Prospectus
February ^ 9, 1998
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-REALTY FUND
INVESCO Variable Investment Funds, Inc. (the "Company"), a Maryland
corporation, is an open-end management investment company that offers shares of
common stock of ten diversified investment portfolios (the "Funds"), including
the INVESCO VIF - Realty Portfolio (the "Realty Fund" or "Fund"). The Company's
shares are not offered directly to the public, but are sold exclusively to life
insurance companies ("Participating Insurance Companies") as a pooled funding
vehicle for variable annuity and variable life insurance contracts issued by
separate accounts of Participating Insurance Companies. If other Funds are
available under a Participating Insurance Company's contracts, a prospectus
describing them will be available from the Participating Insurance Company.
The Realty Fund seeks to provide long-term capital growth. Above-average
current income is an additional consideration in selecting securities for the
Fund's investment portfolio. The Realty Fund normally invests at least 65% of
its total assets in publicly-traded stocks of companies principally engaged in
the real estate industry. The remaining assets are invested in other
income-producing securities such as corporate bonds.
This Prospectus sets forth concisely the information about the Fund that a
prospective purchaser should know before purchasing a variable contract from a
Participating Insurance Company or allocating contract values to the Fund or to
one or more of the other Funds. Please read this Prospectus and retain it for
future reference. Additional information about the Fund has been filed with the
Securities and Exchange Commission and is available upon request by writing
INVESCO Distributors, 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 February ^ 9, 1998, is incorporated by
reference into this Prospectus.
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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.
TABLE OF CONTENTS
Page
SUMMARY......................................................................2
INVESTMENT OBJECTIVE AND POLICIES............................................2
RISK FACTORS.................................................................3
INVESTMENT RESTRICTIONS......................................................9
MANAGEMENT...................................................................9
PURCHASES AND REDEMPTIONS...................................................10
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS.....................................11
PERFORMANCE INFORMATION.....................................................11
ADDITIONAL INFORMATION......................................................12
APPENDIX....................................................................13
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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 ten diversified investment portfolios ("Funds"), the INVESCO VIF -
Dynamics Portfolio, the INVESCO VIF - Growth Portfolio, the INVESCO VIF - Health
Sciences Portfolio, the INVESCO VIF - High Yield Portfolio, the INVESCO VIF -
Industrial Income Portfolio, the INVESCO VIF - Small Company Growth Portfolio,
the INVESCO VIF-Realty Fund Portfolio, the INVESCO VIF - Total Return Portfolio,
the INVESCO VIF - Technology Portfolio and the INVESCO VIF - Utilities
Portfolio. This Prospectus relates to shares of the INVESCO VIF - Realty
Portfolio only. 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 Participat ing Insurance
Companies (the "Separate Account Prospectuses"). The Company assumes no
responsibility for the Separate Account Prospectuses. A contract owner should
refer to the Separate Account Prospectuses for information on how to purchase or
surrender a contract, make partial withdrawals of contract values, allocate
contract values to one or more of the Funds, or change existing allocations
among investment alternatives, including the Fund.
The Fund seeks long-term capital growth. Current income is an additional
consideration in selecting securities for the Fund's investment portfolio. The
Fund normally invests 65% of its total assets in publicly-traded stocks of
companies principally engaged in the real estate industry. The remaining assets
are invested in other income-producing securities such as mortgage-backed
securities and corporate bonds. There is, of course, no guarantee that the Fund
will achieve its investment objective.
The Fund focuses on equity securities of companies in the real estate
industry. As such, in addition to the normal market risks associated with
investments in securities generally, the Fund is particularly sensitive to
conditions in the real estate industry. Real estate is a cyclical industry that
is sensitive to, among other things, interest rates, property tax rates,
national, regional and local economic conditions and availability of materials.
The Fund's investments in debt securities are subject to credit risk and market
risk, both of which are increased by investing in lower rated securities. The
returns on foreign investments may be influenced by the risks of investing
overseas. Rapid portfolio turnover may result in higher brokerage commissions
and the acceleration of taxable capital gains. These and other risks are
discussed below under the caption "Risk Factors."
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INVESCO Funds Group, Inc. ("IFG"), the ^ Fund's 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 Fund by its sub-adviser (referred to collectively
with IFG as "Fund Manage ment"). INVESCO Realty Advisors, Inc. ("IRAI") serves
as sub-adviser to the Fund. The Fund pays IFG an advisory fee for the management
of its investments and business affairs. INVESCO Distributors, Inc. ("IDI") is
responsible for providing the Company with services related to distribution. A
discussion of these fees and additional information about IFG, IRAI and IDI is
provided below under the caption "Management."
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to provide long-term capital growth and current income
while following sound investment practices. This investment objective is
fundamental and may be changed only by vote of a majority of the outstanding
shares of the Fund. There is no assurance that any Fund will achieve its
investment objective. Any investment policy of the 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.
The Fund normally invests at least 65% of its total assets in equity
securities of companies principally engaged in the real estate industry. A
company is "principally engaged" in that industry if at least 50% of its assets,
gross income or net profits are attributable to the ownership, construction,
management or sale of residential, commercial or industrial real estate. Such
companies may include, for example, real estate investment trusts ("REITs"),
real estate brokers, home builders or real estate developers, companies with
substantial real estate holdings (such as paper and lumber producers,
agricultural businesses and lodging and entertainment companies) and companies
with significant involvement in the real estate industry, such as building
supply companies and financial institutions that write real estate mortgages. In
addition to common stocks, "equity securities" may include preferred stocks,
securities convertible into common stock and warrants.
