Prospectus May 1, 1996
As Supplemented July 18, 1996
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Investment Funds, Inc. (the "Company"), a Maryland
corporation, is an open-end management investment company that offers shares of
common stock of four diversified investment portfolios. This Prospectus relates
to shares of two of the Portfolios: the INVESCO VIF - Industrial Income
Portfolio (the "Industrial Income 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 consideration in the
selection of portfolio securities. The Fund normally invests at least 65%
of its total assets in dividend-paying common stocks. Up to 10% of the
Fund's total assets may be invested in equity securities that do not pay
regular dividends. The remaining assets are invested in other
income-producing securities, such as corporate bonds. The Fund also has
the flexibility to invest in other types of 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>
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, 1996, 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.............................................................. 5
FINANCIAL HIGHLIGHTS................................................. 7
INVESTMENT OBJECTIVES AND POLICIES................................... 9
RISK FACTORS......................................................... 11
INVESTMENT RESTRICTIONS.............................................. 19
MANAGEMENT........................................................... 20
PURCHASES AND REDEMPTIONS............................................ 24
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS.............................. 25
PERFORMANCE INFORMATION.............................................. 26
ADDITIONAL INFORMATION............................................... 27
APPENDIX............................................................. 30
<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 two of the portfolios: the INVESCO VIF - Industrial Income Portfolio
and the INVESCO VIF - High Yield Portfolio. Additional portfolios may be created
from time to time. The overall supervision of each Fund is the responsibility of
the Company's 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 at least 65%
of its total assets in dividend-paying common stocks, with up to 10% of its
total assets invested in equity securities that do not pay regular dividends and
the remainder invested in other income-producing securities, such as corporate
bonds. 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 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
<PAGE>
securities that present a greater risk of default and have prices that 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 "Fund Management"). INVESCO Trust Company ("INVESCO Trust")
serves as sub-adviser to the Industrial Income and High Yield Funds. 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 and
INVESCO Trust are provided below under the caption "Fund Management."
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by Price Waterhouse LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1995 annual report to shareholders which is
incorporated by reference into the Statement of Additional Information. Both 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>
<S> <C> <C> <C> <C>
Year Period Year Period
Ended Ended Ended Ended
December 31 December 31 December 31 December 31
-------------------------------- -------------------------------
1995 1994^ 1995 1994^
High Yield Fund Industrial Income Fund
PER SHARE DATA
Net Asset Value - Beginning of Period $10.01 $10.00 $10.09 $10.00
-------------------------------- -------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.55 0.05 0.19 0.03
Net Gains on Securities
(Both Realized and Unrealized) 1.43 0.01 2.76 0.09
-------------------------------- -------------------------------
Total from Investment Operations 1.98 0.06 2.95 0.12
-------------------------------- -------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.55 0.05 0.20 0.03
Distributions from Capital Gains 0.40 0.00 0.26 0.00
-------------------------------- -------------------------------
Total Distributions 0.95 0.05 0.46 0.03
-------------------------------- -------------------------------
Net Asset Value - End of Period $11.04 $10.01 $12.58 $10.09
================================ ===============================
TOTAL RETURN> 19.76% 0.60%* 29.25% 1.23%*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
RATIOS
Net Assets - End of Period ($000 Omitted) $5,233 $624 $8,362 $525
Ratio of Expenses to Average Net Assets# 0.97%@ 0.74%~ 1.03%@ 0.79%~
Ratio of Net Investment Income to
Average Net Assets# 8.79% 2.72%~ 3.50% 1.69%~
Portfolio Turnover Rate 310% 23%* 97% 0%*
<FN>
^ For the High Yield and Industrial Income Funds, from May 27, 1994 and August
10, 1994, respectively, commencement of investment operations, to December 31,
1994.
> Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return for the
periods shown.
* These amounts are based on operations for the period shown and, accordingly,
are not representative of a full year.
# Various expenses of the High Yield and Industrial Income Funds were
voluntarily absorbed by INVESCO for the year ended December 31, 1995 and the
period ended December 31, 1994. If such expenses had not been voluntarily
absorbed, the ratio of expenses to average net assets would have been 2.71% and
30.38% for High Yield Fund and 2.31% and 32.55% for Industrial Income Fund,
respectively, and the ratio of net investment income to average net assets would
have been 7.05% and (26.92%) for High Yield Fund and 2.22% and (30.07%)for
Industrial Income Fund, respectively.
@ Ratio reflects Total Expenses, less expenses absorbed by INVESCO, prior to a
reduction of custodian fees pursuant to an expense offset arrangement.
