Prospectus May 1, 1995
As Supplemented May 1, 1995
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Investment Funds, Inc. (the "Company"), a Maryland
corporation, is an open-end management investment company which offers shares of
common stock of four diversified investment portfolios. This Prospectus relates
to shares of three of the Portfolios: the INVESCO VIF - Industrial Income
Portfolio (the "Industrial Income Fund"), the INVESCO VIF - Total Return
Portfolio (the "Total Return Fund"), and the INVESCO VIF - High Yield Portfolio
(the "High Yield Fund"), (collectively, the "Funds"). The Company's shares are
not offered directly to the public, but are sold exclusively to life insurance
companies ("Participating Insurance Companies") as a pooled funding vehicle for
variable annuity and variable life insurance contracts issued by separate
accounts of Participating Insurance Companies. The Funds have the following
investment objectives:
Industrial Income Fund:
to seek the best possible current income while following sound investment
practices. Capital growth potential is an additional, but secondary,
consideration in the selection of portfolio securities. The Industrial
Income Fund seeks to achieve its investment objective by investing in
securities which will provide a relatively high yield and stable return
and which, over a period of years, also may provide capital appreciation.
Total Return Fund:
to seek a high total return on investment through capital appreciation and
current income. The Total Return Fund seeks to achieve its investment
objective by investing in a combination of equity securities (consisting
of common stocks and, to a lesser degree, securities convertible into
common stock) and fixed income securities.
High Yield Fund:
to seek a high level of current income by investing substan- tially all of
its assets in lower rated bonds and other debt securities and in preferred
stock. See "Risk Factors" for a description of the risks involved in
investing in lower rated bonds. The Fund pursues its investment objective
through investment in a variety of long-term, intermediate-term, and
short-term bonds. Potential capital appreciation is a factor in the
selection of investments, but is secondary to the Fund's primary
objective.
<PAGE>
This Prospectus sets forth concisely the information about the Funds that
a prospective purchaser should know before purchasing a variable contract from a
Participating Insurance Company or allocating contract values to one or more of
the Funds. Please read this Prospectus and retain it for future reference.
Addition- al information about the Funds has been filed with the Securities and
Exchange Commission and is available upon request by writing INVESCO Funds
Group, Inc., Post Office Box 173706, Denver, Colorado 80217-3706, by calling
1-800-525-8085, or by contacting a Participating Insurance Company and
requesting the "Statement of Additional Information for INVESCO Variable
Investment Funds, Inc." (the "Statement of Additional Information"). The
Statement of Additional Information dated May 1, 1995, is incorporated by
reference into this Prospectus.
The High Yield Fund invests primarily in lower rated bonds, commonly known as
"junk bonds." Investments of this type are subject to greater risks, including
default risks, than those found in higher rated securities. Purchasers should
carefully assess the risks associated with an investment in the High Yield Fund.
See "Investment Objectives and Policies" and "Risk Factors."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY.................................................................... 4
FINANCIAL HIGHLIGHTS....................................................... 6
INVESTMENT OBJECTIVES AND POLICIES......................................... 8
RISK FACTORS............................................................... 12
INVESTMENT RESTRICTIONS.................................................... 20
MANAGEMENT................................................................. 21
PURCHASES AND REDEMPTIONS.................................................. 25
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS.................................... 26
PERFORMANCE INFORMATION.................................................... 27
ADDITIONAL INFORMATION..................................................... 28
APPENDIX................................................................... 31
<PAGE>
SUMMARY
The Company is a registered, open-end management investment company that
was organized as a Maryland corporation on August 19, 1993, and is currently
comprised of four diversified investment portfolios. This Prospectus relates to
shares of three of the portfolios: the INVESCO VIF - Industrial Income
Portfolio, the INVESCO VIF - Total Return Portfolio, and the INVESCO VIF - High
Yield Portfolio. Additional Funds may be created from time to time. The overall
supervision of the Company is the responsibility of its board of directors.
The Company is intended to be a funding vehicle for variable annuity
contracts and variable life insurance contracts to be offered by separate
accounts of certain life insurance companies ("Participating Insurance
Companies"). Fund shares are not available for purchase other than through the
purchase of such contracts. The variable annuity and variable life insurance
contracts are described in separate prospectuses of the Participat- ing
Insurance Companies (the "Separate Account Prospectuses"). The Company assumes
no responsibility for the Separate Account Prospectuses. A contract owner should
refer to the Separate Account Prospectuses for information on how to purchase or
surrender a contract, make partial withdrawals of contract values, allocate
contract values to one or more of the Funds, or change existing allocations
among investment alternatives, including the Funds.
Each Fund has its own distinct investment objective. There is, of course,
no guarantee that any Fund will achieve its invest- ment objective. The
Industrial Income Fund seeks to attain its investment objective by investing in
securities which will provide a relatively high yield and stable return and
which, over a period of years, also may provide capital appreciation, including
dividend-paying common stocks, convertible bonds, preferred stocks and debt
securities. The Total Return Fund seeks to attain its investment objective by
investing in a combination of equity securities and fixed income securities;
ordinarily, its investment portfolio will be comprised of at least 30% equity
securities and at least 30% debt securities, with the remaining 40% allocated
according to business, economic and market conditions. The High Yield Fund seeks
to attain its investment objective by investing substantially all of its assets
in lower rated bonds and other debt securities and in preferred stock. See "Risk
Factors" for a description of the risks involved in investing in lower rated
bonds. A discussion of each Fund's investment objective and policies is provided
below under the caption "Investment Objectives and Policies."
Various types of risks are involved with each Fund. Each Fund may lend
portfolio securities and may enter into repurchase agreements with respect to
debt instruments eligible for investment by that Fund. Each Fund may invest up
to 15% of its net assets in illiquid securities. Each Fund also may invest up to
25% of its
<PAGE>
total assets directly in foreign securities, which present certain additional
risks not associated with investments in domestic companies and markets.
Securities of Canadian issuers and securities purchased by means of American
Depository Receipts ("ADRs") are not subject to this 25% limitation. The High
Yield Fund may invest without limit, and the Industrial Income Fund may invest
up to 15% of its total assets, in lower-rated debt securities which present a
greater risk of default and have prices which fluctuate more than those of
higher-rated securities. Each of the Funds may invest in options and futures
contracts, each of which presents special risks. These and other risks are
discussed below under the caption "Risk Factors."
INVESCO Funds Group, Inc. ("INVESCO"), the Funds' investment adviser, is
primarily responsible for providing the Company with various administrative
services and supervising the Company's daily business affairs. Portfolio
management is provided to each Fund by its sub-adviser (referred to collectively
with INVESCO as "Manage- ment"). INVESCO Trust Company ("INVESCO Trust") serves
as sub- adviser to the Industrial Income and High Yield Funds. INVESCO Capital
Management, Inc. ("ICM") serves as sub-adviser to the Total Return Fund. Each
Fund pays INVESCO an advisory fee for the management of its investments and
business affairs. A discussion of these fees and additional information about
INVESCO, INVESCO Trust and ICM are provided below under the caption
"Management."
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding throughout the Period)
The following information has been audited by Price Waterhouse LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1994 annual report to shareholders and in the
Statement of Additional Information, both of which are available without charge
by contacting INVESCO Funds Group, Inc. at the address or telephone number shown
on the cover page of this Prospectus, or by contacting a Participating Insurance
Company.
<TABLE>
<CAPTION>
High Industrial Total
Yield Income Return
Portfolio~ Portfolio~ Portfolio~
---------- ---------- ----------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value -- Beginning of Period $10.00 $10.00 $10.00
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.03 0.09
Net Gains on Securities
(Both Realized and Unrealized) 0.01 0.09 0.09
---------- ---------- ----------
Total from Investment Operations 0.06 0.12 0.18
---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.05 0.03 0.09
---------- ---------- ----------
Net Asset Value -- End of Period $10.01 $10.09 $10.09
========== ========== ==========
TOTAL RETURN+ 0.60%@ 1.23%@ 1.75%@
RATIOS
Net Assets -- End of Period
($000 Omitted) $624 $525 $1,055
Ratio of Expenses to
Average Net Assets# 0.74%* 0.79%* 0.86%*
Ratio of Net Investment Income to
Average Net Assets 2.72%* 1.69%* 3.86%*
Portfolio Turnover Rate 23%@ 0%@ 0%@
<FN>
~ For the High Yield, Industrial Income, and Total Return Portfolios, from
May 27, 1994, August 10, 1994 and June 2, 1994, respectively, commencement
of investment operations, to December 31, 1994.
<PAGE>
@ These amounts are based on operations for the period shown and, accordingly, are not
representative of a full year.
+ Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return
figures for the period shown.
# Various expense of the High Yield, Industrial Income and Total Return
Portfolios were voluntarily absorbed by INVESCO Funds Group, Inc. for the
year ended December 31, 1994. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 30.38%,
32.55% and 16.44%, respectively, and ratio of net investment income to
average net assets would have been (26.92%), (30.07%) and (11.72%),
respectively.
* Annualized
</FN>
</TABLE>
Further information about the performance of the Funds will be contained
in the Company's annual report to shareholders, which may be obtained without
charge by contacting INVESCO Funds Group, Inc. at the address or telephone
number set forth on the cover page of this Prospectus, or by contacting a
Participating Insurance Company.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund, as described below, is fundamental
and may be changed only by vote of a majority of the outstanding shares of that
Fund. There is no assurance that any Fund will achieve its investment objective.
Any investment policy of a Fund may be changed by the Company's board of
directors without shareholder approval unless the policy is one required by the
Fund's fundamental investment restrictions set forth in the Statement of
Additional Information.
Industrial Income Fund
The investment objective of the Industrial Income Fund is to seek the best
possible current income while following sound investment practices. Capital
growth potential is an additional, but secondary, consideration in the selection
of portfolio securities. The Fund seeks to achieve its objective by investing in
securities which will provide a relatively high yield and stable return and
which, over a period of years, also may provide capital appreciation.
The Industrial Income Fund normally invests between 60% and 75% of its
assets in dividend-paying common stocks. The Fund also may invest in convertible
bonds, preferred stocks and straight debt securities ("debt securities"). In
periods of uncertain market and economic conditions, as determined by
Management, the Fund may depart from its basic investment objective and assume a
defensive position with a large portion of its assets temporarily invested in
high quality corporate bonds, or notes and government issues, or held in cash.
The Industrial Income Fund may invest no more than 15% of its total assets
in debt securities that are rated below BBB by Standard & Poor's Ratings Group
("Standard & Poor's"), or Baa by Moody's Investors Service, Inc. ("Moody's"),
and in no event will the Fund ever invest in a debt security rated below CCC by
Standard & Poor's or Caa by Moody's. Generally, bonds rated in one of the top
four rating categories are considered "investment grade." However, those in the
fourth highest category (Standard & Poor's BBB or Moody's Baa) may have
speculative characteristics and a weaker ability to pay interest or repay
principal under adverse economic conditions or changing circumstances. The risks
of investing in debt securities rated lower than BBB by Standard & Poor's or Baa
by Moody's are discussed below under the caption "Risk Factors." See the
Appendix to this Prospectus for a specific description of each corporate bond
rating category.
Total Return Fund
The investment objective of the Total Return Fund is to seek a high total
return on investment through capital appreciation and current income. The Fund
seeks to accomplish its objective by investing in a combination of equity
securities and fixed income
<PAGE>
securities. Although there is no limitation on the maturity of the Total Return
Fund's investments in fixed income securities, the dollar-weighted average
maturity of such investments normally will be from 3 to 15 years.
The equity securities to be acquired by the Total Return Fund consist of
common stocks and, to a lesser extent, securities convertible into common
stocks. Such securities generally will be issued by companies which are listed
on a national securities exchange (such as the New York Stock Exchange) and
which usually pay regular dividends. However, the Fund also may invest in
securities traded on regional stock exchanges or in the over-the-counter market.
The Company has not established any minimum investment standards (such as an
issuer's asset level, earnings history, type of industry, dividend payment
history, etc.) with respect to the Fund's investments in common stocks. Because
smaller companies may be subject to more significant losses, as well as have the
potential for more substantial growth, than larger, more established companies,
the Fund's investments may consist in part of securities that may be deemed to
be speculative.
The income securities to be acquired by the Total Return Fund will include
obligations of the United States government and government agencies. These
United States government obligations consist of 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, which are supported only by the assets of the issuer, such as
the Federal National Mortgage Association, Federal Home Loan Bank, Federal
Financing Bank and Federal Farm Credit Bank. In the case of securities not
backed by the full faith and credit of the United States, the Fund 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.
The Fund will invest in securities of such instrumentalities only when
Management is satisfied that the credit risk with respect to any such
instrumentality is minimal.
The Total Return Fund also may invest in corporate debt obligations which
are rated in one of the four highest ratings of corporate obligations by Moody's
(Aaa, Aa, A and Baa) or by Standard & Poor's (AAA, AA, A and BBB), or, if not
rated, which in Management's opinion have investment characteristics similar to
those described in such ratings. The investment characteristics of the
securities rated Baa by Moody's or BBB by Standard & Poor's are discussed above
in the description of the investment policies of the Industrial Income Fund. See
the Appendix to this Prospectus for a specific description of each corporate
bond rating category.
Typically, at least 30% of the Total Return Fund's investment
<PAGE>
portfolio will be comprised of equities and at least 30% fixed and variable
income securities. The remaining 40% of the portfolio will vary in asset
allocation according to Management's assessment of business, economic, and
market conditions. The analytical process associated with making allocation
decisions is based upon a combination of demonstrated historic financial
results, current prices for stocks, and the current yield to maturity available
in the market for bonds. The return available from one category relative to the
other determines the actual asset deployment. Management's asset allocation
process is systematic and is based on current information rather than forecasted
change. The Fund seeks reasonably consistent returns over a variety of market
cycles.
High Yield Fund
The investment objective of the High Yield Fund is to seek a high level of
current income by investing substantially all of its assets in lower rated bonds
and other debt securities and in preferred stock. Accordingly, the Fund invests
primarily in bonds and other debt securities, including convertible and
non-convertible issues, and in preferred stocks rated in medium and lower
categories by Moody's or Standard & Poor's (Ba or lower by Moody's, BB or lower
by Standard & Poor's). The Fund does not invest in securities rated lower than
Caa by Moody's or CCC by Standard & Poor's; these ratings are applied to issues
which are predominantly speculative and may be in default or as to which there
may be present elements of danger with respect to principal or interest. The
Fund does not invest in issues which are in default. The Fund may invest in
unrated securities where the Fund's investment adviser believes that the
financial condition of the issuer or the protection afforded by the terms of the
securities limits risk to a level similar to that of securities eligible for
purchase by the Fund rated in medium and lower categories by Moody's or Standard
& Poor's (between Ba and Caa ratings by Moody's, and between BB and CCC ratings
by Standard & Poor's). The Fund also may invest in state and local municipal
obligations when Management believes that the potential total return on the
investment is better than the return that otherwise would be achieved by
investing in securities issued by private issuers. See the Appendix to this
Prospectus for a specific description of each corporate bond rating category.