The Fund's investments in equity securities are diversified by both
property type and geographic region. Under normal circumstances, no one property
type will represent more than 50% of the Fund's total assets. The remaining
assets of the Fund are invested in debt securities, including mortgage-backed
securities and debt or equity securities of companies which may or may not be
principally engaged in the real estate industry, including non-investment grade
and unrated debt securities. The Fund may invest up to 25% of its total assets
in foreign securities.
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The Fund may invest up to 15% of its total assets in debt securities that
are rated below investment grade quality (commonly called "junk bonds") and
rated BB or lower by Standard & Poor's ^, a division of The McGraw ^ Hill
Companies, Inc. ("S&P") or Ba or lower by Moody's Investors Service, Inc.
("Moody's") or, if unrated, are judged by Fund Management to be of equivalent
quality). These include issues which are of poorer quality and may have some
speculative characteristics, according to the ratings services. Investments in
unrated securities may not exceed 25% of the Fund's total assets. Never, under
any circumstances, is the Fund permitted to purchase bonds which are rated below
B- by S&P and B by Moody's. Bonds rated B- or B generally lack characteristics
of a desirable investment and are deemed speculative with respect to the
issuer's capacity to pay interest and repay principal over a long period of
time. While Fund Management continuously monitors all of the corporate bonds in
the Fund's investment portfolio for the issuer's ability to make required
principal and interest payments and other quality factors, it may retain a bond
whose rating is changed to one below the minimum rating required for purchase of
the security.
In periods of abnormal economic or market conditions, as determined by
Fund Management, the Fund may depart from its basic investment objective and
assume a temporary defensive position, with up to 100% of its assets invested in
U.S. government and agency securities, investment grade corporate bonds or cash
securities such as domestic certificates of deposit and bankers' acceptances,
repurchase agreements and commercial paper. The Fund reserves the right to hold
equity, fixed-income and cash securities in whatever proportion is deemed
desirable at any time for temporary defensive purposes. While the Fund is in a
defensive position, the opportunity to achieve capital appreciation will be
limited; however, the ability to maintain a defensive position enables the Fund
to seek to avoid capital losses during market downturns. Under normal
circumstances, the Fund does not expect to have a substantial portion of its
assets invested in cash securities.
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. The Fund's performance is tied closely to conditions
affecting the real estate industry, which has historically been cyclical. The
real estate industry is highly sensitive to national, regional and local
economic conditions, in addition to such factors as interest rates, changes in
property taxes and real estate values, overbuilding, and changes in rental
income. The structure, management and cash flow of many of the companies in the
industry also may heavily impact their performance. Although the Fund does not
intend to invest directly in private real estate assets, it conceivably could
own real estate directly as a result of default on debt securities that it holds
in its portfolio. Therefore, the Fund may be subject to certain risks associated
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with the direct ownership of real estate, including, among others,
difficulties in valuing and trading real estate and declines in the value of
real estate.
RISK FACTORS
Contract owners should consider the special factors associated with the
policies discussed below in determining the appropriate ness of allocating
contract values to one or more of the Funds. 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 the
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, the Fund, as a matter of fundamental
policy, will be diversified. With respect to 75% of the 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. 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 the Fund. The credit risk exposure of the Fund may be increased by
its policy of concentrating investments in a specific business sector. See "Risk
Factors -- Concentration."
Real Estate Investment Trusts. The Fund may invest in real estate
investment trusts ("REITs"). REITs are pooled investment vehicles that invest
primarily in income-producing real estate or real estate related loans or
interests. REITs are generally classified as either equity or mortgage, or a
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combination of the two. An equity REIT invests the majority of its assets
directly in real estate and derives most of its income from rents. A mortgage
REIT invests the majority of its assets in real estate mortgages and derives
most of its income from interest payments. In addition to the risks inherent in
any investment in the real estate industry, investments in REITs have certain
unique risks. Equity REITs can be affected by changes in the value of the
underlying property owned by them; mortgage REITs are affected by the quality of
the credit extended. REITs are not diversified, and are subject to the risks of
real estate financing, including cash flow dependency and defaults by borrowers.
REITs attempt to qualify for beneficial tax treatment by distributing 95% of
their taxable income to their interest holders. If a REIT fails to ^ qualify for
such beneficial tax treatment, it would be taxed as a corporation, and
distributions to its shareholders (including the Fund) would be reduced. By
investing in REITs indirectly through the Fund, a Fund shareholder will bear not
only a proportionate share of the expenses of the Fund, but also, indirectly,
similar expenses of the REIT. For taxable shareholders, a portion of the
dividends paid by a REIT may be considered return on capital and would not
currently be regarded as taxable income. Therefore, depending upon an
individual's tax bracket, the dividend yield may have a higher tax-effective
yield.
Mortgage-Backed Securities. The Fund may invest in mortgage-backed
securities issued or guaranteed by the U.S. government or federal agencies such
as Government National Mortgage Association ("GNMA"), Fannie Mae (formerly known
as the Federal National Mortgage Association) and Federal Home Loan Mortgage
Corporation ("FHLMC"). Some of these securities, such as GNMA certificates, are
backed by the full faith and credit of the U.S. Treasury while others, such as
FHLMC certificates, are not. Mortgage-backed securities represent interests in
pools of mortgages which have been purchased from loan institutions such as
banks and savings & loans, and packaged for resale in the secondary market.
