 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.
^ FPS 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
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 ^ FPS Services,
Inc. is 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903.
<PAGE>
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 or class are entitled
to vote on matters concerning only that Portfolio or class and each Portfolio
and class shall have separate voting rights on matters as to which the interests
of the Portfolio or class differ from the interests of any other Portfolio or
class, to the extent required by applicable law, regulation and regulatory
interpretation.
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 LLP, 1800 Massachusetts Avenue,
N.W., Second Floor, Washington, D.C. 20036.
<PAGE>
Investment Adviser
INVESCO Services, Inc.
Sub-Advisers
INVESCO Capital Management, Inc. PROSPECTUS
INVESCO Management & Research,
Inc. INVESCO ADVISOR FUNDS, INC.
INVESCO Realty Advisors, Inc.
EQUITY PORTFOLIO
Distributor INCOME PORTFOLIO
INVESCO Services, Inc. FLEX PORTFOLIO
MULTIFLEX PORTFOLIO
REAL ESTATE PORTFOLIO
Transfer Agent and Administrator INTERNATIONAL VALUE PORTFOLIO
^ FPS Services, Inc. CASH MANAGEMENT PORTFOLIO
Class A and C Shares
Custodian
^ UMB, N.A. ^ December 31, 1996
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
Class A and C Shares
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 ^ December 31,
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.
- --------------------------------------------------------------------------------
^ December 31, 1996
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES AND POLICIES......................................... 4
Convertible Securities............................................... 4
Mortgage-Related Securities.......................................... 4
INVESTMENT RESTRICTIONS.................................................... 8
PORTFOLIO SECURITIES LOANS................................................. 11
MANAGEMENT OF THE FUND..................................................... 12
Directors and Officers............................................... 12
Director Compensation................................................ 16
Fund Committees...................................................... 18
THE ADVISORY AND SUB-ADVISORY AGREEMENTS................................... 19
OPERATING SERVICES AGREEMENT............................................... 23
THE DISTRIBUTOR............................................................ 24
DISTRIBUTION OF SHARES..................................................... 25
DISTRIBUTIONS AND TAX INFORMATION.......................................... 28
Distributions........................................................ 28
Federal Taxes........................................................ 29
Options, Futures and Foreign Currency Forward
Contracts...................................................... 30
Swap Agreements...................................................... 31
Currency Fluctuations -- "Section 988" Gains or Losses............... 31
Investment in Passive Foreign Investment Companies................... 32
Debt Securities Acquired at a Discount............................... 33
Distributions........................................................ 34
Disposition of Shares................................................ 34
Backup Withholding................................................... 35
Other Taxation....................................................... 35
SERVICES PROVIDED BY THE FUND.............................................. 35
Systematic Withdrawal Plan........................................... 35
Exchange Privilege................................................... 36
Automatic Dividend Reinvestment Plan................................. 36
Automatic Monthly Exchange........................................... 37
BankDraft............................................................ 37
BROKERAGE AND PORTFOLIO TRANSACTIONS....................................... 37
PERFORMANCE INFORMATION.................................................... 40
<PAGE>
MISCELLANEOUS.............................................................. 44
Principal Shareholders............................................... 44
Net Asset Value...................................................... 45
The Custodian........................................................ 45
Independent Accountants.............................................. 45
Financial Statements................................................. 46
APPENDIX A................................................................. 47
<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
opinion are illiquid if, as a result, more than 15% of the value of the
Portfolio's total assets will be illiquid.
<PAGE>
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 prepayments, 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,
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.
<PAGE>
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.
(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,
<PAGE>
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
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.
<PAGE>
(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
Equity and Flex Portfolios may invest up to 25% of the value of the applicable
Portfolio's total assets in sponsored ADRs (American Depository 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
<PAGE>
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 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.
<PAGE>
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
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 Chairman of INVESCO Services, Inc., a
position he has held since May 1996, prior to which he
was President from January 1990 to April 1996. He is a
Director of INVESCO PLC, London, England, and Chief
Executive Officer of INVESCO Individual Services Group.
From November 1988 to January 1990, he was an employee of
INVESCO Capital Management, Inc. 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.
<PAGE>
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.
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.
DAN J. HESSER,* Director. Mr. Hesser is Chairman of the
Board, President, and Chief Executive Officer of INVESCO
Funds Group, Inc. Mr. Hesser is also Director of INVESCO
Trust Company, and Trustee of The Global Health Sciences
Fund. Address: Post Office Box 173706, Denver, Colorado
80217-3706. Born: December 27, 1939.
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
<PAGE>
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.
A.D. FRAZIER, JR.*,** Director. Executive Vice
President of INVESCO PLC (since November 1996).