~ Annualized
</FN>
</TABLE>
Further information about the performance of the Funds is 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 consideration in the selection of portfolio
securities.
The Industrial Income Fund normally invests at least 65% of its total
assets in dividend-paying common stocks. Up to 10% of the Fund's total assets
may be invested in equity securities that do not pay regular dividends. The
remaining assets are invested in other income-producing securities, such as
corporate bonds and other straight debt securities ("debt securities"). The Fund
also has the flexibility to invest in preferred stocks and convertible bonds.
There is no maximum limit on the amount of equity or debt securities in which
the Fund may invest. In periods of uncertain market and economic conditions, as
determined by Fund Management, the Fund may depart from its basic investment
objective and assume a defensive position with up to 100% of its total 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 ("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.
<PAGE>
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 Standard & Poor's or Moody's (BB or lower by Standard & Poor's or
Ba or lower by Moody's). The Fund does not invest in securities rated lower than
CCC by Standard & Poor's or Caa by Moody's; these ratings are applied to issues
that 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 that are in default. The Fund may invest in
unrated securities where Fund Management 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 Standard & Poor's or Moody's (between BB
and CCC ratings by Standard & Poor's and between Ba and Caa ratings by Moody's).
The Fund also may invest in state and local municipal obligations when Fund
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 Fund 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).
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). Fund Management will seek to adjust the portfolio of securities
held by the Fund to maximize current income consistent with the preservation of
principal.
<PAGE>
There are no limitations on the average maturity of the securities in the
High Yield Fund. Securities will be selected on the basis of Fund 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 total assets in debt securities having maturities of less than
three years at the time of issuance if Fund 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.
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. See the Statement of Additional
Information for a discussion of additional risk factors.
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
<PAGE>
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, as a matter of fundamental
policy, 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 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. Fund
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).
<PAGE>
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
Fund 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 Company'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 Fund Management, market considerations warrant such action.
Therefore, the portfolio turnover rates of the 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 Funds are 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
<PAGE>
readily marketable. However, a Fund will not purchase any such security if the
purchase would cause the Fund to invest more than 15% of its net assets 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 Fund 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.
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 fluctuations. That is, when the U.S. dollar generally rises
against foreign currencies, returns on foreign securities for a U.S. investor
may decrease. By contrast, in a period when the U.S. dollar generally declines,
those returns may increase.
Other risks of international investing to consider include:
-less publicly available information than is generally
available about U.S. issuers;
-differences in accounting, auditing and financial reporting
standards;
-generally higher commission rates on foreign portfolio
transactions and longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility;
-less government regulation of stock exchanges, brokers and
listed companies abroad than in the United States; and
<PAGE>
-investments in certain countries may be subject to foreign withholding
taxes, which may reduce dividend income or capital gains payable to
shareholders.
There is also the possibility of expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations; political
instability; potential restrictions on the flow of international capital; and
the possibility of a Fund experiencing difficulties in pursuing legal remedies
and collecting judgments.
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
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.
Forward Foreign Currency Contracts
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 Fund
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. No
predictions can be made with respect to whether the total of such
<PAGE>
transactions will result in a better or worse position than had the Fund not
entered into any forward contracts. Forward contracts 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. For additional
information regarding forward contracts, see the Statement of Additional
Information.
Zero Coupon and Pay-In-Kind Bonds (High Yield Fund Only)
The High Yield Fund may invest in zero coupon bonds and pay- in-kind
bonds, provided that Fund 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 Fund 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.
<PAGE>
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 Fund 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 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 Fund
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 Fund 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 (and municipal) bonds by
rating category for the fiscal year ended December 31, 1995. 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, 1995, 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 11.26% 0.00%
AA 0.00% 0.00%
A 2.00% 0.68%
BBB 4.13% 0.73%
BB 4.74% 23.09%
B 2.34% 54.54%
CCC 0.00% 4.55%
Unrated 0.00% 2.23%
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"). For example, futures
contracts may be 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 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 or securities 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 Fund's
portfolio than the purchase and sale of the underlying futures contracts, since
the potential loss is limited to the amount of the premium plus related
transaction costs. The premium paid for such a put or call option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise or liquidation of the option, and, unless the price of the underlying
futures contract 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.
<PAGE>
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.
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,
<PAGE>
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 that, through its subsidiaries, engages in the business of
investment management on an international basis. INVESCO was established in 1932
and, as of December 31, 1995, managed 14 mutual funds, consisting of 38 separate
portfolios, with combined assets of approximately $11.8 billion on behalf of
over 713,000 shareholders.