Interest and principal are "passed through" to the holders of the securities.
The timely payment of interest and principal is guaranteed by a federal agency,
but the market value of the security is not guaranteed and will vary. The Fund
also may invest in mortgage-backed securities issued by private, non-government
issuers such as banks and broker-dealers. When interest rates drop, many home
buyers choose to refinance their mortgages. These resulting prepayments of the
initial mortgages may shorten the average weighted lives of mortgage-backed
securities and may lower their returns. Prepayment rates cannot be predicted
with any accuracy. Under certain interest rate and prepayment rate structures,
it is possible that the Fund may fail to recoup the full amount of its
investment in mortgage-backed securities, despite any direct or indirect
governmental or agency guarantee. When the Fund reinvests amounts received
representing unscheduled prepayments of principal, it likely will receive a rate
of interest that is lower than the rate on then-existing adjustable rate
mortgage pass-through securities.
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Collateralized mortgage obligations ("CMOs") may be issued by, among
others, U.S. government agencies and instrumentalities. CMOs are issued in
classes, with the principal of, and interest on, the underlying mortgage assets
allocated among the several classes. Each class is commonly referred to as a
"tranche," and is issued at a specific or adjustable interest rate. Each tranche
must be fully retired no later than its final distribution date. Generally,
interest is paid or accrued monthly. CMOs typically are collateralized by GNMA,
Fannie Mae or FHLMC certificates. They also may be collateralized by other
mortgage assets, including whole loans or private mortgage pass-through
securities. CMOs are paid from payments of principal and interest on collateral
of mortgaged assets and any reinvestment income thereon. Risks of investing in
CMOs, in addition to the general risks of investing in the real estate industry,
include failure of the counter party to meet its commitments, the effects of
prepayment on mortgage cash flows and adverse interest rate changes. Investing
in the lower tranches of CMOs presents risks similar to investments in equity
securities. The yield of CMOs may be affected by adjustability of interest rates
and the possibility that prepayments of principal may be made significantly
earlier than the final distribution dates.^
Portfolio Lending. The 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
the Fund to earn income, which, in turn, can be invested in additional
securities to pursue the Fund's investment objective. The 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). The 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. The 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 Fund may enter into repurchase agreements with
respect to debt instruments eligible for investment by the 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
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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, the 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. The Fund will not enter into a repurchase
agreement maturing in more than seven days if as a result more than 15% of the
Fund's net assets would be invested in such repurchase agreements and other
illiquid securities.
Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover for the Fund. Although the Fund does not trade for short-term profits,
securities may be sold without regard to the time they have been held in the
Fund when, in the opinion of Fund Management, market considerations warrant such
action. Increased portfolio turnover would cause a Fund to incur greater
brokerage costs than would otherwise be the case. The Fund anticipates a
portfolio turnover rate between 60% and 75%. A portfolio turnover rate of 75%
would occur if three-quarters of the Fund's portfolio securities were sold
within one year. The Company's brokerage allocation policies, including the
consideration of sales of Participating Life Insurance Companies' variable
annuity and variable life insurance contracts when selecting among qualified
brokers offering comparable best price and execution on Fund transactions, are
discussed in the Statement of Additional Information.
Illiquid and Rule 144A Securities. The Fund is authorized to invest in
securities that are illiquid because they are subject to restrictions on their
resale ("restricted securities") or because, based upon their nature or the
market for such securities, they are not readily marketable. However, the 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.
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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. In the event that a Rule 144A Security held by the Fund is
subsequently determined to be illiquid, the security will be sold as soon as
that can be done in an orderly fashion consistent with the best interests of the
Fund's shareholders. For more information concerning Rule 144A Securities, see
the Statement of Additional Information.
Foreign Securities. The 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 a foreign
currency, returns for a U.S. investor on foreign securities denominated in that
foreign currency 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 the Fund experiencing difficulties in pursuing legal remedies
and collecting judgments.
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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.
Delayed Delivery or When-Issued Purchases. Securities may at times be
purchased or sold by the Fund with settlement taking place in the future. The
Fund may invest, and hold, up to 10% of its net assets in when-issued
securities. In the case of debt securities, the payment obligations and the
interest rates that will be received on the securities generally are fixed at
the time the Fund enters into the 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. For more information concerning delayed delivery and when-issued
purchases, see the Statement of Additional Information.
Forward Foreign Currency Contracts. The Fund 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 Fund holds 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 Fund has not adopted any limitations on its ability to use forward
contracts as a hedge against fluctuations in foreign exchange rates, the Fund
does not attempt to hedge all of its foreign investment positions and will enter
into forward contracts only to the extent, if any, deemed appropriate by Fund
Management. The Fund 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
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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 Fund's 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 Debt Securities. Although Fund Management limits the
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 S&P 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 S&P (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 Fund's investment
objective 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 Fund may be expected to fluctuate more than that 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 experienced a significant
increase in the use of high yield corporate debt securities to Fund highly
leveraged corporate acquisitions and restructurings. Past experience may not
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
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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 Fund 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.
For a detailed description of corporate bond ratings, refer to the
Appendix to this Prospectus. More information on debt securities is contained in
the Statement of Additional Information.
Concentration. While the Fund 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 Fund may be more susceptible to change than those of
investment companies which spread their investments over many different business
sectors.
