Prospectus December 9, 1996
As Supplemented December 9, 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 eight diversified investment portfolios. This Prospectus relates
to shares of four of the Portfolios: 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")(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.
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.
<PAGE>
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.
Utilities Fund:
to seek capital appreciation and income. The assets of the Utilities Fund
are invested primarily in equity securities of companies principally
engaged in business as public utilities.
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 December 9, 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.............................................................. 2
FINANCIAL HIGHLIGHTS................................................. 4
INVESTMENT OBJECTIVES AND POLICIES................................... 6
RISK FACTORS......................................................... 9
INVESTMENT RESTRICTIONS.............................................. 14
MANAGEMENT........................................................... 14
PURCHASES AND REDEMPTIONS............................................ 16
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS.............................. 17
PERFORMANCE INFORMATION.............................................. 18
ADDITIONAL INFORMATION............................................... 19
APPENDIX............................................................. 20
<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 eight diversified investment portfolios. This Prospectus relates to
shares of four of the Portfolios: 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 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 invest ment 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 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."
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 that
<PAGE>
present a greater risk of default and have prices that 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 "Fund Management"). INVESCO Capital Management, Inc. ("ICM")
serves as sub-adviser to the Total Return Fund and INVESCO Trust Company
("INVESCO Trust") serves as sub-adviser to each of the other 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,
INVESCO Trust and ICM are provided below under the caption "Management."
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information, unless otherwise noted, 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>
High Yield Fund Industrial Income Fund
Six Months Year Period Six Months Year Period
Ended Ended Ended Ended Ended Ended
June 30 December 31 December 31 June 30 December 31 December 31
------------ ------------ ------------ ------------ ----------- -----------
1996 1995 1994^ 1996 1995 1994^
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $11.04 $10.01 $10.00 $12.58 $10.09 $10.00
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.43 0.55 0.05 0.17 0.19 0.03
Net Gains on Securities
(Both Realized and Unrealized) 0.03 1.43 0.01 1.25 2.76 0.09
------------ ------------ ------------ ------------ ------------ ------------
Total from Investment Operations 0.46 1.98 0.06 1.42 2.95 0.12
----------- ------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.00 0.55 0.05 0.00 0.20 0.03
Distributions from Capital Gains 0.00 0.40 0.00 0.00 0.26 0.00
------------ ------------ ------------ ------------ ------------ ------------
Total Distributions 0.00 0.95 0.05 0.00 0.46 0.03
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value - End of Period $11.50 $11.04 $10.01 $14.00 $12.58 $10.09
============ ============ ============ ============ ============ ============
TOTAL RETURN > 4.17%* 19.76% 0.60%* 11.29%* 29.25% 1.23%*
<PAGE>
RATIOS
Net Assets - End of Period ($000 Omitted) $7,542 $5,233 $624 $13,479 $8,362 $525
Ratio of Expenses to Average Net Assets# 0.44%*@ 0.97%@ 0.74%~ 0.49%*@ 1.03%@ 0.79%~
Ratio of Net Investment Income to
Average Net Assets# 4.50%* 8.79% 2.72%~ 1.54%* 3.50% 1.69%~
Portfolio Turnover Rate 137%* 310% 23%* 43%* 97% 0%*
</TABLE>
^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.
* 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 IFG for the six months ended June 30, 1996, the year
ended December 31, 1995 and the period ended December 31, 1994. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 0.77% (not annualized), 2.71% and 30.38% for High Yield Fund and
0.67% (not annualized), 2.31% and 32.55% for Industrial Income Fund,
respectively, and ratio of net investment income to average net assets would
have been 4.17% (not annualized), 7.05% and (26.92%) for High Yield Fund and
1.35% (not annualized), 2.22% and (30.07%)for Industrial Income Fund,
respectively.
@ Ratio is based on Total Expenses, less Expenses Absorbed by Investment
Adviser which is before any expense offset arrangements.