Pursuant to an agreement with INVESCO, INVESCO Trust serves as the
sub-adviser of the Industrial Income and High Yield Funds. Although the Company
is not a party to the sub-advisory agreement, the agreement has been approved by
the Company's board of directors. In addition, the agreement has been approved
by the initial shareholder of each Fund. The address of INVESCO Trust is 7800 E.
Union Avenue, Denver, Colorado. 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.
INVESCO Trust, a trust company founded in 1969, is a wholly-owned
subsidiary of INVESCO that served as adviser or sub-adviser to 41 investment
portfolios as of December 31, 1995, including 27 portfolios in the INVESCO
group. These 41 portfolios had aggregate assets of approximately $11.0 billion
as of December 31, 1995. 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:
<PAGE>
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,
INVESCO Balanced Fund and INVESCO
Short-Term Bond 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, INVESCO Balanced Fund and
INVESCO Short-Term Bond 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.
Each Fund pays INVESCO a monthly advisory fee which is based upon a
percentage of the Fund's average net assets, determined daily. For the
Industrial Income Fund, the advisory fee is computed at the annual rate of 0.75%
on the first $500 million of the Fund's average net assets; 0.65% on the next
$500 million of the Fund's average net assets; and 0.55% on 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% on the first $500 million of the Fund's
average net assets; 0.55% on the next $500 million of the Fund's average net
assets and 0.45% on 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, it
is 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 Fund. For the fiscal period ended December 31, 1995, 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 INVESCO
Trust a monthly subadvisory fee. No fee is paid by the Funds to their
sub-adviser. The sub-advisory fees for the Industrial Income Fund is computed at
the annual rate of 0.375% on the first $500 million of the Fund's average net
assets; 0.325% on the next $500 million of the Fund's average net assets; and
0.275% on the Fund's average net assets in excess of $1 billion. The
<PAGE>
sub-advisory fee for the High Yield Fund is computed at the annual rate of 0.30%
on the first $500 million of the Fund's average net assets; 0.275% on the next
$500 million of the Fund's average net assets; and 0.225% on 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."
Each Fund's expenses, which are accrued daily, are generally deducted from
its total income before dividends are paid. Total expenses of the Industrial
Income Fund and High Yield Fund (prior to expense offsets) for the fiscal year
ended December 31, 1995, including investment advisory fees (but excluding
brokerage commissions, which are a cost of acquiring securities), amounted to
1.03% and 0.97%, respectively, of each Fund's average net assets. Certain Fund
expenses are absorbed voluntarily by INVESCO pursuant to a commitment to the
Company. This commitment may be changed following consultation with the
Company's board of directors. If such voluntary expense limits were not in
effect, the total operating expenses, as a percentage of each Fund's average net
assets, of the Industrial Income and High Yield Funds for the fiscal year ended
December 31, 1995, would have been 2.31% and 2.71%, respectively.
Fund Management permits investment and other personnel to purchase and
sell securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires Fund Management's personnel to conduct
their personal investment activities in a manner that Fund Management believes
is not detrimental to the Funds or Fund Management's other advisory clients. See
the Statement of Additional Information for more detailed information.
<PAGE>
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. INVESCO may from time to time make payments from its
revenues to Participating Insurance Companies, broker dealers and other
financial institutions that provide administrative services for the Funds.
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 or an emergency as defined by the
Securities and Exchange Commission exists.
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 (usually 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 continue 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 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 its 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 and/or yield may be included in
advertisements, sales literature, shareholder reports or Separate Account
Prospectuses. A Fund's total return and yield include the effect of deducting
that Fund's expenses, but do 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 and yield data should be reviewed
along with the description of contract charges and expenses contained in the
applicable Separate Account Prospectus. Total return or yield for a Fund must
always be accompanied by, and reviewed with, comparable total return or yield
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 or yield. Fund total return
and yield figures are based upon historical results 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 and High Yield
Fund for the fiscal year ended December 31, 1995, was 29.25% and 19.76%,
respectively.
The yield of a Fund refers to the income generated by an investment in the
Fund over a 30-day or one-month period, and is computed by dividing the net
investment income per share earned during the period by the net asset value per
<PAGE>
share at the end of the period, then adjusting the result to provide for
semi-annual compounding.
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 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 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 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
<PAGE>
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 the Funds have equal voting rights. When shareholders are
entitled to vote upon a matter, each shareholder is entitled to one vote for
each share owned and a corresponding fractional vote for each fractional 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 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
<PAGE>
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 and Moody's Investors
Service, Inc. ("Moody's") bond rating categories:
Standard & Poor's 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 - High Yield Portfolio
Prospectus
May 1, 1996
As Supplemented July 18, 1996
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