Futures and Options. A futures contract is an agreement to buy or sell a
specific amount of a financial instrument or commodity at a particular price on
a particular date. The Fund will use futures contracts only to hedge against
price changes in the value of its current or intended investments in securities.
In the event that an anticipated decrease in the value of portfolio securities
occurs as a result of a general decrease in prices, the adverse effects of such
changes may be offset, at least in part, by gains on the sale of futures
contracts. Conversely, the increased cost of portfolio securities to be
acquired, caused by a general increase in prices, may be offset, at least in
part, by gains on futures contracts purchased by the Fund. Brokerage fees are
paid to trade futures contracts, and the Fund is required to maintain margin
deposits.
<PAGE>
Put and call options on futures contracts or securities may be traded by
the Fund in order to protect against declines in the value of portfolio
securities or against increases in the cost of securities to be acquired. The
purchaser of an option purchases the right to effect a transaction in the
underlying future or security at a specified price (the "strike price") before a
specified date (the "expiration date"). In exchange for the right, the purchaser
pays a "premium" to the seller, which represents the price of the right to buy
or to sell the underlying instrument. In exchange for the premium, the seller of
the option becomes obligated to effect a transaction in the underlying future or
security, at the strike price, at any time prior to the expiration date, should
the buyer choose to exercise the option. A call option contract grants the
purchaser the right to buy the underlying future or security, at the strike
price, before the expiration date. A put option contract grants the purchaser
the right to sell the underlying future or security, at the strike price, before
the expiration date. 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 or security changes sufficiently, the
option may expire without value to the Fund.
Although the Fund will enter into futures contracts and options on futures
contracts and securities solely for hedging or other nonspeculative purposes,
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, which are set
forth in greater detail in the Statement of Additional Information and Appendix
B therein.
The Fund may buy and sell interest rate futures contracts relating to U.S.
government securities for the purpose of hedging the value of its securities
portfolio.
The risks related to transactions in options and futures to be entered
into by the Fund are set forth in greater detail in the Statement of Additional
Information, which should be reviewed in conjunction with the foregoing
discussion.
INVESTMENT RESTRICTIONS
The 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
<PAGE>
to the percentages of the value of the Fund's total assets which may be
invested in any one company. A list of the Fund's fundamental investment
restrictions and a list of additional, non-fundamental investment restrictions
of the 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, IFG, 7800 E. Union Avenue,
Denver, Colorado, serves as the Fund's investment adviser. IFG is primarily
responsible for providing the Fund with various administrative services and
supervising the Fund's daily business affairs. These services are subject to
review by the Company's board of directors.
Pursuant to an agreement with IFG, IRAI serves as the sub-adviser of the
Fund. Although the Company is not a party to the sub-advisory agreement, the
agreement has been approved by the Company's board of directors. The address of
IRAI is One Lincoln Center, Suite 1200, 5400 LBJ Freeway, LB-2, Dallas, Texas.
Subject to the supervision of IFG and review by the Company's board of
directors, IRAI is primarily responsible for selecting and managing the
investments of the Fund. INVESCO Distributors, Inc. ("IDI") provides services
relating to the distribution and sales of the Fund's shares.
The Fund's investments are selected by a team of IRAI portfolio managers
that is collectively responsible for the investment decisions relating to the
Fund.
IFG, IRAI and IDI are indirect wholly-owned subsidies of AMVESCAP PLC, a
publicly-traded holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. AMVESCAP PLC has
approximately $177.5 billion in assets under management. IFG was established in
1932 and, as of ^ August 31, ^ 1997, managed 14 mutual funds, consisting of ^ 45
separate portfolios, with combined assets of approximately ^ $15.9 billion on
behalf of over ^ 854,448 shareholders. IRAI, established in 1983, is a
registered investment adviser that currently manages $3.2 billion of assets
(both securities and direct investments in real estate) for its clients. IRAI's
clients include corporate plans and public pension funds, as well as endowment
and foundation accounts. It presently serves as sub-adviser to two other mutual
fund portfolios, as well as other collective investment vehicles. As of ^
December 31, 1997, the portfolio of direct investments in real estate managed by
IRAI for its clients contained ^ 124 properties totaling more than ^ 35.5
million square feet of commercial real estate and ^ 14,340 apartment units.
The Fund pays IFG a monthly advisory fee which is based upon a percentage
of the Fund's average net assets, determined daily. The advisory fee is computed
at the annual rates of [1.10%] on the first $500 million of the Fund's average
net assets; [0.90%] on the next $500 million of the Fund's average net assets;
and [0.75%] on the Fund's average net assets in excess of $1 billion.
<PAGE>
Out of the advisory fee received from the Fund, IFG pays IRAI a monthly
sub-advisory fee. No fee is paid by the Fund to its sub-adviser. The
sub-advisory fee is computed at the annual rates of 0.30% on the first $500
million of the Fund's average net assets; 0.25% on the next $500 million of the
Fund's average net assets; and 0.2167% on the Fund's average net assets in
excess of $1 billion.
The Company also has entered into an Administrative Services Agreement
with IFG dated February 28, 1997 (the "Administrative Agreement"). Pursuant to
the Administrative Agreement, IFG 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 record keeping services for shareholder
accounts. For such services, the Company pays IFG a fee consisting of a base fee
of $10,000 per year for the Fund, plus an additional incremental fee computed at
the annual rate of 0.015% per year of the average net assets of the Fund. IFG
also is paid a fee by the Company for providing transfer agent services. See
"Additional Information."
