Prospectus
May 1, 1997
As Supplemented May 1, 1997
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 nine 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 - 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.
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 May 1, 1997, is incorporated by
reference into this Prospectus.
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................................................. 3
INVESTMENT OBJECTIVES AND POLICIES................................... 4
RISK FACTORS......................................................... 5
INVESTMENT RESTRICTIONS.............................................. 10
MANAGEMENT........................................................... 10
PURCHASES AND REDEMPTIONS............................................ 12
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS.............................. 12
PERFORMANCE INFORMATION.............................................. 13
ADDITIONAL INFORMATION............................................... 14
APPENDIX............................................................. 15
<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 nine diversified investment portfolios. This prospectus relates to
shares of two of the Portfolios: the INVESCO VIF - Industrial Income Portfolio
and the INVESCO VIF - Utilities Portfolio (collectively, the "Funds").
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 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.
<PAGE>
The Industrial Income Fund may invest up to 15% of its total assets in
lower- rated debt securities that 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 the Funds by their sub-adviser (referred to
collectively with INVESCO as "Fund Management"). INVESCO Trust Company ("INVESCO
Trust") serves as sub-adviser the 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 "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 1996 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>
Industrial Income Fund Utilities Fund
------------------------------------- ------------------------------------
Period Period
Ended Ended
Year Ended December 31 December 31 Year Ended 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 $12.58 $10.09 $10.00 $10.84 $10.00 $10.00
---------------------- ----------- ---------------------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.28 0.19 0.03 0.13 0.07 0.00
Net Gains on Securities (Both
Realized and Unrealized) 2.52 2.76 0.09 1.26 0.84 0.00
---------------------- ----------- ---------------------- -----------
Total from Investment
Operations 2.80 2.95 0.12 1.39 0.91 0.00
---------------------- ----------- ---------------------- -----------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.28 0.20 0.03 0.13 0.07 0.00
In Excess of Net
Investment Income 0.00 0.00 0.00 0.01 0.00 0.00
Distributions from
Capital Gains 0.77 0.26 0.00 0.14 0.00 0.00
---------------------- ----------- -------------------- -----------
Total Distributions 1.05 0.46 0.03 0.28 0.07 0.00
---------------------- ----------- -------------------- -----------
<PAGE>
Net Asset Value -
End of Period $14.33 $12.58 $10.09 $11.95 $10.84 $10.00
====================== =========== ==================== ==========
TOTAL RETURN> 22.28% 29.25% 1.23%* 12.76% 9.08% 0.00%
RATIOS
Net Assets - End of
Period ($000 Omitted) $22,342 $8,362 $525 $2,660 $290 $25
Ratio of Expenses to Average
Net Assets# 0.95%@ 1.03%@ 0.79%~ 1.16%@ 1.80%@ 0.00%
Ratio of Net Investment Income
to Average Net Assets# 2.87% 3.50% 1.69%~ 2.92% 2.47% 0.00%
Portfolio Turnover Rate 93% 97% 0%* 48% 24% 0%
Average Commission
Rate Paid^^ $0.0867 - - $0.1055 - -
</TABLE>
^ For the Industrial Income Fund, from August 10, 1994, commencement of
operations, to December 31, 1994.
+ All of the expenses for the Fund were voluntarily absorbed by INVESCO 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 the Industrial Income and Utilities Funds were voluntarily
absorbed by INVESCO for the years ended December 31, 1996 and 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 1.19%, 2.31%
and 32.55% for the Industrial Income Fund and 5.36% and 57.13% for the Utilities
Fund, respectively, and ratio of net investment income to average net assets
would have been 2.63%, 2.22% and (30.07%) for the Industrial Income Fund and
(1.28%) and (52.86%) for the Utilities Fund, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold which is required to be disclosed for
fiscal years beginning September 1, 1995 and thereafter.
<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.
Because prices of stocks fluctuate from day to day, the value of an
investment in any of the Funds will vary based upon the specific Fund's
investment performance. Many of the Funds invest in different companies in a
variety of industries in order to attempt to reduce its overall exposure to
investment and market risks. There is no assurance that any Fund will attain its
objectives.
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 stock and convertible bonds.
There is no maximum limit on the amount of equity or debt securities in which
the Fund may invest.
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 The 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
<PAGE>
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.
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 in 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.
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
<PAGE>
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
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 a specific business sector. See "Risk Factors --
Concentration."
<PAGE>
Portfolio Lending. The Funds may make loans of their 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).
Repurchase Agreements. The Funds may enter into repurchase agreements with
respect to debt instruments eligible for investment by a 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.