The High Yield Fund also may hold cash or invest all or a portion of its
assets in securities issued or guaranteed by the U.S. government or its agencies
(which may or may not be backed by the full faith and credit of the United
States) and bank certificates of deposit, if Management determines it to be
appropriate for purposes of preserving liquidity or capital in light of
prevailing market or economic conditions. The Fund also may invest in corporate
short-term notes rated at the time of purchase at least A-1 by Standard & Poor's
or Prime-1 by Moody's, and municipal short-term notes rated at the time of
purchase at least SP-1 by Standard & Poor's or MIG-1 by Moody's (the highest
rating category for such notes, indicating a very strong capacity to make timely
payments of principal and interest).
<PAGE>
Potential capital appreciation is a factor in the selection of
investments, but is secondary to the High Yield Fund's primary objective. The
securities in which the Fund invests offer a wide range of maturities (from less
than one year to thirty years) and yields. These securities include short-term
bonds or notes (maturing in less than three years), intermediate-term bonds or
notes (maturing in three to ten years), and long-term bonds (maturing in more
than ten years). Management will seek to adjust the portfolio of securities held
by the Fund to maximize current income consistent with the preservation of
principal.
There are no limitations on the average maturity of the securities in the
High Yield Fund. Securities will be selected on the basis of Management's
assessment of interest rate trends and the liquidity of various instruments
under prevailing market conditions. As a matter of policy, which may be changed
without a vote of shareholders, under normal circumstances, at least 65% of the
value of the total assets of the Fund will be invested in debt securities having
maturities at the time of issuance of at least three years. As a temporary
defensive measure, the Fund may hold cash or invest more than 35%, and up to
100%, of its assets in debt securities having maturities of less than three
years at the time of issuance if Management determines it to be appropriate for
purposes of enhancing liquidity or preserving capital in light of prevailing
market or economic conditions. The investment return to shareholders of the Fund
is based solely upon the income earned and gains realized on the securities held
by the Fund.
Securities in which the High Yield Fund invests may at times be purchased
or sold on a delayed delivery or a when-issued basis (i.e., securities may be
purchased or sold by the Fund with settlement taking place in the future, often
a month or more later). The High Yield Fund may invest up to 10% of its net
assets in when-issued securities. The payment obligation and the interest rate
that will be received on the securities are fixed at the time the Fund enters
into a purchase commitment. Between the date of purchase and the settlement
date, the value of the securities is subject to market fluctuations, and no
interest is payable to the Fund prior to the settlement date. When the Fund
purchases securities on a when-issued basis, its custodian bank will place cash
or liquid debt securities in a separate account of the Fund in an amount equal
to the amount of the purchase obligation.
<PAGE>
RISK FACTORS
Contract owners should consider the special factors associated with the
policies discussed below in determining the appropriate- ness of allocating
contract values to one or more of the Funds.
Potential Conflicts
The Company has received an exemptive order of the Securities and Exchange
Commission that permits the sale of Fund shares to variable annuity separate
accounts and variable life insurance separate accounts of affiliated and
unaffiliated Participating Insurance Companies. The Company currently does not
foresee any disadvantages to the owners of variable annuity or variable life
insurance contracts arising from the fact that the interests of those owners may
differ. Nevertheless, the Company's board of directors will monitor events in
order to identify any material irreconcilable conflicts which may possibly arise
due to differ- ences of tax treatment or other considerations and to determine
what action, if any, should be taken in response thereto.
Credit and Market Risks
All securities, including those purchased by each Fund, are subject to
some degree of credit risk and market risk. Credit risk refers to the ability of
an issuer of a debt security to pay its principal and interest, and to the
earnings stability and overall financial soundness of an issuer of an equity
security. Market risk refers to the volatility of a security's price in response
to changes in conditions in securities markets in general and, particularly in
the case of debt securities, changes in the overall level of interest rates. An
increase in interest rates will tend to reduce the market values of debt
securities, whereas a decline in interest rates will tend to increase their
values.
To limit exposure to credit risks, each Fund will be diversified. With
respect to 75% of each Fund's total assets, no more than 5% of the purchasing
Fund's total assets will be invested in the securities of any one issuer. In
addition, no more than 25% of a Fund's total assets will be invested in any one
industry. These percentage limitations apply immediately after a purchase or
initial investment. Any subsequent change in a percentage resulting from
fluctuations in value will not require elimination of any security from a Fund.
Portfolio Lending
Each Fund may make loans of its portfolio securities to broker-dealers or
other institutional investors under contracts requiring such loans to be
callable at any time and to be secured continuously by collateral in cash, cash
equivalents, high quality short-term government securities or irrevocable
letters of credit maintained on a current basis at an amount at least equal to
the market value of the securities loaned. This practice permits a
<PAGE>
Fund to earn income, which, in turn, can be invested in additional securities to
pursue the Fund's investment objective. The lending Fund will continue to
collect the equivalent of the interest or dividends paid by the issuer on the
securities loaned and will also receive either interest (through investment of
cash collateral) or a fee (if the collateral is government securities). A
lending Fund may pay finder's and other fees in connection with its securities
loans.
Lending securities involves certain risks, the most signifi- cant of which
is the risk that a borrower may fail to return a portfolio security. Management
monitors the creditworthiness of borrowers in order to minimize such risks. A
Fund will not lend any security if, as a result of that loan, the aggregate
value of securities then on loan would exceed 331/3% of the Fund's total assets
(taken at market value).
Repurchase Agreements
Each Fund may enter into repurchase agreements with respect to debt
instruments eligible for investment by that Fund. These agreements are entered
into with member banks of the Federal Reserve System, registered broker-dealers,
and registered govern- ment securities dealers which are deemed creditworthy by
Management (subject to review by the Company's board of directors). A repur-
chase agreement is a means of investing monies for a short period. In a
repurchase agreement, the Fund acquires a debt instrument (generally a security
issued by the U.S. government or an agency thereof, a banker's acceptance or a
certificate of deposit) subject to resale to the seller at an agreed upon price
and date (normally the next business day). If the other party defaults on its
obligation to repurchase the security, a Fund could incur costs or delays in
seeking to sell the security.
To minimize risks associated with repurchase agreements, the securities
underlying each repurchase agreement will be maintained with the Company's
custodian in an amount at least equal to the repurchase price under the
agreement (including accrued interest), and such agreements will be effected
only with parties that meet certain creditworthiness standards established by
the Fund's board of directors. No Fund will enter into a repurchase agreement
maturing in more than seven days if as a result more than 15% of that Fund's net
assets would be invested in such repurchase agreements and other illiquid
securities.
Portfolio Turnover
There are no fixed limitations regarding portfolio turnover for any of the
Funds. Although the Funds do not trade for short-term profits, securities may be
sold without regard to the time they have been held in a Fund when, in the
opinion of Management, market considerations warrant such action. It is
anticipated that the annual portfolio turnover rate of the Industrial Income
Fund generally will exceed 100% and that of the
<PAGE>
Total Return and High Yield Funds usually will not (but may, under certain
market conditions) exceed 100%. The portfolio turnover rates of the Industrial
Income and High Yield Funds may be higher than those of other investment
companies with comparable investment objectives. Increased portfolio turnover
would cause a Fund to incur greater brokerage costs than would otherwise be the
case. The Funds' portfolio turnover rates are set forth under "Financial
Highlights." The Company's brokerage allocation policies, including the
consideration of sales of Participating Life Insurance Companies' variable
annuity and variable life insurance contracts when selecting among qualified
brokers offering comparable best price and execution on Fund transactions, are
discussed in the Statement of Additional Information.
Illiquid and Rule 144A Securities
Each Fund is authorized to invest in securities that are illiquid because
they are subject to restrictions on their resale ("restricted securities") or
because, based upon their nature or the market for such securities, they are not
readily marketable. However, no Fund will purchase any such security if the
purchase would cause the Fund to invest more than 15% of its net assets,
measured at the time of purchase, in illiquid securities. Repurchase agreements
maturing in more than seven days will be considered illiquid for purposes of
this restriction. Investments in illiquid securities involve certain risks to
the extent that a Fund may be unable to dispose of such a security at the time
desired or at a reasonable price. In addition, in order to resell a restricted
security, a Fund might have to bear the expense and incur the delays associated
with effecting registration.
Certain restricted securities that are not registered for sale to the
general public, but that can be resold to institutional investors ("Rule 144A
Securities"), may be purchased without regard to the foregoing 15% limitation if
a liquid institutional trading market exists. The liquidity of a Fund's
investments in Rule 144A Securities could be impaired if dealers or
institutional investors become uninterested in purchasing these securities. The
Company's board of directors has delegated to Management the authority to
determine the liquidity of Rule 144A Securities pursuant to guidelines approved
by the board. For more information concerning Rule 144A Securities, see the
Statement of Additional Information.
<PAGE>
Foreign Securities
Each Fund may invest up to 25% of its total assets directly in foreign
securities. Investments in securities of foreign companies (including Canadian
securities, which are not subject to the 25% limitation) and in foreign markets
involve certain additional risks not associated with investments in domestic
companies and markets. For U.S. investors, the returns on foreign securities are
influenced not only by the returns on the foreign investments themselves, but
also by currency risk (i.e., changes in the value of the currencies in which the
securities are denominated relative to the U.S. dollar). In a period when the
U.S. dollar generally rises against foreign currencies, the returns on foreign
securities for a U.S. investor are diminished. By contrast, in a period when the
U.S. dollar generally declines, the returns on foreign securities generally are
enhanced.
Other risks and considerations of international investing include the
following: differences in accounting, auditing and financial reporting standards
which may result in less publicly available information than is generally
available with respect to U.S. issuers; generally higher commission rates on
foreign portfolio transactions and longer settlement periods; the smaller
trading volumes and generally lower liquidity of foreign stock markets, which
may result in greater price volatility; foreign withholding taxes payable on a
Fund's foreign securities, which may reduce dividend income payable to
shareholders; the possibility of expropriation or confiscatory taxation; adverse
changes in investment or exchange control regulations; political instability
which could affect U.S. investment in foreign countries; potential restrictions
on the flow of international capital; and the possibility of a Fund experiencing
difficulties in pursuing legal remedies and collecting judgments. Certain of
these risks, as well as currency risks, also apply to Canadian securities, which
are not subject to the Funds' 25% of total assets limitation on investing
directly in foreign securities. The Funds' investments in foreign securities may
include investments in developing countries. Many of these securities are
speculative and their prices may be more volatile than those of securities
issued by companies located in more developed countries.
Securities purchased by means of ADRs also are not subject to the 25%
limitation. ADRs are receipts, typically issued by a U.S. bank or trust company,
evidencing ownership of the underlying foreign securities. ADRs are denominated
in U.S. dollars and trade in the U.S. securities markets. ADRs may be issued in
sponsored or unsponsored programs. In sponsored programs, the issuer makes
arrangements to have its securities traded in the form of ADRs; in unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although the regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, the issuers of unsponsored ADRs are
not obligated to disclose material information in the United States and,
therefore, such information may not be reflected in the market value of the
<PAGE>
ADRs. ADRs are subject to certain of the same risks as direct investments in
foreign securities, including the risk that changes in the value of the currency
in which the security underlying an ADR is denominated relative to the U.S.
dollar may adversely affect the value of the ADR.
Each of the Funds may enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") as a hedge against
fluctuations in foreign exchange rates pending the settlement of transactions in
foreign securities or during the time the Funds hold foreign securities. A
forward contract is an agreement between contracting parties to exchange an
amount of currency at some future time at an agreed upon rate. Although the
Funds have not adopted any limitations on their ability to use forward contracts
as a hedge against fluctuations in foreign exchange rates, the Funds do not
attempt to hedge all of their foreign investment positions and will enter into
forward contracts only to the extent, if any, deemed appropriate by Management.
The Funds will not enter into forward contracts for a term of more than one year
or for purposes of speculation. Hedging against a decline in the value of a
currency in the foregoing manner does not eliminate fluctuations in the prices
of portfolio securities or prevent losses if the prices of such securities
decline. Furthermore, such hedging transactions preclude the opportunity for
gain if the value of the hedged currency should rise. If a Fund enters into a
"position hedging transaction," which is the sale of a forward foreign currency
contract with respect to a portfolio security denominated in that foreign
currency, its custodian bank will place cash or liquid equity or debt
securities, which may be denominated either in U.S. dollars or a foreign
currency, in a segregated account of the Fund in an amount at least equal to the
value of the total assets of the Fund committed to the consummation of that
forward contract. If the value of the securities placed in the account declines,
additional cash or securities will be placed in the account so that the value of
the account will at least equal the amount of the Fund's commitment with respect
to the forward contracts. No predictions can be made with respect to whether the
total of such transactions will result in a better or worse position than had
the Fund not entered into any forward contracts. Forward contracts and the
securities placed in a segregated account may, from time to time, be considered
illiquid, in which case they would be subject to the Funds' limitation on
investing in illiquid securities, discussed above.
Zero Coupon and Pay-In-Kind Bonds
The High Yield Fund may invest in zero coupon bonds and pay- in-kind
bonds, provided that Management determines that the risk of a default on the
security, which could result in adverse tax consequences is not significant. A
zero coupon bond ("zero") does not make cash interest payments during the life
of the bond. Instead, it is sold at a discount to face value, and the interest
consists of the gradual appreciation in price as the bond approaches maturity.
Zeros can be an attractive financing method
<PAGE>
for issuers with near-term cash flow problems. Pay-in-kind ("PIK") bonds pay
interest in cash or additional securities, at the issuer's option, for a
specified period. Like zeros, they may help a corporation economize on cash. PIK
prices reflect the market value of the underlying debt plus any accrued
interest. Zeros and PIKs can be higher or lower quality debt, and may be more
speculative and subject to greater fluctuation in value due to changes in
interest rates than coupon bonds. To maintain the High Yield Fund's
qualification as a regulated investment company, it may be required to
distribute income recognized on these bonds, even though no cash may be paid to
the Fund until the maturity or call date of the bond, and such distribution
could reduce the amount of cash available for investment by the Fund.