~ Annualized
<PAGE>
<TABLE>
<CAPTION>
Total Return Fund Utilities Fund
Six Months Year Period Six Months Year Period
Ended Ended Ended Ended Ended Ended
June 30 December 31 December 31 June 30 December 31 December 31
------------ ------------ ------------ ------------ ------------ ------------
1996 1995 1994^ 1996 1995 1994+
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $12.14 $10.09 $10.00 $10.84 $10.00 $10.00
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.17 0.25 0.09 0.10 0.07 0.00
Net Gains on Securities
(Both Realized and Unrealized) 0.44 2.05 0.09 0.80 0.84 0.00
------------ ------------ ------------ ------------ ------------ ------------
Total from Investment Operations 0.61 2.30 0.18 0.90 0.91 0.00
------------ ------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.00 0.24 0.09 0.00 0.07 0.00
Distributions from Capital Gains 0.00 0.01 0.00 0.00 0.00 0.00
------------ ------------ ------------ ------------ ------------ ------------
Total Distributions 0.00 0.25 0.09 0.00 0.07 0.00
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value - End of Period $12.75 $12.14 $10.09 $11.74 $10.84 $10.00
============ ============ ============ ============ ============ ============
TOTAL RETURN > 5.02%* 22.79% 1.75%* 8.30%* 9.08% 0.00%
RATIOS
Net Assets - End of Period ($000 Omitted) $10,733 $6,553 $1,055 $943 $290 $25
Ratio of Expenses to Average Net Assets# 0.48%*@ 1.01%@ 0.86%~ 0.65%*@ 1.80%@ 0.00%
Ratio of Net Investment Income to
Average Net Assets# 1.66%* 3.91% 3.86%~ 1.46%* 2.47% 0.00%
Portfolio Turnover Rate 4%* 5% 0%* 38%* 24% 0%
</TABLE>
<PAGE>
^ From June 2, 1994, commencement of operations, to December 31, 1994.
+ All of the expenses for the Fund were voluntarily absorbed by IFG for the
period ended December 31, 1994, since investment operations did not commence
during 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.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of Total Return and Utilities Funds were voluntarily
absorbed by IFG for the six months ended June 30, 1996, the year ended
December 31, 1995 and the period ended December 31, 1994. If such expenses had
not been voluntarily absorbed, ratio of expenses to average net assets would
have been 0.71% (not annualized), 2.51% and 16.44% for Total Return Fund and
4.28% (not annualized), 57.13% and 0.00% for Utilities Fund, respectively, and
ratio of net investment income to average net assets would have been 1.43% (not
annualized), 2.41% and (11.72%) for Total Return Fund and (2.17%) (not
annualized), (52.86%) and 0.00% for Utilities Fund, respectively.
@ Ratio is based on Total Expenses, less Expenses Absorbed by Investment
Adviser, which is before any expense offset arrangement.
~ Annualized
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. When Fund Management believes market or economic
conditions are unfavorable, each of the Funds may assume a defensive position by
temporarily investing up to 100% of its total assets in high quality money
market instruments, such as short-term U.S. government obligations, commercial
paper or repurchase agreements, high quality corporate bonds or notes, or by
holding cash.
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 securites, such as
corporate bonds and other straight debt securities ("debt securities"). The Fund
also has the flexibility to invest in preferred stock 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 Ratings
Services, a division of McGraw-Hill Companies, Inc. ("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>
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 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 that are listed on
a national securities exchange (such as the New York Stock Exchange) and that
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 U.S. government and government agencies. These U.S.
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 Fund 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 that
are rated in one of the four highest ratings of corporate obligations by
Standard & Poor's (AAA, AA, A and BBB) or by Moody's (Aaa, Aa, A and Baa), or,
if not rated, that in Fund 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 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 Fund Management's assessment of business, economic, and market
conditions. The analytical process associated with making allocation decisions
<PAGE>
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. Fund 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 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.
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.
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 that are principally engaged in business as public
utilities, and that 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 Fund
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 Fund 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.
<PAGE>
The balance of the Utilities Fund's assets may be held as cash or invested
in debt securities issued by companies principally engaged in the public
utilities business, 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 Fund 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.
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
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, with the exception of the Utilities
Fund, no more than 25% of a Fund's total assets will be invested in any one
<PAGE>
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 investments in specific business sectors. See "Risk Factors --
Concentration."
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 signifi cant 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).
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
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.
<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 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 actual portfolio turnover rates for those Funds
that have been in operation are set forth under "Financial Highlights." Each of
the other Funds is actively traded and is expected to have a portfolio turnover
rate that could exceed 200%. 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
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, measured at the time of
purchase, 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.
<PAGE>
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
-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
<PAGE>
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 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 "Investment Policies" in 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 (High Yield and Industrial Income Funds Only)
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.