The Company has also entered into a Distribution Agreement with IDI dated
September 20, 1997 (the "Distribution Agreement"). Pursuant to the Distribution
Agreement, IDI performs all services related to distribution and sale of the
Fund's shares.
The Fund's expenses, which are accrued daily, are generally deducted from
its total income before dividends are paid. If necessary, certain Fund expenses
will be absorbed voluntarily by IFG pursuant to a commitment to the Company.
This commitment may be changed following consultation with the Company's board
of directors.
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 Fund directly, but only
through variable annuity and variable life insurance contracts offered through
the separate accounts of Participating Insurance Companies. A contract owner
<PAGE>
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 Fund. Shares of the
Fund are sold on a continuous basis to separate accounts of Participating
Insurance Companies by IDI, as the Fund's distributor. No sales charge is
imposed upon the sale of shares of the Fund. Sales charges for the variable
annuity or variable life insurance contracts are described in the Separate
Account Prospectuses. IFG 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 Fund.
The Participating Insurance Companies place orders for their separate
accounts to purchase and redeem shares of the 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 Fund by the Company's transfer agent (IFG) 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 the 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 the 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 repre sents fair value.
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
Taxes. The ^ Fund intends to distribute to shareholders all of its net
investment income, net capital gains and net gains from foreign currency
transactions, if any, in order to continue to qualify for tax treatment as a ^
regulated investment company ^. Thus, the Funds do not expect to pay any federal
income or excise taxes.
<PAGE>
The Fund intends to comply with the diversification require ments of Code
Section 817(h). By meeting this and other require ments, the Participating
Insurance Companies, rather than the owners of variable annuity or variable life
insurance contracts, should be subject to tax on distributions received with
respect to Fund shares. For further information concerning federal income tax
consequences for the owners of variable annuity or variable life insurance
contracts, a contract owner should consult his or her Separate Account
Prospectus.
As a regulated investment company, the 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^ and Other Distributions. The Fund earns ordinary or net
investment income in the form of interest and dividends ^ on its investments.
Dividends paid by the Fund will be based solely on the income earned by ^ it.
The ^ Fund's policy ^ is to distribute substantially all of this income, less
Fund expenses, to shareholders ^ on an annual basis, at the discretion of the
Fund's board of directors^. Dividends are automatically reinvested in additional
shares of the Fund ^ at the net asset value on the ex-dividend date^ unless
otherwise requested.
In addition, the Fund realizes capital gains and losses when it sells
securities for more or less than it paid. If total gains on sales exceed total
losses (including losses carried forward from ^ previous years) ^, the Fund has
a net realized capital ^ gain. Net realized capital gains, if any, ^ together
with gains, if any, realized on foreign currency transactions, are distributed
to shareholders at least annually, usually in December. Capital ^ gain
distributions are automatically reinvested in additional shares of the Fund ^ at
the ^ net asset value ^ on the ex-dividend date^ unless otherwise requested.
PERFORMANCE INFORMATION
From time to time, the Fund's total return and/or yield may be included in
advertisements, sales literature, shareholder reports or Separate Account
Prospectuses. The Fund's total return and yield include the effect of deducting
the Fund's expenses, but do not include charges and expenses attributable to a
<PAGE>
particular variable annuity or variable life insurance contract. Because
shares of the Fund can be purchased only through a variable annuity or variable
life insurance contract, the Fund's 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 the
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 the 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 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.
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 "Real Estate Funds"
<PAGE>
variable insurance product grouping. 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
Fund. 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 Fund have equal voting rights. When shareholders are
entitled to vote upon a matter, each shareholder is entitled to one vote for
each share owned 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 Fund 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. IFG 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 the Fund's
investment objective by investing all of the Fund's assets in another investment
company having the same investment objective and substantially the same
investment policies and restrictions as those applicable to the Fund. It is
expected that any such investment company would be managed by IFG 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
Fund's 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 the
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 S&P's and Moody's bond rating
categories:
S&P's Corporate Bond Ratings
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - 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
February 9, 1998
INVESCO VARIABLE
INVESTMENT FUNDS, INC.
INVESCO VIF - Realty Portfolio
INVESCO FUNDS
INVESCO Distributors, Inc.
Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
1-800-525-8085
PAL(R): 1-800-424-8085.
http://www.invesco.com
In Denver, 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.
<PAGE>
^ STATEMENT OF ADDITIONAL INFORMATION
^ February ^ 9, 1998^
INVESCO VARIABLE INVESTMENT FUNDS, INC.
Address: Mailing Address:
7800 E. Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
- --------------------------------------------------------------------------------
INVESCO Variable Investment Funds, Inc. (the "Company") was incorporated
under the laws of Maryland on August 19, 1993. The Company is an open-end
management investment company which offers shares of ten diversified investment
portfolios (the "Funds"): the INVESCO VIF - Dynamics Fund (the "Dynamics Fund"),
the INVESCO VIF - INVESCO Growth Fund (the "Growth Fund"), the INVESCO VIF -
Health Sciences Fund (the "Health Sciences Fund"), the INVESCO VIF - High Yield
Fund (the "High Yield Fund"), the INVESCO VIF - Industrial Income Fund (the
"Industrial Income Fund"), the INVESCO VIF -Realty Fund (the "Realty Fund"), the
INVESCO VIF - Small Company Growth Fund (the "Small Company Growth Fund"), the
INVESCO VIF - Technology Fund (the "Technology Fund"), the INVESCO VIF - Total
Return Fund (the "Total Return Fund") and the INVESCO VIF - Utilities Fund (the
"Utilities Fund"). Additional Funds may be offered in the future. 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 addi tional, but secondary,
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 other
income-producing securities, such as corporate bonds. The Fund also has
the flexibility to invest in other types of securities.