High-Risk, High-Yield Securities
Although Management limits the High Yield and Industrial Income Funds'
debt security investments to securities it believes are not highly speculative,
both credit and market risks are increased by those Funds' investments in debt
securities rated below the top four grades by Standard & Poor's or Moody's
(high-risk, high-yield securities commonly known as "junk bonds") and comparable
unrated debt securities. Lower rated bonds by Moody's (categories Ba, B, Caa)
are of poorer quality and may have speculative characteristics. Bonds rated Caa
may be in default or there may be present elements of danger with respect to
principal or interest. Lower rated bonds by Standard & Poor's (categories BB, B,
CCC) include those which are regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with their terms; BB indicates the lowest degree of speculation and
CCC a high degree of speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
Because investment in medium and lower rated securities involves both
greater credit risk and market risk, achievement of the High Yield Fund's (and,
to a lesser extent, the Industrial Income Fund's) investment objectives may be
more dependent on Management's credit analysis than is the case for funds
investing in higher quality securities. In addition, the share price and yield
of the High Yield Fund may be expected to fluctuate more than in the case of
funds investing in higher quality, shorter term securities. Moreover, a
significant economic downturn or major increase in interest rates may result in
issuers of lower rated securities experiencing increased financial stress, which
would adversely affect their ability to service their principal, dividend and
interest obligations, meet projected business goals, and obtain additional
financing. In this regard, it should be noted that while the market for high
yield corporate bonds has been in existence for many years and from time to time
has experienced economic downturns in recent years, this market has involved a
significant increase in the use of high yield corporate debt securities to fund
highly leveraged corporate acquisitions and
<PAGE>
restructurings. Past experience may not, therefore, provide an accurate
indication of future performance of the high yield bond market, particularly
during periods of economic recession. Furthermore, expenses incurred to recover
an investment by a Fund in a defaulted security may adversely affect the Fund's
net asset value. Finally, while Management attempts to limit purchases of medium
and lower rated securities to securities having an established secondary market,
the secondary market for such securities may be less liquid than the market for
higher quality securities. The reduced liquidity of the secondary market for
such securities may adversely affect the market price of, and ability of the
High Yield or Industrial Income Funds to value, particular securities at certain
times, thereby making it difficult to make specific valuation determinations.
While Management continuously monitors all of the debt securities held by
the Funds for the issuers' ability to make required principal and interest
payments and other quality factors, a Fund may retain in the portfolio a debt
security whose rating is changed to one below the minimum rating required for
purchase. More information on debt securities is contained in the Statement of
Additional Information.
The following table shows the composition of the Industrial Income Fund's
and the High Yield Fund's investments in corporate bonds by rating category for
the fiscal period ended December 31, 1994. All of these percentages were
determined on a dollar-weighted basis, calculated by averaging the Funds'
month-end portfolio holdings during the fiscal year. These figures do not
represent actual holdings of the Funds as of December 31, 1994, nor do they
imply that the overall quality of portfolio holdings is fixed.
Percentage of Total Assets
Industrial High Yield
Rating Category Income Fund Fund
AAA 0% 0%
AA 0% 0%
A 0% 0%
BBB 3.35% 0%
BB 6.92% 15.23%
B 3.26% 18.11%
CCC 0% 2.61%
Unrated 0% 1.03%
Options and Futures Contracts
The Funds may enter into futures contracts for hedging or other
non-speculative purposes within the meaning and intent of applicable rules of
the Commodity Futures Trading Commission ("CFTC"). Futures contracts are
purchased or sold to attempt to hedge against the effects of interest or
exchange rate changes on
<PAGE>
a Fund's current or intended investments. If an anticipated decrease in the
value of portfolio securities occurs as a result of a general increase in
interest rates or a change in exchange rates, the adverse effects of such
changes may be offset, in whole or part, by gains on the sale of futures
contracts. Conversely, an increase in the cost of portfolio securities to be
acquired caused by a general decline in interest rates or a change in exchange
rates may be offset, in whole or part, by gains on futures contracts purchased
by a Fund. A Fund will incur brokerage fees when it purchases and sells futures
contracts, and it will be required to maintain margin deposits.
The Funds also may use options to buy or sell futures contracts or debt
securities. Such investment strategies will be used as a hedge and not for
speculation.
Put and call options on futures contracts may be traded by a Fund in order
to protect against declines in the values of portfolio securities or against
increases in the cost of securities to be acquired. Purchases of options on
futures contracts may present less dollar risk in hedging the portfolio of the
Fund than the purchase and sale of the underlying futures contracts, since the
potential loss is limited to the amount of the premium plus related transaction
costs. The premium paid for such a put or call option plus any transaction costs
will reduce the benefit, if any, realized by the Fund upon exercise or
liquidation of the option, and, unless the price of the underlying futures
contract changes sufficiently, the option may expire without value to the Fund.
The writing of covered options, however, does not present less risk than the
trading of futures contracts, and will constitute only a partial hedge, up to
the amount of the premium received, and, if an option is exercised, the Fund may
suffer a loss on the transaction.
A Fund may purchase put or call options in anticipation of changes in
interest rates or other factors which may adversely affect the value of its
portfolio or the prices of securities which the Fund anticipates purchasing at a
later date. The Fund may be able to offset such adverse effects on its
portfolio, in whole or in part, through the options purchased. The premium paid
for a put or call option plus any transaction costs will reduce the benefit, if
any, realized by the Fund upon exercise or liquidation of the option, and,
unless the price of the underlying security changes sufficiently, the option may
expire without value to the Fund.
A Fund may, from time to time, also sell ("write") covered call options or
cash secured puts in order to attempt to increase the yield on its portfolio or
to protect against declines in the value of its portfolio securities. By writing
a covered call option, the Fund, in return for the premium income realized from
the sale of the option, gives up the opportunity to profit from a price increase
in the underlying security above the option exercise price, where the price
increase occurs while the option is in effect. In addition, the Fund's ability
to sell the underlying security will be limited while the option is in effect.
By writing
<PAGE>
a cash secured put, the Fund, which receives the premium, has the obligation
during the option period, upon assignment of an exercise notice, to buy the
underlying security at a specified price. A put is secured by cash if the Fund
maintains at all times cash, Treasury bills or other high grade short-term
obligations with a value equal to the option exercise price in a segregated
account with its custodian.
Although the Funds will enter into options and futures contracts solely
for hedging or other non-speculative purposes, within the meaning and intent of
applicable rules of the CFTC, their use does involve certain risks. For example,
a lack of correlation between the value of an instrument underlying an option or
futures contract and the assets being hedged, or unexpected adverse price
movements, could render a Fund's hedging strategy unsuccessful and could result
in losses. In addition, there can be no assurance that a liquid secondary market
will exist for any contract purchased or sold, and the Fund may be required to
maintain a position until exercise or expiration, which could result in losses.
Transactions in futures contracts and options are subject to other risks as
well.
The risks related to transactions in options and futures to be entered
into by the Funds are set forth in greater detail in the Statement of Additional
Information, which should be reviewed in conjunction with the foregoing
discussion.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain fundamental restrictions regarding its
investments which may not be altered without the approval of the Fund's
shareholders. Those restrictions include, among others, limitations with respect
to the percentages of the value of the Fund's total assets which may be invested
in any one company or in one industry. A list of each Fund's fundamental
investment restrictions and a list of additional, non-fundamental investment
restrictions of each Fund (which can be changed by the Company's board of
directors without shareholder approval) are contained in the Statement of
Additional Information.
<PAGE>
MANAGEMENT
Pursuant to an agreement with the Company, INVESCO, 7800 E. Union Avenue,
Denver, Colorado, serves as the Funds' investment adviser. INVESCO is primarily
responsible for providing the Funds with various administrative services and
supervising the Funds' daily business affairs. These services are subject to
review by the Company's board of directors. INVESCO is an indirect wholly-owned
subsidiary of INVESCO PLC, a financial holding company which, through its
subsidiaries, engages in the business of investment management on an
international basis. INVESCO was established in 1932 and, as of December 31,
1994, managed 14 mutual funds, consisting of 36 separate portfolios, with
combined assets of approximately $9.0 billion on behalf of over 826,000
shareholders.
Pursuant to agreements with INVESCO, INVESCO Trust serves as the
sub-adviser of the Industrial Income and High Yield Funds and ICM serves as the
sub-adviser of the Total Return Fund. Although the Company is not a party to
either sub-advisory agreement, each agreement has been approved for each Fund
affected by that agreement by the Company's board of directors. In addition,
each agreement has been approved as to each affected Fund by the initial
shareholder of that Fund. The address of INVESCO Trust is 7800 E. Union Avenue,
Denver, Colorado and the address of ICM is 1315 Peachtree Street, N.E., Atlanta,
Georgia. Subject to the supervision of INVESCO and review by the Company's board
of directors, INVESCO Trust is primarily responsible for selecting and managing
the investments of the Industrial Income and High Yield Funds and ICM is
primarily responsible for selecting and managing the investments of the Total
Return Fund.
INVESCO Trust, a trust company founded in 1969, is a wholly-owned
subsidiary of INVESCO that managed 35 investment portfolios as of December 31,
1994, including 27 portfolios in the INVESCO group. These 35 portfolios had
aggregate assets of approximately $8.3 billion as of December 31, 1994. In
addition, INVESCO Trust provides investment management services to private
clients, including employee benefit plans that may be invested in a collective
trust sponsored by INVESCO Trust.
The following persons serve as portfolio managers of the respective Funds:
Industrial Income Fund
Charles P. Mayer Co-portfolio manager of the INVESCO VIF - Industrial
Income Portfolio since 1993; co-portfolio manager of INVESCO Industrial Income
Fund; portfolio manager (since 1993), senior vice president (since 1994) and
vice president (1993 to 1994) of INVESCO Trust; formerly (1984 to 1993),
portfolio manager with Westinghouse Pension; began investment career in 1969;
B.A., St. Peter's College; M.B.A., St. John's University.
<PAGE>
Donovan J. (Jerry) Paul, CFA Co-portfolio manager of the INVESCO VIF -
Industrial Income Portfolio since 1994; co-portfolio manager of INVESCO
Industrial Income Fund and INVESCO Balanced Fund; portfolio manager of INVESCO
VIF - High Yield Portfolio, INVESCO High Yield Fund and INVESCO Select Income
Fund; portfolio manager and senior vice president of INVESCO Trust since 1994;
formerly, senior vice president and director of fixed income research (1989 to
1992) and portfolio manager (1987 to 1992) with Stein, Roe & Farnham Inc.; and
president (1993 to 1994) of Quixote Investment Management, Inc.; began
investment career in 1976; B.B.A. University of Iowa; M.B.A. University of
Northern Iowa; Chartered Financial Analyst; Certified Public Accountant.
High Yield Fund
Donovan J. (Jerry) Paul, CFA Portfolio manager of the INVESCO VIF - High
Yield Portfolio since 1994; portfolio manager of INVESCO High Yield Fund and
INVESCO Select Income Fund; co-portfolio manager of INVESCO Industrial Income
Fund, INVESCO VIF - Industrial Income Portfolio and INVESCO Balanced Fund;
portfolio manager and senior vice president of INVESCO Trust since 1994;
formerly, senior vice president and director of fixed income research (1989 to
1992) and portfolio manager (1987 to 1992) with Stein, Roe & Farnham Inc.; and
president (1993 to 1994) of Quixote Investment Management, Inc.; began
investment career in 1976; B.B.A. University of Northern Iowa; M.B.A. University
of Northern Iowa; Chartered Financial Analyst; Certified Public Accountant.
ICM is an indirect, wholly-owned subsidiary of INVESCO PLC
<PAGE>
that, as of December 31, 1994, managed approximately $24.3 billion of tax-exempt
accounts (such as pension and profit-sharing funds for corporations and state
and local governments) and acted as investment adviser or sub-adviser to 16
investment portfolios of eight investment companies (including the Company) with
combined assets of approximately $1.5 billion.
The following persons serve as portfolio managers of the Total Return
Fund:
Edward C. Mitchell, Jr., CFA Portfolio manager of the INVESCO VIF - Total
Return Portfolio since 1993; portfolio manager of INVESCO Value Trust Total
Return Fund since 1987 and of the EBI Flex Fund since 1988; president (1992 to
present), vice president (1979 to 1991) and director (1979 to present) of ICM;
began investment career in 1969; B.A., University of Virginia; M.B.A.,
University of Colorado; Chartered Financial Analyst; Chartered Investment
Counselor; past president, Atlanta Society of Financial Analysts.
David S. Griffin, CFA Co-portfolio manager of the INVESCO VIF - Total
Return Portfolio since 1993; co-portfolio manager of INVESCO Value Trust Total
Return Fund and of the EBI Flex Fund since 1993; portfolio manager of ICM since
1991; mutual fund sales representative with INVESCO Services, Inc. (1986 to
1991); began investment career in 1982; B.A., Ohio Wesleyan University; M.B.A.,
William and Mary; Chartered Financial Analyst.
The Company pays INVESCO a monthly advisory fee which is based upon a
percentage of each Fund's average net assets determined daily. For the
Industrial Income and Total Return Funds, the advisory fees are each computed at
the annual rate of 0.75% of the first $500 million of the Fund's average net
assets; 0.65% of the next $500 million of the Fund's average net assets; and
0.55% of the Fund's average net assets in excess of $1 billion. For the High
Yield Fund, the advisory fee is computed at the annual rate of 0.60% of the
first $500 million of the Fund's average net assets; 0.55% of the next $500
million of the Fund's average net assets and 0.45% of the Fund's average net
assets in excess of $1 billion. While the portion of INVESCO's fees which is
equal to 0.75% of average net assets is higher than those generally charged by
investment advisers to mutual funds, they are not higher than those
<PAGE>
charged by many other investment advisers to funds with investment objectives
and asset levels comparable to those of the Industrial Income and Total Return
Funds. For the fiscal period ended December 31, 1994, the investment advisory
fees paid by the Industrial Income Fund, Total Return Fund, and High Yield Fund
were 0.75%, 0.75% and 0.60%, respectively, of each Fund's average net assets.
Out of the advisory fee received from each Fund, INVESCO pays that Fund's
sub-adviser a monthly subadvisory fee. No fee is paid by any Fund to its
sub-adviser. The sub-advisory fees for the Industrial Income and Total Return
Funds are each computed at the annual rate of 0.375% of the first $500 million
of the Fund's average net assets; 0.325% of the next $500 million of the Fund's
average net assets; and 0.275% of the Fund's average net assets in excess of $1
billion. The sub-advisory fee for the High Yield Fund is computed at the annual
rate of 0.30% of the first $500 million of the Fund's average net assets; 0.275%
of the next $500 million of the Fund's average net assets; and 0.225% of the
Fund's average net assets in excess of $1 billion.
The Company also has entered into an Administrative Services Agreement
with INVESCO dated October 20, 1993 (the "Administrative Agreement"). Pursuant
to the Administrative Agreement, INVESCO performs certain administrative,
recordkeeping and internal accounting services, including without limitation,
maintaining general ledger and capital stock accounts, preparing a daily trial
balance, calculating net asset value daily, providing selected general ledger
reports and providing certain sub-accounting and recordkeeping services for
shareholder accounts. For such services, the Company pays INVESCO a fee
consisting of a base fee of $10,000 per year for each Fund, plus an additional
incremental fee computed at the annual rate of 0.015% per year of the average
net assets of each Fund. INVESCO also is paid a fee by the Company for providing
transfer agent services. See "Additional Information."