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%
<PAGE>
Concentration (Utilities Fund Only)
While the Utilities Fund, like the other Funds, diversifies its investments
by investing, with respect to at least 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 a single business sector. As
a result of this investment policy, an investment in the 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
business sectors.
Options and Futures Contracts
Each of 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.
Each of 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 those Funds that may enter into options and futures contracts will
do so 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 Health Sciences and 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.
<PAGE>
MANAGEMENT
On November 4, 1996, an Agreement and Plan of Merger among INVESCO PLC,
INVESCO Group Services, Inc. ("Services") and AIM Management Group, Inc. ("AIM")
was signed under which AIM will be merged with Services. When this merger takes
effect, which is expected to occur in the first part of 1997, the Funds'
Investment Advisory, Sub-Advisory, Distribution, Administrative Services,
Transfer Agency and Rule 12b-1 Agreements (the "Agreements") will automatically
terminate. Consummation of this merger is conditioned, among other things, on
new Agreements, essentially identical to the existing Agreements, including the
provisions governing fees, being presented to and approved by, the Company's
Board of Directors, and where necessary, the Funds' shareholders prior to this
merger taking effect. The meeting of the Funds' shareholders to consider
approving the necessary new Agreements is expected to occur in early 1997. Fund
Management anticipates that the key personnel responsible for providing services
to the Funds will remain unchanged.
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 August 31, 1996, managed 14 mutual funds, consisting of 39 separate
portfolios, with combined assets of approximately $12.8 billion on behalf of
over 827,000 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 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 served as adviser or sub-adviser to 46 investment
portfolios as of August 31, 1996, including 27 portfolios in the INVESCO group.
These 46 portfolios had aggregate assets of approximately $12.0 billion as of
August 31, 1996. 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.
<PAGE>
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 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.
High Yield Fund
- ---------------
Donovan J. (Jerry) Paul 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;
<PAGE>
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
- --------------
Jeffrey G. Morris Portfolio manager of the INVESCO VIF -
Utilities Portfolio since 1996; portfolio
manager of the INVESCO Strategic
Utilities Portfolio and Environmental
Services Portfolio; portfolio manager of
INVESCO Trust Company since 1995; joined
INVESCO in 1991 and served as a research
analyst from 1994 to 1995; formerly, loan
processor for Norwest Mortgage (1991);
B.S. Colorado State University; Chartered
Financial Analyst.
ICM is an indirect, wholly-owned subsidiary of INVESCO PLC that, as of
December 31, 1995, managed approximately $32 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 17 investment
portfolios of eight investment companies (including the Company) with combined
assets of approximately $3.1 billion.
The following persons serve as portfolio managers of the Total Return Fund:
Edward C. Mitchell, Jr. 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 Advisor Flex Portfolio
(formerly, 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.
<PAGE>
David S. Griffin 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 Advisor Flex
Portfolio (formerly, 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.
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 and Total Return Funds, the advisory fees are each 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 and Utilities Funds, the advisory fees are each 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 and
Total Return Funds. For the fiscal period ended December 31, 1995, the
investment advisory fees paid by the Industrial Income Fund, Total Return Fund,
High Yield Fund, and Utilities Fund were 0.75%, 0.75%, 0.60%, 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% 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 sub-advisory fees for the High Yield and Utilities Funds are each
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
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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, Total Return Fund, High Yield Fund, and Utilities 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%, 1.01%, 0.97% and 1.80%,
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, Total Return, High Yield and Utilities Funds for the fiscal
year ended December 31, 1995, would have been 2.31%, 2.51%, 2.71%, and 57.13%,
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
"Management" in the Statement of Additional Information for more detailed
information.
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.
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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.
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 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.
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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 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.
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
<PAGE>
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, Total Return
Fund, High Yield Fund and Utilities Fund for the fiscal period ended December
31, 1995, was 29.25%, 22.79%, 19.76% and 9.08%, 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
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, Financial
World, 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
<PAGE>
"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 Utilities 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 under the caption "Performance" 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 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.
<PAGE>
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 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
Services and Moody's Investors Service, Inc. ("Moody's") bond
rating categories:
Standard & Poor's Ratings Services 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.
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 exceptionnally
<PAGE>
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
December 9, 1996
As Supplemented December 9, 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