<PAGE>
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 combina tion of equity
securities (consisting of common stocks and, to a lesser degree,
securities convertible into common stock) and fixed income securities.
Dynamics Fund:
to seek appreciation of capital through aggressive investment
policies. The Dynamics Fund invests primarily in common stocks of U.S.
companies traded on national securities exchanges and over-the-counter.
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. 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 invest ments, but is
secondary to the Fund's primary objective.
Small Company Growth Fund:
to seek long-term capital growth. The Small Company Growth Fund invests
primarily in equity securities of small-capitalization U.S. companies
traded "over-the-counter."
Health Sciences Fund:
to seek capital appreciation. The Health Sciences Fund normally invests at
least 80% of its total assets in equity securities of companies which
develop, produce, or distribute products or services related to
health-care.
Technology Fund:
to seek capital appreciation. The Technology Fund normally invests at
least 80% of its total assets in equity securities of companies in
technology-related industries such as computers, communications, video,
electronics, oceanography, office and factory automation, and robotics.
Utilities Fund:
to seek capital appreciation and income through investments primarily in
equity securities of companies principally engaged in the public utilities
business.
Growth Fund:
to seek long-term capital growth. The Fund also seeks, as a secondary
objective, to obtain investment income through the purchase of securities
of carefully selected companies representing major fields of business and
industrial activity. In pursuing its objectives, the Fund invests
primarily in common stocks, but may also invest in other kinds of
securities, including convertible and straight issues of debentures
and preferred stock.
<PAGE>
Realty Fund:
to seek to provide long-term capital growth. Current income is an
additional consideration in selecting securities for the Fund's investment
portfolio. The Realty Fund normally invests at least 65% of its total
assets in publicly-traded stocks of companies principally engaged in the
real estate industry. The remaining assets are invested in other
income-producing securities such as corporate bonds.
A prospectus for the Company dated May 1, 1997 and a prospectus for the
Realty Fund dated February ^ 9, 1998 (the "Prospectuses"), which provide the
basic information a variable annuity or variable life insurance contract owner
should know about the Company and the Funds before allocating variable annuity
or variable life insurance contract values to one or more of the Funds, may be
obtained without charge from INVESCO Distributors, Inc., Post Office Box 173706,
Denver, Colorado 80217-3706 or by contacting a Participating Insurance Company.
This Statement of Additional Information is not a prospectus, but contains
informa tion in addition to and more detailed than that set forth in the
Prospectuses. It is intended to provide additional information regarding the
activities and operations of the Funds and should be read in conjunction with
the appropriate Prospectus and with the prospectus and statement of additional
information for the applicable variable annuity or variable life insurance
contract.
Investment Adviser: INVESCO Funds Group, Inc.
Investment Distributor: INVESCO Distributors, Inc.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT POLICIES.......................................................^ 5
INVESTMENT RESTRICTIONS...................................................^ 11
FUND MANAGEMENT...........................................................^ 16
HOW SHARES ARE VALUED.....................................................^ 32
PERFORMANCE...............................................................^ 33
PORTFOLIO TURNOVER........................................................^ 36
PORTFOLIO BROKERAGE.......................................................^ 36
REDEMPTIONS...............................................................^ 38
ADDITIONAL INFORMATION....................................................^ 39
APPENDIX A................................................................^ 45
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INVESTMENT POLICIES
Reference is made to the Prospectuses for a discussion of the investment
objectives and policies of the Funds. In addition, set forth below is further
information relating to the Funds. Portfolio management is provided to each Fund
by its sub-adviser (referred to collectively with INVESCO Funds Group, Inc. as
"Fund Management").
Loans of Portfolio Securities
As described in the Prospectuses, each Fund may lend its portfolio
securities to brokers, dealers, and other financial institutions, provided that
such loans are callable at any time by the Funds and are at all times secured by
collateral consisting of cash, cash equivalents, high-quality short-term
government securities or irrevocable letters of credit, or any combination
thereof, equal to at least the market value, determined daily, of the loaned
securities. The advantage of such loans is that the Funds continue to earn
income on the loaned securities, while at the same time receiving interest from
the borrower of the securities. Loans will be made only to firms deemed by Fund
Management (under procedures established by the Company's board of directors) to
be creditworthy, and when the amount of interest to be received justifies the
inherent risks. A loan may be terminated by the borrower on one business day's
notice, or by the Fund at any time. If at any time the borrower fails to
maintain the required amount of collateral, the Fund will require the deposit of
additional collateral not later than the business day following the day on which
a collateral deficiency occurs or the collateral appears inadequate. If the
deficiency is not remedied by the end of that period, the Fund will use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. Upon termination of the loan, the
borrower is required to return the securities to the Fund. Any gain or loss
during the loan period would inure to the Fund.