A Fund's expenses, which are accrued daily, are generally deducted from
the Fund's total income before dividends are paid. Those expenses include, but
are not limited to: investment advisory fees, legal, transfer agent, custodian
and auditor's fees, commissions, taxes, compensation of independent directors,
insurance premiums, printing and other expenses relating to the Fund's
operations which are not expressly assumed by INVESCO under its agreements with
the Company. Certain Fund expenses will be absorbed voluntarily by Management
through at least December 31, 1995, in order to ensure that the total operating
expenses of the Industrial Income and Total Return Funds will not exceed 0.90%,
and the total operating expenses of the High Yield Fund will not exceed 0.80% of
the respective Fund's average net assets. Total expenses of the Industrial
Income Fund, Total Return Fund and High Yield Fund for the fiscal period ended
December 31, 1994, including investment advisory fees (but excluding brokerage
commissions, which are a cost of acquiring securities), amounted to 0.79%, 0.86%
<PAGE>
and 0.74%, respectively, of each Fund's average net assets. If such voluntary
expense limits were not in effect, the total operating expenses of the
Industrial Income, Total Return, and High Yield Funds for the fiscal period
ended December 31, 1994, would have been 32.55%, 16.44%, and 30.38%,
respectively.
PURCHASES AND REDEMPTIONS
Investors may not purchase or redeem shares of the Funds directly, but
only through variable annuity and variable life insurance contracts offered
through the separate accounts of Participating Insurance Companies. A contract
owner should refer to the applicable Separate Account Prospectus for information
on how to purchase or surrender a contract, make partial withdrawals of contract
values, allocate contract values to one or more of the Funds, or change existing
allocations among investment alternatives, including the Funds. Shares of the
Funds are sold on a continuous basis to separate accounts of Participating
Insurance Companies by INVESCO, as the Funds' Distributor. No sales charge is
imposed upon the sale of shares of the Funds. Sales charges for the variable
annuity or variable life insurance contracts are described in the Separate
Account Prospectuses.
The Participating Insurance Companies place orders for their separate
accounts to purchase and redeem shares of each Fund based on, among other
things, the amount of premium payments to be invested and transfer and surrender
requests to be effected on that day pursuant to variable annuity and variable
life insurance contracts. Fund shares are purchased or redeemed at the net asset
value per share next computed after receipt of a purchase or redemption order in
good form. Payment for redemptions ordinarily will be made on behalf of the
Company and the relevant Fund by the Company's transfer agent (INVESCO) within
seven days after the redemption request is received. However, payment may be
postponed under unusual circumstances, such as when normal trading is not taking
place on the New York Stock Exchange, an emergency as defined by the Securities
and Exchange Commission exists, or as permitted by the Securities and Exchange
Commission.
Net asset value per share is computed for each Fund once each day that the
New York Stock Exchange is open, as of the close of regular trading on that
Exchange (generally 4:00 p.m., New York time), and also may be computed on other
days under certain circumstances. Net asset value per share for each Fund is
calculated by dividing the market value of the Fund's securities plus the value
of its other assets (including dividends and interest accrued but not
collected), less all liabilities (including accrued expenses), by the number of
outstanding shares of the Fund. If market quotations are not readily available,
a security will be valued at fair value as determined in good faith by the board
of directors. Debt securities with remaining maturities of 60 days or less at
the time of purchase will be valued at amortized cost, absent unusual
circumstances, so long as the Company's board of directors believes that such
value represents fair value.
<PAGE>
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
Taxes
The Internal Revenue Code of 1986, as amended (the "Code"), provides that
each investment portfolio of a series fund is to be treated as a separate
taxpayer. Accordingly, each Fund of the Company intends to qualify as a separate
regulated investment company under Subchapter M of the Code.
Each Fund intends to comply with the diversification require- ments of
Code Section 817(h). By meeting this and other require- ments, the Participating
Insurance Companies, rather than the owners of variable annuity or variable life
insurance contracts, should be subject to tax on distributions received with
respect to Fund shares. For further information concerning federal income tax
consequences for the owners of variable annuity or variable life insurance
contracts, a contract owner should consult his or her Separate Account
Prospectus.
As a regulated investment company, each Fund generally will not be subject
to tax on its ordinary income and net realized capital gains to the extent such
income and gains are distributed in conformity with applicable distribution
requirements under the Code to the separate accounts of the Participating
Insurance Companies which hold its shares. Distributions of income and the
excess of net short-term capital gain over net long-term capital loss will be
treated as ordinary income, and distributions of the excess of net long-term
capital gain over net short-term capital loss will be treated as long-term
capital gain by the Participating Insurance Companies. Participating Insurance
Companies should consult their own tax advisers concerning whether such
distribu- tions are subject to federal income tax if they are retained as part
of contract reserves.
Dividends
In addition to any increase in the value of a Fund's shares which may
occur from increases in the value of the Fund's invest- ments, the Fund may earn
income in the form of dividends and interest on its investments. Dividends paid
by each Fund will be based solely on the income earned by that Fund. The
Company's policy with respect to each Fund is to distribute substantially all of
this income, less expenses, to shareholders of that Fund. At the discretion of
the board of directors, distributions are customarily made annually to
shareholders of the Funds. Dividends are automatically reinvested in additional
shares of the Fund making the dividend distribution at its net asset value on
the ex- dividend date, unless an election is made on behalf of a separate
account to receive distributions in cash.
<PAGE>
Capital Gains
Capital gains or losses are the result of a Fund selling its portfolio
securities at prices that are higher or lower than the prices paid by it to
purchase such securities. Total gains from such sales, less any losses from such
sales (including losses carried forward from prior years) represent net realized
capital gains. Each Fund distributes its net realized capital gains, if any, to
its shareholders at least annually, usually in December. Capital gains
distributions are automatically reinvested in additional shares of the Fund
making the distribution at net asset value per share on the ex-dividend date,
unless an election is made on behalf of a separate account to receive
distributions in cash.
PERFORMANCE INFORMATION
From time to time, a Fund's total return may be included in
advertisements, sales literature, shareholder reports or Separate Account
Prospectuses. A Fund's total return includes the effect of deducting that Fund's
expenses, but does not include charges and expenses attributable to a particular
variable annuity or variable life insurance contract. Because shares of the
Funds can be purchased only through a variable annuity or variable life
insurance contract, the Funds' total return data should be reviewed along with
the description of contract charges and expenses contained in the applicable
Separate Account Prospectus. Total return for a Fund must always be accompanied
by, and reviewed with, comparable total return data for an associated variable
annuity separate account, or data that would permit evaluation of the magnitude
of variable life insurance charges and expenses not reflected in the Fund's
total return. Fund total return figures are based upon historical earnings and
are not intended to indicate future performance.
The "total return" of a Fund refers to the average annual rate of return
of an investment in the Fund. This figure is computed by calculating the
percentage change in value of an investment of $1,000, assuming reinvestment of
all income dividends and capital gain distributions, to the end of a specified
period. "Total return" quotations reflect the performance of the Fund and
include the effect of capital changes.
The total return performance for the Industrial Income Fund, Total Return
Fund and High Yield Fund for the fiscal period ended December 31, 1994, was
1.23%, 1.75% and 0.60%, respectively.
In conjunction with performance reports and/or analyses of shareholder
service for the Fund, comparisons of the Fund's performance for a given period
to the performance of recognized indices and for the same period may be made.
Such indices include ones provided by Dow Jones & Company, Standard & Poor's,
Lipper Analytical Services, Inc., Lehman Brothers, National Association of
Securities Dealers, Inc., Frank Russell Company, Value Line Investment Survey,
the American Stock Exchange, Morgan Stanley Capital International, Wilshire
<PAGE>
Associates, the Financial Times- Stock Exchange, the New York Stock
Exchange, the Nikkei Stock Average and the Deutcher Aktienindex, all of which
are unmanaged market indicators. Such comparisons can be a useful measure of the
quality of the Funds' investment performance. However, because Fund performance
data does not reflect separate account and contract charges, Fund performance
data is not an appropriate measure of the performance of a contract owner's
investment in the variable annuity and variable life insurance contracts.
In addition, rankings, ratings, and comparisons of investment performance
and/or assessments of the quality of shareholder service appearing in
publications such as Money, Forbes, Kiplinger's Personal Finance, Morningstar,
and similar sources which utilize information compiled (i) internally; (ii) by
Lipper Analytical Services, Inc.; or (iii) by other recognized analytical
services, may be used in sales literature. The Lipper Analytical Services, Inc.
rankings and comparisons, which may be used by the Funds in performance reports,
will be drawn from the "Equity Income Funds" variable insurance product grouping
for the Industrial Income Fund, the "Flexible Portfolio Funds" grouping for the
Total Return Fund and the "High Current Yield Funds" grouping for the High Yield
Fund. In addition, the broad-based Lipper variable insurance product groupings
may be used for comparison to any of the Funds. A more complete list of
publications that may be quoted in sales literature is contained in the
Statement of Additional Information.
ADDITIONAL INFORMATION
Voting Rights
The Participating Insurance Companies and their separate accounts, rather
than individual contract owners, are the share- holders of the Funds. However,
each Participating Insurance Company will vote shares held by its separate
accounts as required by law and interpretations thereof, as amended or changed
from time to time. In accordance with current law and interpretations thereof, a
Participating Insurance Company is required to request voting instructions from
its contract owners and must vote Fund shares held by each of its separate
accounts in proportion to the voting instructions received. Additional
information about voting procedures (including a discussion, where applicable,
of circumstances under which some Participating Insurance Companies may vote
Fund shares held by variable life insurance separate accounts other than in
accordance with contract owner instructions) is contained in the applicable
Separate Account Prospectuses.
All shares of each Fund have equal voting rights. When shareholders are
entitled to vote upon a matter, each shareholder is entitled to one vote for
each share owned. Voting with respect to certain matters, such as ratification
of independent accountants and the election of directors, will be by all Funds
of the Company voting together. In other cases, such as voting upon an
investment advisory contract, voting is on a Fund-by-Fund basis. To the extent
<PAGE>
permitted by law, when not all Funds are affected by a matter to be voted
upon, only shareholders of the Fund or Funds affected by the matter will be
entitled to vote thereon. The Company is not generally required and does not
expect to hold regular annual meetings of shareholders. However, the board of
directors will call special meetings of shareholders for the purpose, among
other reasons, of voting upon the question of removal of a director or directors
when requested to do so in writing by the holders of 10% or more of the
outstanding shares of the Company or as may be required by applicable law or the
Company's Articles of Incorporation. The Company will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940. Directors may be removed by action of the holders of a majority or more
of the outstanding shares of the Company.
Shareholder Inquiries
Inquiries regarding the Funds may be directed to the Company at the
telephone number or mailing address set forth on the cover page of this
Prospectus or to a Participating Insurance Company.
Transfer and Disbursing Agent
INVESCO acts as registrar, transfer agent, and dividend disbursing agent
for the Company pursuant to a Transfer Agency Agreement that provides for an
annual fee of $5,000 per Fund.
Master/Feeder Option
The Company may in the future seek to achieve any Fund's investment
objective by investing all of that Fund's assets in another investment company
having the same investment objective and substantially the same investment
policies and restrictions as those applicable to that Fund. It is expected that
any such investment company would be managed by INVESCO in substantially the
same manner as the existing Fund. If permitted by applicable laws and policies
then in effect, any such investment may be made in the sole discretion of the
Company's board of directors without further approval of the Funds'
shareholders. However, Fund shareholders will be given at least 30 days prior
notice of any such investment. Such investment would be made only if the
Company's board of directors determines it to be in the best interests of a Fund
and its shareholders. In making that determination, the board will consider,
among other things, the benefits to shareholders and/or the opportunity to
reduce costs and achieve operational efficiencies. No assurance is given that
costs will be materially reduced if this option is implemented.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS
<PAGE>
AND, IF GIVEN OR MADE, SUCH INFORMATION OR PRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE COMPANY IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE>
APPENDIX
BOND RATINGS
The following is a description of Standard & Poor's Ratings Group
("Standard & Poor's") and Moody's Investors Service, Inc.
("Moody's") bond rating categories:
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to
default and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal.
<PAGE>
Moody's Investors Service, Inc. Corporate Bond Ratings
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any longer period of time may be small.
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.
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - Industrial Income Portfolio
INVESCO VIF - Total Return Portfolio
INVESCO VIF - High Yield Portfolio
INVESCO VIF - Utilities Portfolio
Prospectus
May 1, 1995
To receive additional information about the Funds,
call toll free: 1-800-525-8085
or write to: INVESCO Funds Group, Inc.
Post Office Box 173706
Denver, Colorado 80217-3706
<PAGE>
Prospectus May 1, 1995
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Investment Funds, Inc. (the "Company"), a Maryland
corporation, is an open-end management investment company which offers shares of
common stock of four diversified investment portfolios (the "Funds"): the
INVESCO VIF - Industrial Income Portfolio (the "Industrial Income Fund"), the
INVESCO VIF - Total Return Portfolio (the "Total Return Fund"), the INVESCO VIF
- - High Yield Portfolio (the "High Yield Fund"), and the INVESCO VIF - Utilities
Portfolio (the "Utilities Fund"). The Company's shares are not offered directly
to the public, but are sold exclusively to life insurance companies
("Participating Insurance Companies") as a pooled funding vehicle for variable
annuity and variable life insurance contracts issued by separate accounts of
Participating Insurance Companies. The Funds have the following investment
objectives:
Industrial Income Fund:
to seek the best possible current income while following sound investment
practices. Capital growth potential is an additional, but secondary,
consideration in the selection of portfolio securities. The Industrial
Income Fund seeks to achieve its investment objective by investing in
securities which will provide a relatively high yield and stable return
and which, over a period of years, also may provide capital appreciation.
Total Return Fund:
to seek a high total return on investment through capital appreciation and
current income. The Total Return Fund seeks to achieve its investment
objective by investing in a combination of equity securities (consisting
of common stocks and, to a lesser degree, securities convertible into
common stock) and fixed income securities.
High Yield Fund:
to seek a high level of current income by investing substantially all of
its assets in lower rated bonds and other debt securities and in preferred
stock. See "Risk Factors" for a description of the risks involved in
investing in lower rated bonds. The Fund pursues its investment objective
through investment in a variety of long-term, intermediate-term, and
short-term bonds. Potential capital appreciation is a factor in the
selection of investments, but is secondary to the Fund's primary
objective.
<PAGE>
Utilities Fund:
to seek capital appreciation and income through investments primarily in
equity securities of companies principally engaged in the public utilities
business.
This Prospectus sets forth concisely the information about the Funds that
a prospective purchaser should know before purchasing a variable contract from a
Participating Insurance Company or allocating contract values to one or more of
the Funds. Please read this Prospectus and retain it for future reference.
Additional information about the Funds has been filed with the Securities and
Exchange Commission and is available upon request by writing INVESCO Funds
Group, Inc., Post Office Box 173706, Denver, Colorado 80217-3706, by calling
1-800-525-8085, or by contacting a Participating Insurance Company and
requesting the "Statement of Additional Information for INVESCO Variable
Investment Funds, Inc." (the "Statement of Additional Information"). The
Statement of Additional Information dated May 1, 1995, is incorporated by
reference into this Prospectus.