Formerly, Senior Executive Vice President and Chief
Operating Office 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. Director of
Magellan Health Services, Inc. and of Charter Medical
Corp. 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.
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, Inc. since July 1993. Secretary since April
1995. Prior to joining INVESCO Services, Inc., he was
Principal for Mutual Fund Operations at Edward D. Jones
& Co. He has 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.
MARK F. MOOTS, JR., Assistant Treasurer and Assistant
Secretary. Mr. Moots has served as Chief Financial
Officer of INVESCO Services, Inc. since May 1996, prior
to which he was Compliance and Accounting Manager from
August 1995 to April 1996. Prior to joining INVESCO
Services, Inc., he served three years as Chief Financial
Officer for Caldwell & Orkin, Inc., a registered
investment adviser, and Treasurer for C&O Funds
Distributor, Inc., a broker/dealer. He also served as
<PAGE>
Principal Accounting Officer and Treasurer for The
Caldwell & Orkin Funds, Inc., a regulated investment
company. Prior to 1992, Mr. Moots was employed by
Deloitte & Touche LLP. Address: 1355 Peachtree Street,
N.E. Atlanta, Georgia, 30309. Born: May 16, 1964.
--------------------------------------
* Messrs. Brady, Hesser, Harris and, effective November
1, 1996, Frazier, 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.
Mr. Frazier is an "interested person" of the Fund for the
reasons discussed below under "Director Compensation."
# 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 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, and INVESCO Variable Investment Funds, Inc. All of the
Directors of the Fund, except Mr. Hesser, 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 Fund(1) Expenses(2) Retirement(3) Directors(1)
- -------- ----- --------- ------------ -----------
Fred A. Deering,
Vice Chairman
of the Board $7,778 $1,229 $1,022 $87,350
Victor L. Andrews 6,430 1,082 1,127 68,000
Bob R. Baker 7,599 1,116 1,511 73,000
Lawrence H. Budner 7,350 1,161 1,127 68,350
Daniel D. Chabris 7,619 1,325 801 73,350
A. D. Frazier, Jr.4 10,848 0 0 63,500
Kenneth T. King 7,436 1,276 927 70,000
John W. McIntyre 11,034 0 0 67,850
------ - - ------
Total $66,094 $7,189 $6,515 $571,400
% of Net Assets 0.0088%5 0.0010%5 N/A 0.0043%6
(1)The vice chairman of the board, the chairman of the audit, management
liaison, and compensation committees, and the members of the executive commit
tee each receive compensation for serving in such capacities in addition
to the compensation paid to all independent directors.
(2)Represents benefits accrued with respect to the Defined Benefit
Deferred Compensation Plan discussed below, and not compensation deferred at
the election of the directors.
(3)These figures represent the 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 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.
<PAGE>
(4)Effective November 1, 1996, Mr. Frazier was employed by INVESCO PLC.
Because it was possible that Mr. Frazier would be employed with INVESCO PLC
effective May 1, 1996, he was deemed to be an "interested person" of the Fund
and of the other funds in the INVESCO Complex. Effective November 1, 1996, Mr.
Frazier will no longer receive any director's fees or other compensation from
the Fund or other funds in the INVESCO Complex for his services as a director.
(5)Totals as a percentage of the Fund's net assets as of December 31, 1995.
(6)Totals as a percentage of the net assets of the INVESCO Complex as of
December 31, 1995.
Messrs. Brady, Harris, Hesser, and, effective November 1, 1996, Frazier, as
"interested persons" of the Fund and other funds in the INVESCO Complex, receive
compensation as officers or employees of ISI or its affiliated companies, and do
not receive any director's fees or other compensation from the Fund or other
funds in the INVESCO Complex for their services 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., 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.
<PAGE>
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. Interest, taxes,
distribution expenses, directors' fees and expenses and extraordinary items such
as litigation costs 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,
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
<PAGE>
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. Rule 18f-3 under the 1940 Act ("Rule 18f-3") permits a fund to
use a multiclass system including separate class arrangements for distribution
of shares and related exchange privileges applicable to the classes. The Fund's
Plan Pursuant To Rule 18f-3 provides that advisory and operating services fees
(see "Operating Services Agreement") are expenses of a particular Portfolio that
are not attributable to a particular class of the Portfolio ("Fund Expenses") so
shall be allocated to each class on the basis of its net asset value relative to
the 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 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.
<PAGE>
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 0.45% 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.
If, in any calendar quarter, the average net assets of the Equity or Flex
Portfolios are less than $500 million, expenses shall not exceed 2.20%; 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
<PAGE>
of the Income Portfolio may not exceed 1.70%. 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 2.45%; 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 $500 million, expenses shall not exceed
2.35%; on the next $500 million of net assets, expenses shall not exceed 2.25%;
and on all assets over $1 billion, expenses shall not exceed 2.20%. In any
calendar year, the expenses of the Cash Management Portfolio may not exceed
0.95% 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 shall not exceed 1.45% of average net assets per annum.