<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 the
Funds 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 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
<PAGE>
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
-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. The Funds may enter into
contracts to purchase or sell foreign currencies at a future date
<PAGE>
("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 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.
High-Risk, High-Yield Securities (Industrial Income Fund Only). Although Fund
Management limits the Industrial Income Fund's debt security investments to
securities it believes are not highly speculative, both credit and market risks
are increased by the Fund's investments in debt securities rated below the top
four grades by Standard & Poor's or Moody's (high-risk, high-yield securities
commonly known as "junk bonds") and comparable unrated debt securities. Lower
rated bonds by Moody's (categories Ba, B, Caa) are of poorer quality and may
have speculative characteristics. Bonds rated Caa may be in default or there may
be present elements of danger with respect to principal or interest. Lower rated
bonds by Standard & Poor's (categories BB, B, CCC) include those which are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with their terms; BB
indicates the lowest degree of speculation and CCC a high degree of speculation.
While such bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Because investment in medium and lower rated securities involves both
greater credit risk and market risk, achievement of the 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. Moreover, a
significant economic downturn or major increase in interest rates may result in
issuers of lower rated securities experiencing increased financial stress, which
<PAGE>
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 and 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
investments in corporate (and municipal) bonds by rating category for the fiscal
year ended December 31, 1996. All of these percentages were determined on a
dollar-weighted basis, calculated by averaging the Fund's month-end portfolio
holdings during the fiscal year. These figures do not represent actual holdings
of the Fund as of December 31, 1996, nor do they imply that the overall quality
of portfolio holdings is fixed.
Percentage of Total Assets
Rating Category Industrial Income Fund
- --------------- --------------------------
AAA 11.69%
AA 0.00%
A 0.69%
BBB 2.59%
BB 3.92%
B 2.18%
CCC 0.21%
Unrated 0.00%
Concentration (Utilities Fund Only). While the Utilities Fund, like the
other Funds, diversifies its investments by investing, with respect to at least
<PAGE>
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 that 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 Health Sciences, Technology and Utilities Funds may be
more susceptible to change than those of investment companies which spread their
investments over many different business sectors.
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
<PAGE>
the Fund. The writing of covered options, however, does not present less
risk than the trading of futures contracts, and will constitute only a partial
hedge, up to the amount of the premium received, and, if an option is exercised,
the Fund may suffer a loss on the transaction.
A Fund may purchase put or call options in anticipation of changes in
interest rates or other factors which may adversely affect the value of its
portfolio or the prices of securities which the Fund anticipates purchasing at a
later date. The Fund may be able to offset such adverse effects on its
portfolio, in whole or in part, through the options purchased. The premium paid
for a put or call option plus any transaction costs will reduce the benefit, if
any, realized by the Fund upon exercise or liquidation of the option, and,
unless the price of the underlying security changes sufficiently, the option may
expire without value to the Fund.
For hedging or other non-speculative purposes, 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.
<PAGE>
INVESTMENT RESTRICTIONS
Each Fund is subject to certain fundamental restrictions regarding its
investments which may not be altered without the approval of the Fund's
shareholders. Those restrictions include, among others, limitations with respect
to the percentages of the value of the Fund's total assets which may be invested
in any one company or, with the exception of the Utilities Fund, in one
industry. A list of each Fund's fundamental investment restrictions and a list
of additional, non-fundamental investment restrictions of each Fund (which can
be changed by the Company's board of directors without shareholder approval) are
contained in the Statement of Additional Information.
MANAGEMENT
Pursuant to an agreement with the Company, INVESCO, 7800 E. Union Avenue,
Denver, Colorado, serves as the Funds' investment adviser. INVESCO is primarily
responsible for providing the Funds with various administrative services and
supervising the Funds' daily business affairs. These services are subject to
review by the Company's board of directors.
INVESCO is an indirect wholly-owned subsidiary of AMVESCO PLC, a
publicly-traded holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. INVESCO PLC changed
its name to AMVESCO PLC on March 3, 1997 as a part of a merger between INVESCO
PLC and A I M Management Group Inc., thus creating one of the largest
independent investment management businesses in the world. Subject to obtaining
shareholder approval at its regular Annual Shareholder Meeting, the board of
directors of AMVESCO PLC has concluded that the corporate name should be changed
to AMVESCAP PLC effective May 8, 1997. INVESCO, INVESCO Trust and ICM will
continue to operate under their existing names. AMVESCO PLC has approximately
$165 billion in assets under management. INVESCO was established in 1932 and, as
of December 31, 1996, managed 14 mutual funds, consisting of 44 separate
portfolios, with combined assets of approximately $13.8 billion on behalf of
over 826,000 shareholders.