The High Yield Fund invests primarily in lower rated bonds, commonly known as
"junk bonds." Investments of this type are subject to greater risks, including
default risks, than those found in higher rated securities. Purchasers should
carefully assess the risks associated with an investment in the High Yield Fund.
See "Investment Objectives and Policies" and "Risk Factors."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY.................................................................... 4
FINANCIAL HIGHLIGHTS....................................................... 6
INVESTMENT OBJECTIVES AND POLICIES......................................... 8
RISK FACTORS............................................................... 13
INVESTMENT RESTRICTIONS.................................................... 22
MANAGEMENT................................................................. 22
PURCHASES AND REDEMPTIONS.................................................. 27
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS.................................... 28
PERFORMANCE INFORMATION.................................................... 29
ADDITIONAL INFORMATION..................................................... 30
APPENDIX................................................................... 33
<PAGE>
SUMMARY
The Company is a registered, open-end management investment company that
was organized as a Maryland corporation on August 19, 1993, and is currently
comprised of four diversified investment portfolios ("Funds"), the INVESCO VIF-
Industrial Income Portfolio, the INVESCO VIF - Total Return Portfolio, the
INVESCO VIF - High Yield Portfolio, and the INVESCO VIF - Utilities Portfolio.
Additional Funds may be created from time to time. The overall supervision of
the Company is the responsibility of its board of directors.
The Company is intended to be a funding vehicle for variable annuity
contracts and variable life insurance contracts to be offered by separate
accounts of certain life insurance companies ("Participating Insurance
Companies"). Fund shares are not available for purchase other than through the
purchase of such contracts. The variable annuity and variable life insurance
contracts are described in separate prospectuses of the Participating Insurance
Companies (the "Separate Account Prospectuses"). The Company assumes no
responsibility for the Separate Account Prospectuses. A contract owner should
refer to the Separate Account Prospectuses for information on how to purchase or
surrender a contract, make partial withdrawals of contract values, allocate
contract values to one or more of the Funds, or change existing allocations
among investment alternatives, including the Funds.
Each Fund has its own distinct investment objective. There is, of course,
no guarantee that any Fund will achieve its investment objective. The Industrial
Income Fund seeks to attain its investment objective by investing in securities
which will provide a relatively high yield and stable return and which, over a
period of years, also may provide capital appreciation, including
dividend-paying common stocks, convertible bonds, preferred stocks and debt
securities. The Total Return Fund seeks to attain its investment objective by
investing in a combination of equity securities and fixed income securities;
ordinarily, its investment portfolio will be comprised of at least 30% equity
securities and at least 30% debt securities, with the remaining 40% allocated
according to business, economic and market conditions. The High Yield Fund seeks
to attain its investment objective by investing substantially all of its assets
in lower rated bonds and other debt securities and in preferred stock. See "Risk
Factors" for a description of the risks involved in investing in lower rated
bonds. The Utilities Fund seeks to attain its investment objective by investing
primarily in securities of companies principally engaged in business as public
utilities, which may be either established, well-capitalized companies or newly
formed, small capitalization companies. A discussion of each Fund's investment
objective and policies is provided below under the caption "Investment
Objectives and Policies."
<PAGE>
Various types of risks are involved with each Fund. Each Fund may lend
portfolio securities and may enter into repurchase agreements with respect to
debt instruments eligible for investment by that Fund. Each Fund may invest up
to 15% of its net assets in illiquid securities. Each Fund also may invest up to
25% of its total assets directly in foreign securities, which present certain
additional risks not associated with investments in domestic companies and
markets. Securities of Canadian issuers and securities purchased by means of
American Depository Receipts ("ADRs") are not subject to this 25% limitation.
The High Yield Fund may invest without limit, and the Industrial Income Fund may
invest up to 15% of its total assets, in lower-rated debt securities which
present a greater risk of default and have prices which fluctuate more than
those of higher-rated securities. The Utilities Fund is subject to risks related
to the uncertainties to which the gas and electric public utilities industries
are subject, including difficulties in obtaining adequate financing, government
regulation of investment return, environmental issues, prices of fuel for
electric generation, availability of natural gas, and risks associated with
nuclear power facilities. Each of the Funds may invest in options and futures
contracts, each of which presents special risks. These and other risks are
discussed below under the caption "Risk Factors."
INVESCO Funds Group, Inc. ("INVESCO"), the Funds' investment adviser, is
primarily responsible for providing the Company with various administrative
services and supervising the Company's daily business affairs. Portfolio
management is provided to each Fund by its sub-adviser (referred to collectively
with INVESCO as "Management"). INVESCO Trust Company ("INVESCO Trust") serves as
subadviser to the Industrial Income, High Yield and Utilities Funds. INVESCO
Capital Management, Inc. ("ICM") serves as sub-adviser to the Total Return Fund.
Each Fund pays INVESCO an advisory fee for the management of its investments and
business affairs. A discussion of these fees and additional information about
INVESCO, INVESCO Trust and ICM are provided below under the caption
"Management."
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding throughout the Period)
The following information has been audited by Price Waterhouse LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Fund's 1994 annual report to shareholders and in the Statement
of Additional Information, both of which are available without charge by
contacting INVESCO Funds Group, Inc. at the address or telephone number shown on
the cover page of this Prospectus, or by contacting a Participating Insurance
Company.
<TABLE>
<CAPTION>
High Industrial Total
Yield Income Return Utilities
Portfolio~ Portfolio~ Portfolio~ Portfolio+
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -- Beginning of Period $10.00 $10.00 $10.00 $10.00
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.03 0.09 0.00
Net Gains on Securities
(Both Realized and Unrealized) 0.01 0.09 0.09 0.00
---------- ---------- ---------- ----------
Total from Investment Operations 0.06 0.12 0.18 0.00
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.05 0.03 0.09 0.00
---------- ---------- ---------- ----------
Net Asset Value -- End of Period $10.01 $10.09 $10.09 $10.00
========== ========== ========== ==========
TOTAL RETURN+ 0.60%@ 1.23%@ 1.75%@ 0.00%
RATIOS
Net Assets -- End of Period
($000 Omitted) $624 $525 $1,055 $25
Ratio of Expenses to
Average Net Assets# 0.74%* 0.79%* 0.86%* 0.00%
<PAGE>
Ratio of Net Investment Income to
Average Net Assets 2.72%* 1.69%* 3.86%* 0.00%
Portfolio Turnover Rate 23%@ 0%@ 0%@ 0%
<FN>
~ For the High Yield, Industrial Income, and Total Return Portfolios, from May
27, 1994, August 10, 1994 and June 2, 1994, respectively, commencement of
investment operations, to December 31, 1994.
@ These amounts are based on operations for the period shown and, accordingly,
are not representative of a full year.
+ Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return
figures for the period shown.
# Various expense of the High Yield, Industrial Income and Total Return
Portfolios were voluntarily absorbed by INVESCO Funds Group, Inc. for the
year ended December 31, 1994. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 30.38%,
32.55% and 16.44%, respectively, and ratio of net investment income to
average net assets would have been (26.92%), (30.07%) and (11.72%),
respectively.
* Annualized
</FN>
</TABLE>
Further information about the performance of the Funds will be contained in
the Company's annual report to shareholders, which may be obtained without
charge by contacting INVESCO Funds Group, Inc. at the address or telephone
number set forth on the cover page of this Prospectus, or by contacting a
Participating Insurance Company.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund, as described below, is fundamental
and may be changed only by vote of a majority of the outstanding shares of that
Fund. There is no assurance that any Fund will achieve its investment objective.
Any investment policy of a Fund may be changed by the Company's board of
directors without shareholder approval unless the policy is one required by the
Fund's fundamental investment restrictions set forth in the Statement of
Additional Information.
Industrial Income Fund
The investment objective of the Industrial Income Fund is to seek the best
possible current income while following sound investment practices. Capital
growth potential is an additional, but secondary, consideration in the selection
of portfolio securities. The Fund seeks to achieve its objective by investing in
securities which will provide a relatively high yield and stable return and
which, over a period of years, also may provide capital appreciation.
The Industrial Income Fund normally invests between 60% and 75% of its
assets in dividend-paying common stocks. The Fund also may invest in convertible
bonds, preferred stocks and straight debt securities ("debt securities"). In
periods of uncertain market and economic conditions, as determined by
Management, the Fund may depart from its basic investment objective and assume a
defensive position with a large portion of its assets temporarily invested in
high quality corporate bonds, or notes and government issues, or held in cash.
The Industrial Income Fund may invest no more than 15% of its total assets
in debt securities that are rated below BBB by Standard & Poor's Ratings Group
("Standard & Poor's"), or Baa by Moody's Investors Service, Inc. ("Moody's"),
and in no event will the Fund ever invest in a debt security rated below CCC by
Standard & Poor's or Caa by Moody's. Generally, bonds rated in one of the top
four rating categories are considered "investment grade." However, those in the
fourth highest category (Standard & Poor's BBB or Moody's Baa) may have
speculative characteristics and a weaker ability to pay interest or repay
principal under adverse economic conditions or changing circumstances. The risks
of investing in debt securities rated lower than BBB by Standard & Poor's or Baa
by Moody's are discussed below under the caption "Risk Factors." See the
Appendix to this Prospectus for a specific description of each corporate bond
rating category.
Total Return Fund
The investment objective of the Total Return Fund is to seek a high total
return on investment through capital appreciation and
<PAGE>
current income. The Fund seeks to accomplish its objective by investing in a
combination of equity securities and fixed income securities. Although there is
no limitation on the maturity of the Total Return Fund's investments in fixed
income securities, the dollar-weighted average maturity of such investments
normally will be from 3 to 15 years.
The equity securities to be acquired by the Total Return Fund consist of
common stocks and, to a lesser extent, securities convertible into common
stocks. Such securities generally will be issued by companies which are listed
on a national securities exchange (such as the New York Stock Exchange) and
which usually pay regular dividends. However, the Fund also may invest in
securities traded on regional stock exchanges or in the over-the-counter market.
The Company has not established any minimum investment standards (such as an
issuer's asset level, earnings history, type of industry, dividend payment
history, etc.) with respect to the Fund's investments in common stocks. Because
smaller companies may be subject to more significant losses, as well as have the
potential for more substantial growth, than larger, more established companies,
the Fund's investments may consist in part of securities that may be deemed to
be speculative.
The income securities to be acquired by the Total Return Fund will include
obligations of the United States government and government agencies. These
United States government obligations consist of 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, which are supported only by the assets of the issuer, such as
the Federal National Mortgage Association, Federal Home Loan Bank, Federal
Financing Bank and Federal Farm Credit Bank. In the case of securities not
backed by the full faith and credit of the United States, the Fund 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.
The Fund will invest in securities of such instrumentalities only when
Management is satisfied that the credit risk with respect to any such
instrumentality is minimal.
The Total Return Fund also may invest in corporate debt obligations which
are rated in one of the four highest ratings of corporate obligations by Moody's
(Aaa, Aa, A and Baa) or by Standard & Poor's (AAA, AA, A and BBB), or, if not
rated, which in Management's opinion have investment characteristics similar to
those described in such ratings. The investment characteristics of the
securities rated Baa by Moody's or BBB by Standard & Poor's are discussed above
in the description of the investment policies of the Industrial Income Fund. See
the Appendix to this Prospectus for a specific description of each corporate
bond rating category.
<PAGE>
Typically, at least 30% of the Total Return Fund's investment portfolio
will be comprised of equities and at least 30% fixed and variable income
securities. The remaining 40% of the portfolio will vary in asset allocation
according to Management's assessment of business, economic, and market
conditions. The analytical process associated with making allocation decisions
is based upon a combination of demonstrated historic financial results, current
prices for stocks, and the current yield to maturity available in the market for
bonds. The return available from one category relative to the other determines
the actual asset deployment. Management's asset allocation process is systematic
and is based on current information rather than forecasted change. The Fund
seeks reasonably consistent returns over a variety of market cycles.
High Yield Fund
The investment objective of the High Yield Fund is to seek a high level of
current income by investing substantially all of its assets in lower rated bonds
and other debt securities and in preferred stock. Accordingly, the Fund invests
primarily in bonds and other debt securities, including convertible and
non-convertible issues, and in preferred stocks rated in medium and lower
categories by Moody's or Standard & Poor's (Ba or lower by Moody's, BB or lower
by Standard & Poor's). The Fund does not invest in securities rated lower than
Caa by Moody's or CCC by Standard & Poor's; these ratings are applied to issues
which are predominantly speculative and may be in default or as to which there
may be present elements of danger with respect to principal or interest. The
Fund does not invest in issues which are in default. The Fund may invest in
unrated securities where the Fund's investment adviser believes that the
financial condition of the issuer or the protection afforded by the terms of the
securities limits risk to a level similar to that of securities eligible for
purchase by the Fund rated in medium and lower categories by Moody's or Standard
& Poor's (between Ba and Caa ratings by Moody's, and between BB and CCC ratings
by Standard & Poor's). The Fund also may invest in state and local municipal
obligations when Management believes that the potential total return on the
investment is better than the return that otherwise would be achieved by
investing in securities issued by private issuers. See the Appendix to this
Prospectus for a specific description of each corporate bond rating category.
The High Yield Fund also may hold cash or invest all or a portion of its
assets in securities issued or guaranteed by the U.S. government or its agencies
(which may or may not be backed by the full faith and credit of the United
States) and bank certificates of deposit, if Management determines it to be
appropriate for purposes of preserving liquidity or capital in light of
prevailing market or economic conditions. The Fund also may invest in corporate
short-term notes rated at the time of purchase at least A-1 by Standard & Poor's
or Prime-1 by Moody's, and municipal short-term notes rated at the time of
purchase at least SP-1 by Standard & Poor's or MIG-1 by Moody's (the highest
rating category for such notes, indicating a very strong capacity to make timely
payments of principal and interest).
<PAGE>
Potential capital appreciation is a factor in the selection of
investments, but is secondary to the High Yield Fund's primary objective. The
securities in which the Fund invests offer a wide range of maturities (from less
than one year to thirty years) and yields. These securities include short-term
bonds or notes (maturing in less than three years), intermediate-term bonds or
notes (maturing in three to ten years), and long-term bonds (maturing in more
than ten years). Management will seek to adjust the portfolio of securities held
by the Fund to maximize current income consistent with the preservation of
principal.
There are no limitations on the average maturity of the securities in the
High Yield Fund. Securities will be selected on the basis of Management's
assessment of interest rate trends and the liquidity of various instruments
under prevailing market conditions. As a matter of policy, which may be changed
without a vote of shareholders, under normal circumstances, at least 65% of the
value of the total assets of the Fund will be invested in debt securities having
maturities at the time of issuance of at least three years. As a temporary
defensive measure, the Fund may hold cash or invest more than 35%, and up to
100%, of its assets in debt securities having maturities of less than three
years at the time of issuance if Management determines it to be appropriate for
purposes of enhancing liquidity or preserving capital in light of prevailing
market or economic conditions. The investment return to shareholders of the Fund
is based solely upon the income earned and gains realized on the securities held
by the Fund.