While voting rights may pass with the loaned securities, if a material
event (e.g., proposed merger, sale of assets, or liquida tion) is to occur
affecting an investment on loan, the loan must be called and the securities
voted. Loans of securities made by the Fund will comply with all other
applicable regulatory requirements, including the rules of the New York Stock
Exchange and the requirements of the Investment Company Act of 1940, as amended
(the "1940 Act"), and rules thereunder.
Futures, Options on Futures and Options on Securities
As discussed in the Prospectuses, the Funds may enter into futures
contracts, and purchase and sell ("write") options to buy or sell futures
contracts and other securities. These instruments are sometimes referred to as
"derivatives." The Funds will comply with and adhere to all limitations in the
manner and extent to which they effect transactions in futures and options on
<PAGE>
such futures currently imposed by the rules and policy guidelines of the
Commodity Futures Trading Commission (the "CFTC") as conditions for exemption of
a mutual fund, or investment advisers thereto, from registration as a commodity
pool operator. A Fund will not, as to any positions, whether long, short or a
combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of the
Fund's total assets after taking into account unrealized profits and losses on
options it has entered into. In the case of an option that is "in-the-money" (as
defined in the Commodities Exchange Act (the "CEA")), the in-the-money amount
may be excluded in computing such 5%. (In general a call option on a future is
"in-the-money" if the value of the future exceeds the exercise ("strike") price
of the call; a put option on a future is "in-the-money" if the value of the
future which is the subject of the put is exceeded by the strike price of the
put.) The Funds may use futures and options thereon solely for bona fide hedging
or for other non-speculative purposes within the meaning and intent of the
applicable provisions of the CEA.
Unlike when a Fund purchases or sells a security, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Instead, the
Fund will be required to deposit in a segregated asset account with the broker
an amount of cash or qualifying securities (currently U.S. Treasury bills),
currently in a minimum amount of $15,000. This is called "initial margin." Such
initial margin is in the nature of a performance bond or good faith deposit on
the contract. However, since losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Fund may be
required to make additional payments during the term of the contracts to its
broker. Such payments would be required, for example, where, during the term of
an interest rate futures contract purchased by the Fund, there was a general
increase in interest rates, thereby making the Fund's portfolio securities less
valuable. In all instances involving the purchase of financial futures contracts
by a Fund, an amount of cash together with such other securities as permitted by
applicable regulatory authorities to be utilized for such purpose, at least
equal to the market value of the futures contracts, will be deposited in a
segregated account with the Funds' custodian to collateralize the position. At
any time prior to the expiration of a futures contract, the Fund may elect to
close its position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. For a more complete
discussion of the risks involved in interest rate futures and options on
interest rate futures and other debt securities, refer to Appendix A
("Description of Futures and Options Contracts").
Where futures are purchased to hedge against a possible increase in the
price of a security before a Fund is able in an orderly fashion to invest in the
security, it is possible that the market may decline instead. If the Fund, as a
result, concluded not to make the planned investment at that time because of
concern as to possible further market decline or for other reasons, the Fund
would realize a loss on the futures contract that is not offset by a reduction
in the price of securities purchased.
<PAGE>
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the futures and the portion of the
portfolio being hedged, the price of futures may not correlate perfectly with
movements in interest rates or exchange rates due to certain market distortions.
All participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between interest rates
or exchange rates and the value of a future. Moreover, the deposit requirements
in the futures market are less onerous than margin requirements in the
securities market and may therefore cause increased participation by specula
tors in the futures market. Such increased participation also may cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and because of the imperfect correlation between movements in
interest rates or exchange rates and movements in the prices of futures
contracts, the value of futures contracts as a hedging device may be reduced.
In addition, if a Fund has insufficient available cash, it may at times
have to sell securities to meet variation margin require ments. Such sales may
have to be effected at a time when it may be disadvantageous to do so.
Options on Futures Contracts
The Funds may buy and write options on futures contracts for hedging
purposes. The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying instrument,
ownership of the option may or may not be less risky than ownership of the
futures contract or the underlying instrument. As with the purchase of futures
contracts, when a Fund is not fully invested it may buy a call option on a
futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or the index comprising, the futures contract. If the futures
price at the expiration of the option is below the exercise price, a Fund will
retain the full amount of the option premium, which provides a partial hedge
against any decline that may have occurred in the Fund's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
<PAGE>
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the Fund is
considering buying. If a call or put option the Fund has written is exercised,
the Fund will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between change in the value of
its portfolio securities and changes in the value of the futures positions, the
Fund's losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund may buy a put option on a futures contract to hedge the Fund's
portfolio against the risk of falling prices.
The amount of risk a Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
Forward Foreign Currency Contracts
The Funds may enter into forward currency contracts to purchase or sell
foreign currencies (i.e., non-U.S. currencies) as a hedge against possible
variations in foreign exchange rates. These instruments are sometimes referred
to as "derivatives." A forward foreign currency exchange contract is an
agreement between the contracting parties to exchange an amount of currency at
some future time at an agreed upon rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract. A
forward contract generally has no deposit requirement, and such transactions do
not involve commis sions. By entering into a forward contract for the purchase
or sale of the amount of foreign currency invested in a foreign security
transaction, a Fund can hedge against possible variations in the value of the
dollar versus the subject currency either between the date the foreign security
is purchased or sold and the date on which payment is made or received or during
the time the Fund holds the foreign security. 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. The Funds
will not speculate in forward currency contracts. 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 non-U.S. portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by Fund Management.
<PAGE>
The Funds will not enter into forward contracts for a term of more than one
year. 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 in the Prospectuses.