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 plans 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:
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
<PAGE>
The amounts paid by each of the Portfolios, except the Cash Management
Portfolio, under the Class C Distribution Plan (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.
Class A shares were not offered for sale at the time and there were no
payments under the Class A Distribution Plan.
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 plans described below were 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 plans will benefit each Portfolio and its shareholders by,
among other things, providing broker-dealers with an incentive to sell
additional shares of the Fund, thereby helping to satisfy the Fund's liquidity
needs and helping to increase the Fund's investment flexibility. In their
regular quarterly reviews of the plans, the Directors consider their continued
appropriateness and the levels of compensation provided in the plans, and the
continuation of the plans is approved annually. On June 8, 1993, the
Distribution Plan applicable to Class C shares was approved by shareholders of
the Equity, Income, and Flex Portfolios. On November 8, 1993, the Plan
applicable to Class C shares was approved by the sole shareholder of the
MultiFlex Portfolio. On April 10, 1995, the Plan applicable to Class C shares
was approved by the sole shareholder of each of the Real Estate and
International Value Portfolios. The Class A Distribution Plan was approved by
the Board of Directors of the Fund at its August 13, 1996 Board meeting, and by
the initial shareholder(s) of Class A shares of each Portfolio prior to their
public offering.
<PAGE>
Class A Distribution Plan. The Class A Plan provides that each Portfolio
may incur certain distribution and maintenance fees which may not exceed a
maximum annual rate of 0.35% of the average net assets of the Portfolios
attributable to Class A shares except the Cash Management and Income Portfolios.
The Income Portfolio payments under the Class A Plan may not exceed a maximum
annual rate of 0.25% of the average daily net assets. The Cash Management
Portfolio has not adopted a plan of distribution for either class. This expense
includes the payment to broker-dealers of a "service fee" for providing account
maintenance or personal service to existing shareholders.
Under the Class A Plan, 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 a 0.35% "service fee." The
service fee, computed on the basis of the average net asset value of Class A
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 sales literature and prospectuses and
statements of additional information for prospective investors; (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.
Class C Distribution Plan. The Class C Plan provides that each Portfolio
may incur certain distribution and maintenance fees which may not exceed a
maximum annual rate of 0.60% of the Income Portfolio's average net assets
attributable to Class C shares , and 1.0% of the other Portfolios' average
annual net assets attributable to their respective Class C shares. 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.
Under the Class C Plan, 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 and statements of additional
information for prospective investors, 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
<PAGE>
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.
General. The Plans 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 class of the Portfolio. Any change in a Plans that
would materially increase the distribution expenses of a class of the Portfolio
provided for in the Plans requires shareholder approval; otherwise, the Plans
may be amended by a majority of the Directors, including a majority of the Rule
12b-1 Directors.
For so long as the Plans are in effect, the Portfolios will be required to
commit the selection and nomination of candidates for Independent Directors to
the discretion of the Independent 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 Plans 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 Plans and may also require
that total expenditures by each applicable class of a Portfolio under the Plans
be kept within limits lower than the maximum amount permitted by the Plans as
stated above.
The Distributor may pay additional amounts 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.
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 per share dividends and distribution on each class of shares
of a Portfolio will be reduced as a result of any service fees applicable to
that class. The gross income, realized and unrealized capital gains and losses
and expenses (other than Class Expenses, as defined below) of each Portfolio,
other than Cash Management, shall be allocated to each class on the basis of its
net asset value relative to the net asset value of the Portfolio. Expenses to be
so allocated include expenses of the Fund that are allocated to a Portfolio and
are not attributable to a particular Portfolio or class of a Portfolio ("Fund
Expenses") and expenses of the particular Portfolio that are not attributable to
a particular class of the Portfolio ("Portfolio Expenses"). Fund Expenses
include, but are not limited to, directors' fees. Portfolio Expenses include
advisory fees and operating service fees. Expenses attributable to a particular
class ("Class Expenses") include distribution plan expenses, which must be
allocated to the class for which they are incurred. Other expenses may be
<PAGE>
allocated as Class Expenses, but only if the Company's President and
Treasurer have determined, subject to Board approval, that such category of
expense will be treated as Class Expenses, consistent with applicable legal
principles under the 1940 Act and the Internal Revenue Code of 1986, as amended
("Code").