Securities in which the High Yield Fund invests may at times be purchased
or sold on a delayed delivery or a when-issued basis (i.e., securities may be
purchased or sold by the Fund with settlement taking place in the future, often
a month or more later). The High Yield Fund may invest up to 10% of its net
assets in when-issued securities. The payment obligation and the interest rate
that will be received on the securities are fixed at the time the Fund enters
into a purchase commitment. Between the date of purchase and the settlement
date, the value of the securities is subject to market fluctuations, and no
interest is payable to the Fund prior to the settlement date. When the Fund
purchases securities on a when-issued basis, its custodian bank will place cash
or liquid debt securities in a separate account of the Fund in an amount equal
to the amount of the purchase obligation.
<PAGE>
Utilities Fund
The investment objective of the Utilities Fund is to seek capital
appreciation and income. The assets of the Utilities Fund are invested primarily
in securities of companies principally engaged in business as public utilities,
which may be either established, well-capitalized companies or newly-formed,
small capitalization companies. The public utilities business includes the
following industries: companies which manufacture, produce, generate, transmit,
or sell gas or electric energy; and companies engaged in various aspects of
communications, such as telephone, telegraph, satellite, microwave, and the
provision of other communication facilities, excluding broadcasting, for public
use and benefit. Uncertainties to which the gas and electric public utilities
industries are subject include difficulties in obtaining adequate financing and
investment return, environmental issues, prices of fuel for electric generation,
availability of natural gas, and risks associated with nuclear power facilities.
Under normal conditions, the Utilities Fund will invest at least 80% of
its total assets in the equity securities (common stocks and securities
convertible into common stocks, including convertible debt obligations and
convertible preferred stock) of companies which are principally engaged in
business as public utilities, and which are traded on regional or national stock
exchanges or on the over-the-counter market. A particular company is deemed to
be principally engaged in the public utilities business if, in the determination
of Management, more than 50% of its gross income or net sales is derived from
activities in that business or more than 50% of its assets are dedicated to the
production of revenues from that business. In circumstances where, based on
available financial information, a question exists whether a company meets one
of these standards, the Utilities Fund may invest in equity securities of the
company only if Management determines, after review of information describing
the company and its business activities, that the company's primary business is
within the public utilities business.
The balance of the Utilities Fund's assets may be held as cash or invested
in debt or equity securities issued by companies outside the public utilities
sector, or in short-term debt obligations maturing no later than one year from
the date of purchase, which are determined by Management to be of high grade,
including U.S. government and agency securities, domestic bank certificates of
deposit, commercial paper rated A-2 or higher by Standard & Poor's or P-2 or
higher by Moody's, and repurchase agreements with banks and securities dealers.
The equity securities purchased may be issued by either established, well-
capitalized companies or newly-formed, small cap companies, and may be traded on
national or regional stock exchanges or in the over-the-counter market. In
addition, the Fund may hold cash or invest temporarily in the short-term
securities described above in an
<PAGE>
amount exceeding 20% of its total assets as a temporary defensive measure if
Management determines it to be appropriate for purposes of enhancing liquidity
or preserving capital in light of prevailing market or economic conditions.
While the Utilities Fund is in a defensive position, the opportunity to achieve
capital growth will be limited, and, to the extent that Management's assessment
of market conditions is incorrect, the Fund will be foregoing the opportunity to
benefit from capital growth resulting from increases in the value of equity
investments.
RISK FACTORS
Contract owners should consider the special factors associated with the
policies discussed below in determining the appropriateness of allocating
contract values to one or more of the Funds.
Potential Conflicts
The Company has received an exemptive order of the Securities and Exchange
Commission that permits the sale of Fund shares to variable annuity separate
accounts and variable life insurance separate accounts of affiliated and
unaffiliated Participating Insurance Companies. The Company currently does not
foresee any disadvantages to the owners of variable annuity or variable life
insurance contracts arising from the fact that the interests of those owners may
differ. Nevertheless, the Company's board of directors will monitor events in
order to identify any material irreconcilable conflicts which may possibly arise
due to differences of tax treatment or other considerations and to determine
what action, if any, should be taken in response thereto.
Credit and Market Risks
All securities, including those purchased by each Fund, are subject to
some degree of credit risk and market risk. Credit risk refers to the ability of
an issuer of a debt security to pay its principal and interest, and to the
earnings stability and overall financial soundness of an issuer of an equity
security. Market risk refers to the volatility of a security's price in response
to changes in conditions in securities markets in general and, particularly in
the case of debt securities, changes in the overall level of interest rates. An
increase in interest rates will tend to reduce the market values of debt
securities, whereas a decline in interest rates will tend to increase their
values.
To limit exposure to credit risks, each Fund will be diversified. With
respect to 75% of each Fund's total assets, no more than 5% of the purchasing
Fund's total assets will be invested in the securities of any one issuer. In
addition, with the exception of the Utilities Fund, no more than 25% of a Fund's
total assets will be invested in any one industry. These percentage limitations
apply immediately after a purchase or initial investment. Any subsequent change
in a percentage resulting from fluctuations in value will not require
elimination of any security from a Fund. The credit risk exposure of the
Utilities Fund may be increased by its policy of concentrating its
investments in the public utilities sector. See "Concentration."
<PAGE>
Portfolio Lending
Each Fund may make loans of its portfolio securities to broker-dealers or
other institutional investors under contracts requiring such loans to be
callable at any time and to be secured continuously by collateral in cash, cash
equivalents, high quality short-term government securities or irrevocable
letters of credit maintained on a current basis at an amount at least equal to
the market value of the securities loaned. This practice permits a Fund to earn
income, which, in turn, can be invested in additional securities to pursue the
Fund's investment objective. The lending Fund will continue to collect the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and will also receive either interest (through investment of cash
collateral) or a fee (if the collateral is government securities). A lending
Fund may pay finder's and other fees in connection with its securities loans.
Lending securities involves certain risks, the most significant of which
is the risk that a borrower may fail to return a portfolio security. Management
monitors the creditworthiness of borrowers in order to minimize such risks. A
Fund will not lend any security if, as a result of that loan, the aggregate
value of securities then on loan would exceed 331/3% of the Fund's total assets
(taken at market value).
Repurchase Agreements
Each Fund may enter into repurchase agreements with respect to debt
instruments eligible for investment by that Fund. These agreements are entered
into with member banks of the Federal Reserve System, registered broker-dealers,
and registered government securities dealers which are deemed creditworthy by
Management (subject to review by the Company's board of directors). A repurchase
agreement is a means of investing monies for a short period. In a repurchase
agreement, the Fund acquires a debt instrument (generally a security issued by
the U.S. government or an agency thereof, a banker's acceptance or a certificate
of deposit) subject to resale to the seller at an agreed upon price and date
(normally the next business day). If the other party defaults on its obligation
to repurchase the security, a Fund could incur costs or delays in seeking to
sell the security.
To minimize risks associated with repurchase agreements, the securities
underlying each repurchase agreement will be maintained with the Company's
custodian in an amount at least equal to the repurchase price under the
agreement (including accrued interest), and such agreements will be effected
only with parties that meet certain creditworthiness standards established by
the Fund's board of directors. No Fund will enter into a repurchase agreement
maturing in more than seven days if as a result more than 15% of that Fund's net
assets would be invested in such repurchase agreements and other illiquid
securities.
<PAGE>
Portfolio Turnover
There are no fixed limitations regarding portfolio turnover for any of the
Funds. Although the Funds do not trade for short-term profits, securities may be
sold without regard to the time they have been held in a Fund when, in the
opinion of Management, market considerations warrant such action. It is
anticipated that the annual portfolio turnover rate of the Industrial Income
Fund generally will exceed 100%; that of the Utilities Fund may exceed 100%; and
that of the Total Return and High Yield Funds usually will not (but may, under
certain market conditions) exceed 100%. The portfolio turnover rates of the
Industrial Income, High Yield and Utilities Funds may be higher than those of
other investment companies with comparable investment objectives. Increased
portfolio turnover would cause a Fund to incur greater brokerage costs than
would otherwise be the case. The Funds' portfolio turnover rates are set forth
under "Financial Highlights." The Company's brokerage allocation policies,
including the consideration of sales of Participating Life Insurance Companies'
variable annuity and variable life insurance contracts when selecting among
qualified brokers offering comparable best price and execution on Fund
transactions, are discussed in the Statement of Additional Information.
Illiquid and Rule 144A Securities
The Fund is authorized to invest in securities that are illiquid because
they are subject to restrictions on their resale ("restricted securities") or
because, based upon their nature or the market for such securities, they are not
readily marketable. However, no Fund will purchase any such security if the
purchase would cause the Fund to invest more than 15% of its net assets,
measured at the time of purchase, in illiquid securities. Repurchase agreements
maturing in more than seven days will be considered illiquid for purposes of
this restriction. Investments in illiquid securities involve certain risks to
the extent that a Fund may be unable to dispose of such a security at the time
desired or at a reasonable price. In addition, in order to resell a restricted
security, a Fund might have to bear the expense and incur the delays associated
with effecting registration.
Certain restricted securities that are not registered for sale to the
general public, but that can be resold to institutional investors ("Rule 144A
Securities"), may be purchased without regard to the foregoing 15% limitation if
a liquid institutional trading market exists. The liquidity of a Fund's
investments in Rule 144A Securities could be impaired if dealers or
institutional investors become uninterested in purchasing these securities. The
Company's board of directors has delegated to Management the authority to
determine the liquidity of Rule 144A Securities pursuant to guidelines approved
by the board. For more informaiton concerning Rule 144A Securities, see the
Statement of Additional Information.
<PAGE>
Each Fund may invest up to 25% of its total assets directly in foreign
securities. Investments in securities of foreign companies (including Canadian
securities, which are not subject to the 25% limitation) and in foreign markets
involve certain additional risks not associated with investments in domestic
companies and markets. For U.S. investors, the returns on foreign securities are
influenced not only by the returns on the foreign investments themselves, but
also by currency risk (i.e., changes in the value of the currencies in which the
securities are denominated relative to the U.S. dollar). In a period when the
U.S. dollar generally rises against foreign currencies, the returns on foreign
securities for a U.S. investor are diminished. By contrast, in a period when the
U.S. dollar generally declines, the returns on foreign securities generally are
enhanced.
Other risks and considerations of international investing include the
following: differences in accounting, auditing and financial reporting standards
which may result in less publicly available information than is generally
available with respect to U.S. issuers; generally higher commission rates on
foreign portfolio transactions and longer settlement periods; the smaller
trading volumes and generally lower liquidity of foreign stock markets, which
may result in greater price volatility; foreign withholding taxes payable on a
Fund's foreign securities, which may reduce dividend income payable to
shareholders; the possibility of expropriation or confiscatory taxation; adverse
changes in investment or exchange control regulations; political instability
which could affect U.S. investment in foreign countries; potential restrictions
on the flow of international capital; and the possibility of a Fund experiencing
difficulties in pursuing legal remedies and collecting judgments. Certain of
these risks, as well as currency risks, also apply to Canadian securities, which
are not subject to the Funds' 25% of total assets limitation on investing
directly in foreign securities. The Funds' investments in foreign securities may
include investments in developing countries. Many of these securities are
speculative and their prices may be more volatile than those of securities
issued by companies located in more developed countries.
Securities purchased by means of ADRs also are not subject to the 25%
limitation. ADRs are receipts, typically issued by a U.S. bank or trust company,
evidencing ownership of the underlying foreign securities. ADRs are denominated
in U.S. dollars and trade
<PAGE>
in the U.S. securities markets. ADRs may be issued in sponsored or unsponsored
programs. In sponsored programs, the issuer makes arrangements to have its
securities traded in the form of ADRs; in unsponsored programs, the issuer may
not be directly involved in the creation of the program. Although the regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, the issuers of unsponsored ADRs are not obligated to disclose material
information in the United States and, therefore, such information may not be
reflected in the market value of the ADRs. ADRs are subject to certain of the
same risks as direct investments in foreign securities, including the risk that
changes in the value of the currency in which the security underlying an ADR is
denominated relative to the U.S. dollar may adversely affect the value of the
ADR.
Each of the Funds may enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") as a hedge against
fluctuations in foreign exchange rates pending the settlement of transactions in
foreign securities or during the time the Funds hold foreign securities. A
forward contract is an agreement between contracting parties to exchange an
amount of currency at some future time at an agreed upon rate. Although the
Funds have not adopted any limitations on their ability to use forward contracts
as a hedge against fluctuations in foreign exchange rates, the Funds do not
attempt to hedge all of their foreign investment positions and will enter into
forward contracts only to the extent, if any, deemed appropriate by Management.
The Funds will not enter into forward contracts for a term of more than one year
or for purposes of speculation. Hedging against a decline in the value of a
currency in the foregoing manner does not eliminate fluctuations in the prices
of portfolio securities or prevent losses if the prices of such securities
decline. Furthermore, such hedging transactions preclude the opportunity for
gain if the value of the hedged currency should rise. If a Fund enters into a
"position hedging transaction," which is the sale of a forward foreign currency
contract with respect to a portfolio security denominated in that foreign
currency, its custodian bank will place cash or liquid equity or debt
securities, which may be denominated either in U.S. dollars or a foreign
currency, in a segregated account of the Fund in an amount at least equal to the
value of the total assets of the Fund committed to the consummation of that
forward contract. If the value of the securities placed in the account declines,
additional cash or securities will be placed in the account so that the value of
the account will at least equal the amount of the Fund's commitment with respect
to the forward contracts. No predictions can be made with respect to whether the
total of such transactions will result in a better or worse position than had
the Fund not entered into any forward contracts. Forward contracts and the
securities placed in a segregated account may, from time to time, be considered
illiquid, in which case they would be subject to the Funds' limitation on
investing in illiquid securities, discussed above.
<PAGE>
Zero Coupon and Pay-In-Kind Bonds
The High Yield Fund may invest in zero coupon bonds and payin-kind bonds,
provided that Management determines that the risk of a default on the security,
which could result in adverse tax consequences is not significant. A zero coupon
bond ("zero") does not make cash interest payments during the life of the bond.
Instead, it is sold at a discount to face value, and the interest consists of
the gradual appreciation in price as the bond approaches maturity. Zeros can be
an attractive financing method for issuers with near-term cash flow problems.
Pay-in-kind ("PIK") bonds pay interest in cash or additional securities, at the
issuer's option, for a specified period. Like zeros, they may help a corporation
economize on cash. PIK prices reflect the market value of the underlying debt
plus any accrued interest. Zeros and PIKs can be higher or lower quality debt,
and may be more speculative and subject to greater fluctuation in value due to
changes in interest rates than coupon bonds. To maintain the High Yield Fund's
qualification as a regulated investment company, it may be required to
distribute income recognized on these bonds, even though no cash may be paid to
the Fund until the maturity or call date of the bond, and such distribution
could reduce the amount of cash available for investment by the Fund.