Pursuant to agreements with INVESCO, INVESCO Trust serves as the
sub-adviser of the Funds. Although the Company is not a party to the
sub-advisory agreement, the agreement has been approved for the Funds by the
Company's board of directors. In addition, the agreement has been approved by
the shareholders of the Funds. 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 Funds.
INVESCO Trust, a trust company founded in 1969, is a wholly-owned
subsidiary of INVESCO that served as adviser or sub-adviser to 55 investment
portfolios as of December 31, 1996, including 31 portfolios in the INVESCO
group. These 55 portfolios had aggregate assets of approximately $12.7 billion
as of December 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>
ICM is an indirect, wholly-owned subsidiary of AMVESCO PLC that currently
manages in excess of $39 billion of assets on behalf of tax-exempt accounts
(such as pension and profit-sharing funds for corporations and state and local
governments and investment companies.
The following persons serve as portfolio managers of the respective Funds:
Industrial Income Fund
Charles P. Mayer - Co-portfolio manager of the Fund since 1994;
co-portfolio manager of the INVESCO Industrial Income Fund since 1993;
co-portfolio manager of the INVESCO Balanced Fund since 1996; director (since
1997), portfolio manager (since 1993), senior vice president (since 1994) and
vice president (1993 to 1994) of INVESCO Trust; director of INVESCO since 1997;
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 Fund since 1994;
co-portfolio manager of the INVESCO Industrial Income Fund since 1994, INVESCO
Balanced Fund since 1996 and INVESCO Short-Term Bond Fund since 1996; portfolio
manager of the INVESCO VIF - High Yield Portfolio since 1994, INVESCO High Yield
Fund since 1994 and INVESCO Select Income Fund since 1994; 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.
Utilities Fund
Jeffrey G. Morris - Portfolio manager of the Fund since 1996; portfolio
manager of the INVESCO Strategic Utilities Portfolio since 1996 and INVESCO
Strategic Environmental Services Portfolio since 1996; co-portfolio manager of
the INVESCO Strategic Financial Services Portfolio since 1997; 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.
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
<PAGE>
net assets in excess of $1 billion. For the Utilities 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.
For the fiscal period ended December 31, 1996, the investment advisory fees paid
by the Industrial Income Fund and Utilities Fund were 0.75% and 0.60%,
respectively, of each Fund's average net assets.
Out of the advisory fee received from each Fund, INVESCO pays that Fund's
sub-adviser a monthly subadvisory fee. No fee is paid by any Fund to its
sub-adviser. The sub-advisory fees for the Industrial Income 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 sub-
advisory fee for the Utilities 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 February 28, 1997 (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 Utilities Fund (prior to expense offsets) for the fiscal year
ended December 31, 1996, including investment advisory fees (but excluding
brokerage commissions, which are a cost of acquiring securities), amounted to
0.95% and 1.16%, 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 Utilities Funds for the fiscal year ended
December 31, 1996, would have been 1.19% and 5.36%, respectively.
<PAGE>
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.
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
<PAGE>
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 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, Total Return
Fund, High Yield Fund and Utilities Fund for the fiscal period ended December
31, 1996, was 22.28%, 12.18%, 16.59% and 12.76%, respectively.
The yield of the Fund is calculated by utilizing the Fund's calculated
income, expenses and average outstanding shares for the most recent 30-day or
one-month period, dividing it by the month end net asset value and annualizing
the resulting number.
<PAGE>
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, Kip- linger'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 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 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
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.
<PAGE>
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
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.
<PAGE>
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 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 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>
Prospectus
May 1, 1997
As Supplemented May 1, 1997
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - Industrial Income Fund
INVESCO VIF - Utilities Fund
To receive additional information and prospectuses on any of INVESCO's
funds or retirement plans, or to obtain current account
or price information, call toll-free: 1-800-525-8085.
To reach PAL(R), your 24-hour Personal Account Line, call:
1-800-424-8085.
You can find us on the World Wide Web:
http://www.invesco.com
Or write to:
INVESCO Funds Group. Inc.(SM), Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
If you're in Denver, please visit one of our convenient Investor
Centers:
Cherry Creek, 155-B Fillmore Street
Denver Tech Center,
7800 East Union Avenue, Lobby Level
In addition, all documents filed by the Company with the Securities and Exchange
Commission can be located on a web site maintained by the Commission at
http://www.sec.gov.