The Equity, Flex, MultiFlex, and Real Estate Portfolios make periodic
distributions of their net investment income (including any net short-term
capital gain) during the months of March, June, September and December and
distributes any realized net capital gains at least annually, during the month
of December. The International Value Portfolio makes semiannual distributions of
net investment income (including any net short-term capital gain) during the
months of June and December and distributes any realized net capital gain at
least annually, during the month of December. The Income Portfolio makes monthly
distributions of its net investment income (including any net short-term capital
gain), and distributes any realized net capital gain at least annually, during
the month of December.
The net income of the Cash Management Portfolio is declared daily and its
dividends are distributed monthly. Net realized capital gains, if any, are
distributed at least annually, during the month of December. Cash Management
Portfolio will allocate gross income, realized and unrealized capital gains and
losses and expenses to each class on the basis of relative net assets (settled
shares), provided that each class shall bear any Class Expense. "Relative net
assets (settled shares)," for this purpose, are net assets valued in accordance
with generally accepted accounting principles but excluding the value of
subscriptions receivable, in relation to the net assets of Cash Management
Portfolio. Expenses to be so allocated also include expenses of the Fund that
are allocated to a Portfolio and are not attributable to a particular Portfolio
or class of a Portfolio ("Fund Expenses") and expenses of the particular
Portfolio that are not attributable to a particular class of the Portfolio
("Portfolio Expenses"). Fund Expenses include, but are not limited to,
directors' fees.
All such distributions will be reinvested automatically in additional
shares (or fractions thereof) of each applicable Portfolio and class 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,
<PAGE>
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).
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.
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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
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 (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
<PAGE>
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 CDSC on continuing withdrawals of
Class C shares pursuant to the Systematic Withdrawal Plan may be waived for
withdrawals up to an annual total of 10% of the value of the shareholder's
account.
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.
Exchange Privilege
As discussed in the Prospectus, the Fund offers shareholders the privilege
of exchanging shares of their respective class of a Portfolio for shares of the
same class of the other Portfolios. Also, Class C shares to which no CDSC is
applicable may be exchanged for Class A shares of the same or another Portfolio.
Class A shares may not be exchanged for Class C shares of any Portfolio. The
<PAGE>
exchange 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. However, no gain or loss is generally
realized when Class C shares are exchanged for Class A shares of the same
Portfolio. 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.
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.
<PAGE>
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
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
<PAGE>
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%, 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:
<PAGE>
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
REDEMPTIONS
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.
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.
<PAGE>
"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
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" for each class. Quotations of yield for each
class of 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:
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 yields for shares now
designated as Class C shares of the following Portfolios 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 class of a Portfolio during that period.
Dividend yield is calculated by totalling the dividends paid by a class from its
net investment income during the specified period and dividing that sum by the
net asset value per share of the class on the last day of the period.
Distribution yield is computed in the same way, but includes distributions paid
with respect to a class from capital gains realized by the Portfolio, as well as
dividends from the net investment income of the class. 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:
<PAGE>
Total dividends/distributions paid by the class during the specified
period are divided by the net asset value of a class 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 shares now designated as Class C shares each of the
following Portfolios 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 shares now designated as Class C shares of each
of the following Portfolios for the 30-day period ended December 31, 1995 were
as follows:
Income Portfolio 4.71%
Real Estate Portfolio 2.14%*
*Annualized
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 for each class reflect the
deduction of a proportional share of expenses allocated to the class and Class
Expenses on an annual basis. The results, which are annualized, represent an
average annual compound rate of return on a hypothetical investment in the class
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 shares now
designated as Class C shares of each of the following Portfolios for the periods
listed below were as follows:
<PAGE>
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).
The following tables illustrate performance of shares of each Portfolio
that are now designated as Class C shares. (Class A shares were not offering
during the periods illustrated.)
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) $1,205 $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
<PAGE>
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
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 shares that are now designated as Class C
shares of the indicated Portfolios 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 or class reflects only the
performance of a hypothetical investment in that Portfolio or class 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 the
future performance of a Portfolio or class.
MISCELLANEOUS
Principal Shareholders
As of November 8, 1996, the following entities owned of record or
beneficially 5% or more of the shares of a Portfolio:
<PAGE>
Name and Address of Number Percent
Beneficial Owner Portfolio of Shares of Class
- ---------------- --------- --------- ---------
Merrill Lynch Pierce Equity 283,251 16.69%
Fenner & Smith Income 57,944 10.55%
Trade Account Flex 797,087 11.39%
4800 Deer Lake Drive MultiFlex 415,683 8.58%
Jacksonville, FL 32216 International Value 432,419 48.93%
Southtrust Estate & Real Estate 19,043 5.98%
Trust Company of Cash Management 9,593,725 50.21%*
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 July 31, 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 each class 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 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.
<PAGE>
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
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.
<PAGE>
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.
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.
<PAGE>
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;
(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. ncial statements and
schedules included in Prospectus (Part A):