High-Risk, High-Yield Securities
Although Management limits the High Yield and Industrial Income Funds'
debt security investments to securities it believes are not highly speculative,
both credit and market risks are increased by those Funds' investments in debt
securities rated below the top four grades by Standard & Poor's or Moody's
(high-risk, high-yield securities commonly known as "junk bonds") and comparable
unrated debt securities. Lower rated bonds by Moody's (categories Ba, B, Caa)
are of poorer quality and may have speculative characteristics. Bonds rated Caa
may be in default or there may be present elements of danger with respect to
principal or interest. Lower rated bonds by Standard & Poor's (categories BB, B,
CCC) include those which are regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with their terms; BB indicates the lowest degree of speculation and
CCC a high degree of speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
Because investment in medium and lower rated securities involves both
greater credit risk and market risk, achievement of the High Yield Fund's (and,
to a lesser extent, the Industrial Income Fund's) investment objectives may be
more dependent on Management's credit analysis than is the case for funds
investing in higher quality securities. In addition, the share price and yield
of the High Yield Fund may be expected to fluctuate more than
<PAGE>
in the case of funds investing in higher quality, shorter term securities.
Moreover, a significant economic downturn or major increase in interest rates
may result in issuers of lower rated securities experiencing increased financial
stress, which would adversely affect their ability to service their principal,
dividend and interest obligations, meet projected business goals, and obtain
additional financing. In this regard, it should be noted that while the market
for high yield corporate bonds has been in existence for many years and from
time to time has experienced economic downturns in recent years, this market has
involved a significant increase in the use of high yield corporate debt
securities to fund highly leveraged corporate acquisitions and restructurings.
Past experience may not, therefore, provide an accurate indication of future
performance of the high yield bond market, particularly during periods of
economic recession. Furthermore, expenses incurred to recover an investment by a
Fund in a defaulted security may adversely affect the Fund's net asset value.
Finally, while Management attempts to limit purchases of medium and lower rated
securities to securities having an established secondary market, the secondary
market for such securities may be less liquid than the market for higher quality
securities. The reduced liquidity of the secondary market for such securities
may adversely affect the market price of, and ability of the High Yield or
Industrial Income Funds to value, particular securities at certain times,
thereby making it difficult to make specific valuation determinations.
While Management continuously monitors all of the debt securities held by
the Funds for the issuers' ability to make required principal and interest
payments and other quality factors, a Fund may retain in the portfolio a debt
security whose rating is changed to one below the minimum rating required for
purchase. More information on debt securities is contained in the Statement of
Additional Information.
The following table shows the composition of the Industrial Income Fund's
and the High Yield Fund's investments in corporate bonds by rating category for
the fiscal period ended December 31, 1994. All of these percentages were
determined on a dollar-weighted basis, calculated by averaging the Funds'
month-end portfolio holdings during the fiscal year. These figures do not
represent actual holdings of the Funds as of December 31, 1994, nor do they
imply that the overall quality of portfolio holdings is fixed.
<PAGE>
Percentage of Total Assets
Rating Category Industrial Income Fund High Yield Fund
AAA 0% 0%
AA 0% 0%
A 0% 0%
BBB 3.35% 0%
BB 6.92% 15.23%
B 3.26% 18.11%
CCC 0% 2.61%
Unrated 0% 1.03%
Concentration
While the Utilities Fund, like the other Funds, diversifies its
investments by investing, with respect to 75% of its total assets, not more than
5% of its total assets in the securities of any one issuer, its assets normally
will be invested primarily in companies engaged in the group of industries
constituting the public utilities sector. As a result of this investment policy,
an investment in this Fund may be subject to greater fluctuations in value than
generally would be the case if an investment were made in an investment company
which did not concentrate its investments in a similar manner. For example,
certain economic factors or specific events may exert a disproportionate impact
upon the prices of equity securities of companies within a particular industry
relative to their impact on the prices of securities of companies engaged in
other industries. Additionally, changes in the market price of the equity
securities of a particular company which occupies a dominant position in an
industry may tend to influence the market prices of other companies within the
same industry. As a result of the foregoing factors, the net asset value of the
Utilities Fund may be more susceptible to change than those of investment
companies which spread their investments over many different industries.
Options and Futures Contracts
The Funds may enter into futures contracts for hedging or other
non-speculative purposes within the meaning and intent of applicable rules of
the Commodity Futures Trading Commission ("CFTC"). Futures contracts are
purchased or sold to attempt to hedge against the effects of interest or
exchange rate changes on a Fund's current or intended investments. If an
anticipated decrease in the value of portfolio securities occurs as a result of
a general increase in interest rates or a change in exchange rates, the adverse
effects of such changes may be offset, in whole or part, by gains on the sale of
futures contracts. Conversely, an increase in the cost of portfolio securities
to be acquired caused by a general decline in interest rates or a change in
exchange rates may be offset, in whole or part, by gains on futures contracts
purchased by a Fund. A Fund will incur brokerage fees
<PAGE>
when it purchases and sells futures contracts, and it will be required to
maintain margin deposits.
The Funds also may use options to buy or sell futures contracts or debt
securities. Such investment strategies will be used as a hedge and not for
speculation.
Put and call options on futures contracts may be traded by a Fund in order
to protect against declines in the values of portfolio securities or against
increases in the cost of securities to be acquired. Purchases of options on
futures contracts may present less dollar risk in hedging the portfolio of the
Fund than the purchase and sale of the underlying futures contracts, since the
potential loss is limited to the amount of the premium plus related transaction
costs. The premium paid for such a put or call option plus any transaction costs
will reduce the benefit, if any, realized by the Fund upon exercise or
liquidation of the option, and, unless the price of the underlying futures
contract changes sufficiently, the option may expire without value to the Fund.
The writing of covered options, however, does not present less risk than the
trading of futures contracts, and will constitute only a partial hedge, up to
the amount of the premium received, and, if an option is exercised, the Fund may
suffer a loss on the transaction.
A Fund may purchase put or call options in anticipation of changes in
interest rates or other factors which may adversely affect the value of its
portfolio or the prices of securities which the Fund anticipates purchasing at a
later date. The Fund may be able to offset such adverse effects on its
portfolio, in whole or in part, through the options purchased. The premium paid
for a put or call option plus any transaction costs will reduce the benefit, if
any, realized by the Fund upon exercise or liquidation of the option, and,
unless the price of the underlying security changes sufficiently, the option may
expire without value to the Fund.
A Fund may, from time to time, also sell ("write") covered call options or
cash secured puts in order to attempt to increase the yield on its portfolio or
to protect against declines in the value of its portfolio securities. By writing
a covered call option, the Fund, in return for the premium income realized from
the sale of the option, gives up the opportunity to profit from a price increase
in the underlying security above the option exercise price, where the price
increase occurs while the option is in effect. In addition, the Fund's ability
to sell the underlying security will be limited while the option is in effect.
By writing a cash secured put, the Fund, which receives the premium, has the
obligation during the option period, upon assignment of an exercise notice, to
buy the underlying security at a specified price. A put is secured by cash if
the Fund maintains at all times cash, Treasury bills or other high grade
short-term obligations with a value equal to the option exercise price in a
segregated account with its custodian.
<PAGE>
Although the Funds will enter into options and futures contracts solely
for hedging or other non-speculative purposes, within the meaning and intent of
applicable rules of the CFTC, their use does involve certain risks. For example,
a lack of correlation between the value of an instrument underlying an option or
futures contract and the assets being hedged, or unexpected adverse price
movements, could render a Fund's hedging strategy unsuccessful and could result
in losses. In addition, there can be no assurance that a liquid secondary market
will exist for any contract purchased or sold, and the Fund may be required to
maintain a position until exercise or expiration, which could result in losses.
Transactions in futures contracts and options are subject to other risks as
well.
The risks related to transactions in options and futures to be entered
into by the Funds are set forth in greater detail in the Statement of Additional
Information, which should be reviewed in conjunction with the foregoing
discussion.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain fundamental restrictions regarding its
investments which may not be altered without the approval of the Fund's
shareholders. Those restrictions include, among others, limitations with respect
to the percentages of the value of the Fund's total assets which may be invested
in any one company or, with the exception of the Utilities Fund, in one
industry. A list of each Fund's fundamental investment restrictions and a list
of additional, non-fundamental investment restrictions of each Fund (which can
be changed by the Company's board of directors without shareholder approval) are
contained in the Statement of Additional Information.
MANAGEMENT
Pursuant to an agreement with the Company, INVESCO, 7800 E. Union Avenue,
Denver, Colorado, serves as the Funds' investment adviser. INVESCO is primarily
responsible for providing the Funds with various administrative services and
supervising the Funds' daily business affairs. These services are subject to
review by the Company's board of directors. INVESCO is an indirect wholly-owned
subsidiary of INVESCO PLC, a financial holding company which, through its
subsidiaries, engages in the business of investment management on an
international basis. INVESCO was established in 1932 and, as of December 31,
1994, managed 14 mutual funds, consisting of 36 separate portfolios, with
combined assets of approximately $9.0 billion on behalf of over 826,000
shareholders.
Pursuant to agreements with INVESCO, INVESCO Trust serves as the
sub-adviser of the Industrial Income, High Yield and Utilities Funds and ICM
serves as the sub-adviser of the Total Return Fund. Although the Company is not
a party to either sub-advisory
<PAGE>
agreement, each agreement has been approved for each Fund affected by that
agreement by the Company's board of directors. In addition, each agreement has
been approved as to each affected Fund by the initial shareholder of that Fund.
The address of INVESCO Trust is 7800 E. Union Avenue, Denver, Colorado and the
address of ICM is 1315 Peachtree Street, N.E., Atlanta, Georgia. Subject to the
supervision of INVESCO and review by the Company's board of directors, INVESCO
Trust is primarily responsible for selecting and managing the investments of the
Industrial Income, High Yield and Utilities Funds and ICM is primarily
responsible for selecting and managing the investments of the Total Return Fund.
INVESCO Trust, a trust company founded in 1969, is a wholly-owned
subsidiary of INVESCO that managed 35 investment portfolios as of December 31,
1994, including 27 portfolios in the INVESCO group. These 35 portfolios had
aggregate assets of approximately $8.3 billion as of December 31, 1994. In
addition, INVESCO Trust provides investment management services to private
clients, including employee benefit plans that may be invested in a collective
trust sponsored by INVESCO Trust.
The following persons serve as portfolio managers of the respective Funds:
Industrial Income Fund
Charles P. Mayer Co-portfolio manager of the INVESCO VIF - Industrial
Income Portfolio since 1993; co-portfolio manager of INVESCO Industrial Income
Fund; portfolio manager (since 1993), senior vice president (since 1994) and
vice president (1993 to 1994) of INVESCO Trust; formerly (1984 to 1993),
portfolio manager with Westinghouse Pension; began investment career in 1969;
B.A., St. Peter's College; M.B.A., St. John's University.
Donovan J. (Jerry) Paul, CFA Co-portfolio manager of the INVESCO VIF -
Industrial Income Portfolio since 1994; co-portfolio manager of INVESCO
Industrial Income Fund and INVESCO Balanced Fund; portfolio manager of INVESCO
VIF - High Yield Portfolio, INVESCO High Yield Fund and INVESCO Select Income
Fund; portfolio manager and senior vice president of INVESCO Trust since 1994;
formerly, senior vice president and director of fixed income research (1989 to
1992) and portfolio manager (1987 to 1992) with Stein, Roe & Farnham Inc.; and
president (1993 to 1994) of Quixote Investment Management, Inc.; began
investment career in 1976; B.B.A. University of Iowa; M.B.A. University of
Northern Iowa; Chartered Financial Analyst; Certified Public Accountant.
<PAGE>
High Yield Fund
Donovan J. (Jerry) Paul, CFA Portfolio manager of the INVESCO VIF - High
Yield Portfolio since 1994; portfolio manager of INVESCO High Yield Fund and
INVESCO Select Income Fund; co-portfolio manager of INVESCO Industrial Income
Fund, INVESCO VIF - Industrial Income Portfolio and INVESCO Balanced Fund;
portfolio manager and senior vice president of INVESCO Trust since 1994;
formerly, senior vice president and director of fixed income research (1989 to
1992) and portfolio manager (1987 to 1992) with Stein, Roe & Farnham Inc.; and
president (1993 to 1994) of Quixote Investment Management, Inc.; began
investment career in 1976; B.B.A. University of Northern Iowa; M.B.A. University
of Northern Iowa; Chartered Financial Analyst; Certified Public Accountant.
Utilities Fund
Brian F. Kelly Portfolio manager of the INVESCO VIF - Utilities Portfolio
since 1993; portfolio manager of the INVESCO Strategic Utilities Portfolio and
co-portfolio manager of INVESCO Balanced Fund; portfolio manager (since 1993)
and vice president (since 1994) of INVESCO Trust; formerly (1986 to 1993),
senior equity investment analyst with Sears Investment Management Company; B.A.,
University of Notre Dame; M.B.A. and J.D., University of Iowa; Certified Public
Accountant.
<PAGE>
ICM is an indirect, wholly-owned subsidiary of INVESCO PLC that, as of
December 31, 1994, managed approximately $24.3 billion of tax-exempt accounts
(such as pension and profit-sharing funds for corporations and state and local
governments) and acted as investment adviser or sub-adviser to 16 investment
portfolios of eight investment companies (including the Company) with combined
assets of approximately $1.5 billion.
The following persons serve as portfolio managers of the Total Return
Fund:
Edward C. Mitchell, Jr., CFA Portfolio manager of the INVESCO VIF - Total
Return Portfolio since 1993; portfolio manager of INVESCO Value Trust Total
Return Fund since 1987 and of the EBI Flex Fund since 1988; president (1992 to
present), vice president (1979 to 1991) and director (1979 to present) of ICM;
began investment career in 1969; B.A., University of Virginia; M.B.A.,
University of Colorado; Chartered Financial Analyst; Chartered Investment
Counselor; past president, Atlanta Society of Financial Analysts.
David S. Griffin, CFA Co-portfolio manager of the INVESCO VIF - Total
Return Portfolio since 1993; co-portfolio manager of INVESCO Value Trust Total
Return Fund and of the EBI Flex Fund since 1993; portfolio manager of ICM since
1991; mutual fund sales representative with INVESCO Services, Inc. (1986 to
1991); began investment career in 1982; B.A., Ohio Wesleyan University; M.B.A.,
William and Mary; Chartered Financial Analyst.
The Company pays INVESCO a monthly advisory fee which is based upon a
percentage of each Fund's average net assets determined daily. For the
Industrial Income and Total Return Funds, the advisory fees are each computed at
the annual rate of 0.75% of the first $500 million of the Fund's average net
assets; 0.65% of the next $500 million of the Fund's average net assets; and
0.55% of the Fund's average net assets in excess of $1 billion. For the High
Yield and Utilities Funds, the advisory fees are each computed at the annual
rate of 0.60% of the first $500 million of the Fund's average net assets; 0.55%
of the next $500 million of the Fund's average net assets and 0.45% of the
Fund's average net assets in
<PAGE>
excess of $1 billion. While the portion of INVESCO's fees which is equal to
0.75% of average net assets is higher than those generally charged by investment
advisers to mutual funds, they are not higher than those charged by many other
investment advisers to funds with investment objectives and asset levels
comparable to those of the Industrial Income and Total Return Funds. For the
fiscal period ended December 31, 1994, the investment advisory fees paid by the
Industrial Income Fund, Total Return Fund, and High Yield Fund were 0.75%, 0.75%
and 0.60%, respectively, of each Fund's average net assets. The Utilities Fund
did not commence operations during the fiscal period ended December 31, 1994.
Out of the advisory fee received from each Fund, INVESCO pays that Fund's
sub-adviser a monthly subadvisory fee. No fee is paid by any Fund to its
sub-adviser. The sub-advisory fees for the Industrial Income and Total Return
Funds are each computed at the annual rate of 0.375% of the first $500 million
of the Fund's average net assets; 0.325% of the next $500 million of the Fund's
average net assets; and 0.275% of the Fund's average net assets in excess of $1
billion. The sub-advisory fees for the High Yield and Utilities Funds are each
computed at the annual rate of 0.30% of the first $500 million of the Fund's
average net assets; 0.275% of the next $500 million of the Fund's average net
assets; and 0.225% of the Fund's average net assets in excess of $1 billion.
The Company also has entered into an Administrative Services Agreement
with INVESCO dated October 20, 1993 (the "Administrative Agreement"). Pursuant
to the Administrative Agreement, INVESCO performs certain administrative,
recordkeeping and internal accounting services, including without limitation,
maintaining general ledger and capital stock accounts, preparing a daily trial
balance, calculating net asset value daily, providing selected general ledger
reports and providing certain sub-accounting and recordkeeping services for
shareholder accounts. For such services, the Company pays INVESCO a fee
consisting of a base fee of $10,000 per year for each Fund, plus an additional
incremental fee computed at the annual rate of 0.015% per year of the average
net assets of each Fund. INVESCO also is paid a fee by the Company for providing
transfer agent services. See "Additional Information."
A Fund's expenses, which are accrued daily, are generally deducted from
the Fund's total income before dividends are paid. Those expenses include, but
are not limited to: investment advisory fees, legal, transfer agent, custodian
and auditor's fees, commissions, taxes, compensation of independent directors,
insurance premiums, printing and other expenses relating to the Fund's
operations which are not expressly assumed by INVESCO under its agreements with
the Company. Certain Fund expenses will be absorbed voluntarily by Management
through at least December 31, 1995, in order to ensure that the total operating
expenses of the Industrial Income, Total Return and Utilities Funds will not
exceed
<PAGE>
0.90%, and the total operating expenses of the High Yield Fund will not exceed
0.80% of the respective Fund's average net assets. Total expenses of the
Industrial Income Fund, Total Return Fund and High Yield Fund for the fiscal
period ended December 31, 1994, including investment advisory fees (but
excluding brokerage commissions, which are a cost of acquiring securities),
amounted to 0.79%, 0.86% and 0.74%, respectively, of each Fund's average net
assets. If such voluntary expense limits were not in effect, the total operating
expenses of the Industrial Income, Total Return, and High Yield Funds for the
fiscal period ended December 31, 1994, would have been 32.55%, 16.44%, and
30.38%, respectively. The Utilities Fund did not commence operations during the
fiscal period ended December 31, 1994.
PURCHASES AND REDEMPTIONS
Investors may not purchase or redeem shares of the Funds directly, but
only through variable annuity and variable life insurance contracts offered
through the separate accounts of Participating Insurance Companies. A contract
owner should refer to the applicable Separate Account Prospectus for information
on how to purchase or surrender a contract, make partial withdrawals of contract
values, allocate contract values to one or more of the Funds, or change existing
allocations among investment alternatives, including the Funds. Shares of the
Funds are sold on a continuous basis to separate accounts of Participating
Insurance Companies by INVESCO, as the Funds' Distributor. No sales charge is
imposed upon the sale of shares of the Funds. Sales charges for the variable
annuity or variable life insurance contracts are described in the Separate
Account Prospectuses.
The Participating Insurance Companies place orders for their separate
accounts to purchase and redeem shares of each Fund based on, among other
things, the amount of premium payments to be invested and transfer and surrender
requests to be effected on that day pursuant to variable annuity and variable
life insurance contracts. Fund shares are purchased or redeemed at the net asset
value per share next computed after receipt of a purchase or redemption order in
good form. Payment for redemptions ordinarily will be made on behalf of the
Company and the relevant Fund by the Company's transfer agent (INVESCO) within
seven days after the redemption request is received. However, payment may be
postponed under unusual circumstances, such as when normal trading is not taking
place on the New York Stock Exchange, an emergency as defined by the Securities
and Exchange Commission exists, or as permitted by the Securities and Exchange
Commission.
Net asset value per share is computed for each Fund once each day that the
New York Stock Exchange is open, as of the close of regular trading on that
Exchange (generally 4:00 p.m., New York time), and also may be computed on other
days under certain circumstances. Net asset value per share for each Fund is
<PAGE>
calculated by dividing the market value of the Fund's securities plus the value
of its other assets (including dividends and interest accrued but not
collected), less all liabilities (including accrued expenses), by the number of
outstanding shares of the Fund. If market quotations are not readily available,
a security will be valued at fair value as determined in good faith by the board
of directors. Debt securities with remaining maturities of 60 days or less at
the time of purchase will be valued at amortized cost, absent unusual
circumstances, so long as the Company's board of directors believes that such
value represents fair value.
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
Taxes
The Internal Revenue Code of 1986, as amended (the "Code"), provides that
each investment portfolio of a series fund is to be treated as a separate
taxpayer. Accordingly, each Fund of the Company intends to qualify as a separate
regulated investment company under Subchapter M of the Code.
Each Fund intends to comply with the diversification requirements of Code
Section 817(h). By meeting this and other requirements, the Participating
Insurance Companies, rather than the owners of variable annuity or variable life
insurance contracts, should be subject to tax on distributions received with
respect to Fund shares. For further information concerning federal income tax
consequences for the owners of variable annuity or variable life insurance
contracts, a contract owner should consult his or her Separate Account
Prospectus.
As a regulated investment company, each Fund generally will not be subject
to tax on its ordinary income and net realized capital gains to the extent such
income and gains are distributed in conformity with applicable distribution
requirements under the Code to the separate accounts of the Participating
Insurance Companies which hold its shares. Distributions of income and the
excess of net short-term capital gain over net long-term capital loss will be
treated as ordinary income, and distributions of the excess of net long-term
capital gain over net short-term capital loss will be treated as long-term
capital gain by the Participating Insurance Companies. Participating Insurance
Companies should consult their own tax advisers concerning whether such
distributions are subject to federal income tax if they are retained as part of
contract reserves.
Dividends
In addition to any increase in the value of a Fund's shares which may
occur from increases in the value of the Fund's investments, the Fund may earn
income in the form of dividends and
<PAGE>
interest on its investments. Dividends paid by each Fund will be based solely on
the income earned by that Fund. The Company's policy with respect to each Fund
is to distribute substantially all of this income, less expenses, to
shareholders of that Fund. At the discretion of the board of directors,
distributions are customarily made annually to shareholders of the Funds.
Dividends are automatically reinvested in additional shares of the Fund making
the dividend distribution at its net asset value on the exdividend date, unless
an election is made on behalf of a separate account to receive distributions in
cash.
Capital Gains
Capital gains or losses are the result of a Fund selling its portfolio
securities at prices that are higher or lower than the prices paid by it to
purchase such securities. Total gains from such sales, less any losses from such
sales (including losses carried forward from prior years) represent net realized
capital gains. Each Fund distributes its net realized capital gains, if any, to
its shareholders at least annually, usually in December. Capital gains
distributions are automatically reinvested in additional shares of the Fund
making the distribution at net asset value per share on the ex-dividend date,
unless an election is made on behalf of a separate account to receive
distributions in cash.
PERFORMANCE INFORMATION
From time to time, a Fund's total return may be included in
advertisements, sales literature, shareholder reports or Separate Account
Prospectuses. A Fund's total return includes the effect of deducting that Fund's
expenses, but does not include charges and expenses attributable to a particular
variable annuity or variable life insurance contract. Because shares of the
Funds can be purchased only through a variable annuity or variable life
insurance contract, the Funds' total return data should be reviewed along with
the description of contract charges and expenses contained in the applicable
Separate Account Prospectus. Total return for a Fund must always be accompanied
by, and reviewed with, comparable total return data for an associated variable
annuity separate account, or data that would permit evaluation of the magnitude
of variable life insurance charges and expenses not reflected in the Fund's
total return. Fund total return figures are based upon historical earnings and
are not intended to indicate future performance.
The "total return" of a Fund refers to the average annual rate of return
of an investment in the Fund. This figure is computed by calculating the
percentage change in value of an investment of $1,000, assuming reinvestment of
all income dividends and capital gain distributions, to the end of a specified
period. "Total return" quotations reflect the performance of the Fund and
include the effect of capital changes.
<PAGE>
The total return performance for the Industrial Income Fund, Total Return
Fund and High Yield Fund for the fiscal period ended December 31, 1994, was
1.23%, 1.75% and 0.60%, respectively. The Utilities Fund did not commence
operations during the fiscal period ended December 31, 1994, and therefore had
no investment performance during the period.
In conjunction with performance reports and/or analyses of shareholder
service for the Fund, comparisons of the Fund's performance for a given period
to the performance of recognized indices and for the same period may be made.
Such indices include ones provided by Dow Jones & Company, Standard & Poor's,
Lipper Analytical Services, Inc., Lehman Brothers, National Association of
Securities Dealers, Inc., Frank Russell Company, Value Line Investment Survey,
the American Stock Exchange, Morgan Stanley Capital International, Wilshire
Associates, the Financial Times- Stock Exchange, the New York Stock Exchange,
the Nikkei Stock Average and the Deutcher Aktienindex, all of which are
unmanaged market indicators. Such comparisons can be a useful measure of the
quality of the Funds' investment performance. However, because Fund performance
data does not reflect separate account and contract charges, Fund performance
data is not an appropriate measure of the performance of a contract owner's
investment in the variable annuity and variable life insurance contracts.
In addition, rankings, ratings, and comparisons of investment performance
and/or assessments of the quality of shareholder service appearing in
publications such as Money, Forbes, Kiplinger's Personal Finance, Morningstar,
and similar sources which utilize information compiled (i) internally; (ii) by
Lipper Analytical Services, Inc.; or (iii) by other recognized analytical
services, may be used in sales literature. The Lipper Analytical Services, Inc.
rankings and comparisons, which may be used by the Funds in performance reports,
will be drawn from the "Equity Income Funds" variable insurance product grouping
for the Industrial Income Fund, the "Flexible Portfolio Funds" grouping for the
Total Return Fund, the "High Current Yield Funds" grouping for the High Yield
Fund and the "Utility Funds" grouping for the Utility Fund. In addition, the
broad-based Lipper variable insurance product groupings may be used for
comparison to any of the Funds. A more complete list of publications that may be
quoted in sales literature is contained in the Statement of Additional
Information.
ADDITIONAL INFORMATION
Voting Rights
The Participating Insurance Companies and their separate accounts, rather
than individual contract owners, are the shareholders of the Funds. However,
each Participating Insurance Company will vote shares held by its separate
accounts as required by law and interpretations thereof, as amended or changed
from time
<PAGE>
to time. In accordance with current law and interpretations thereof, a
Participating Insurance Company is required to request voting instructions from
its contract owners and must vote Fund shares held by each of its separate
accounts in proportion to the voting instructions received. Additional
information about voting procedures (including a discussion, where applicable,
of circumstances under which some Participating Insurance Companies may vote
Fund shares held by variable life insurance separate accounts other than in
accordance with contract owner instructions) is contained in the applicable
Separate Account Prospectuses.
All shares of each Fund have equal voting rights. When shareholders are
entitled to vote upon a matter, each shareholder is entitled to one vote for
each share owned. Voting with respect to certain matters, such as ratification
of independent accountants and the election of directors, will be by all Funds
of the Company voting together. In other cases, such as voting upon an
investment advisory contract, voting is on a Fund-by-Fund basis. To the extent
permitted by law, when not all Funds are affected by a matter to be voted upon,
only shareholders of the Fund or Funds affected by the matter will be entitled
to vote thereon. The Company is not generally required and does not expect to
hold regular annual meetings of shareholders. However, the board of directors
will call special meetings of shareholders for the purpose, among other reasons,
of voting upon the question of removal of a director or directors when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Company or as may be required by applicable law or the Company's Articles of
Incorporation. The Company will assist shareholders in communicating with other
shareholders as required by the Investment Company Act of 1940. Directors may be
removed by action of the holders of a majority or more of the outstanding shares
of the Company.
Shareholder Inquiries
Inquiries regarding the Funds may be directed to the Company at the
telephone number or mailing address set forth on the cover page of this
Prospectus or to a Participating Insurance Company.
Transfer and Disbursing Agent
INVESCO acts as registrar, transfer agent, and dividend disbursing agent
for the Company pursuant to a Transfer Agency Agreement that provides for an
annual fee of $5,000 per Fund.
Master/Feeder Option
The Company may in the future seek to achieve any Fund's investment
objective by investing all of that Fund's assets in another investment company
having the same investment objective and substantially the same investment
policies and restrictions as
<PAGE>
those applicable to that Fund. It is expected that any such investment company
would be managed by INVESCO in substantially the same manner as the existing
Fund. If permitted by applicable laws and policies then in effect, any such
investment may be made in the sole discretion of the Company's board of
directors without further approval of the Funds' shareholders. However, Fund
shareholders will be given at least 30 days prior notice of any such investment.
Such investment would be made only if the Company's board of directors
determines it to be in the best interests of a Fund and its shareholders. In
making that determination, the board will consider, among other things, the
benefits to shareholders and/or the opportunity to reduce costs and achieve
operational efficiencies. No assurance is given that costs will be materially
reduced if this option is implemented.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE COMPANY IN ANY
JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE>
APPENDIX
BOND RATINGS
The following is a description of Standard & Poor's Ratings Group
("Standard & Poor's") and Moody's Investors Service, Inc.
("Moody's") bond rating categories:
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to
default and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal.
<PAGE>
Moody's Investors Service, Inc. Corporate Bond Ratings
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any longer period of time may be small.
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.
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - Industrial Income Portfolio
INVESCO VIF - Total Return Portfolio
INVESCO VIF - High Yield Portfolio
INVESCO VIF - Utilities Portfolio
Prospectus
May 1, 1995
To receive additional information about the Funds,
call toll free: 1-800-525-8085
or write to: INVESCO Funds Group, Inc.
Post Office Box 173706
Denver, Colorado 80217-3706