Restricted/144A Securities
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"). Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend on an efficient
institutional market in which such unregistered securities can readily be resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restric tions on resale to the general
public or certain institutions is not dispositive of the liquidity of such
investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institution al markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and the Fund might be unable to dispose of such
securities promptly or at reasonable prices.
When-Issued and Delayed Delivery Securities
The Funds may purchase and sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transac tions arise when
securities (normally, debt obligations of issuers eligible for investment by the
Funds) are purchased or sold by a Fund with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous price and
yield. However, the yield on a comparable security available when delivery takes
place may vary from the yield on the security at the time that the when-issued
or delayed delivery transaction was entered into. When a Fund engages in
when-issued and delayed delivery transactions, it relies on the seller or buyer,
as the case may be, to consummate the sale. Failure to do so may result in the
Fund missing the opportunity of obtaining a price or yield considered to be
advantageous. When-issued and delayed delivery transactions may generally be
expected to settle within one month from the date the transactions are entered
into, but in no event later than 90 days. However, no payment or delivery is
made by the Fund until it receives delivery or payment from the other party to
the transaction.
<PAGE>
To the extent that a Fund remains substantially fully invested at the same
time that it has purchased when-issued securities, as it would normally expect
to do, there may be greater fluctuations in its net assets than if the Fund set
aside cash to satisfy its purchase commitments.
When a Fund purchases securities on a when-issued basis, it will maintain
in a segregated account cash or liquid securities having an aggregate value
equal to the amount of such purchase commitments, until payment is made. If
necessary, additional assets will be placed in the account daily so that the
value of the account will equal or exceed the amount of the Fund's purchase
commitments.
U.S. Government Obligations
Each Fund may, from time to time, purchase U.S. government obligations.
These securities consist of treasury bills, treasury notes, and treasury bonds,
which differ only in their interest rates, maturities, and dates of issuance.
Treasury bills have a maturity of one year or less. Treasury notes generally
have a maturity of one to ten years, and treasury bonds generally have
maturities of more than ten years. U.S. government obligations also include
securities issued or guaranteed by agencies or instrumentalities of the U.S.
government.
Some obligations of United States government agencies, which are
established under the authority of an act of Congress, such as Government
National Mortgage Association (GNMA) participation certificates, are supported
by the full faith and credit of the United States Treasury. GNMA certificates
are mortgage-backed securities representing part ownership of a pool of mortgage
loans. These loans -- issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations -- are either insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. A "pool" or
group of such mortgages is assembled and, after being approved by GNMA, is
offered to investors through securities dealers. Once approved by GNMA, the
timely payment of interest and principal on each mortgage is guaranteed by GNMA
and backed by the full faith and credit of the United States government. The
market value of GNMA certificates is not guaranteed. GNMA certificates differ
from bonds in that principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA certificates
are called "pass-through" securities because both interest and principal
payments (including prepayments) are passed through to the holder of the
certificate. Upon receipt, principal payments will be used by each Fund to
purchase additional securi ties under its investment objective and investment
policies.
Other United States government obligations, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury to repay its obligations. Still others, such as bonds issued by the
Federal National Mortgage Association, a federally chartered private
corporation, are supported only by the credit of the instrumentality.
<PAGE>
INVESTMENT RESTRICTIONS
As described in the Prospectuses, the Funds operate under certain
investment restrictions. The following restrictions are fundamental and may not
be changed with respect to a particular Fund without the prior approval of the
holders of a majority of the outstanding voting securities of that Fund, as
defined in the 1940 Act. For purposes of the following investment restrictions,
all percentage limitations apply immediately after a purchase or initial
investment. Any subsequent change in a particular percentage resulting from
fluctuations in value does not require elimination of any security from a Fund.
Each Fund may not:
1. With respect to seventy-five percent (75%) of its total assets,
purchase the securities of any one issuer (except cash items and
"government securities" as defined under the 1940 Act), if the
purchase would cause the Fund to have more than 5% of the value
of its total assets invested in the securities of such issuer or
to own more than 10% of the outstanding voting securities of such
issuer;
2. Borrow money, except that the Fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) and may
enter into reverse repurchase agreements in an aggregate amount
not exceeding 33 1/3% of the value of its total assets (including
the amount borrowed) less liabilities (other than borrowings).
Any borrowings that come to exceed 33 1/3% of the value of the
Fund's total assets by reason of a decline in net assets will be
reduced within three business days to the extent necessary to
comply with the 33 1/3% limitation. This restriction shall not
prohibit deposits of assets to margin or guarantee positions in
futures, options, swaps or forward contracts, or the segregation
of assets in connection with such contracts.
3. Invest more than 25% of the value of its total assets in any
particular industry (other than government securi ties), except
that: (i) the Utilities Fund may invest more than 25% of the
value of its total assets in public utilities industries; (ii)
the Health Sciences Fund may invest more than 25% of the value of
its total assets in one or more industries relating to health
care; and (iii) the Realty Fund may invest more than 25% of the
value of its total assets in the real estate industry.
4. Invest directly in real estate or interests in real estate;
however, the Fund may own debt or equity securi ties issued by
companies engaged in those businesses. This restriction shall not
prohibit the Realty Fund from directly holding real estate if
such real estate is acquired by that Fund as a result of a
default on debt securities held by that Fund.
<PAGE>
5. Purchase or sell physical commodities other than foreign
currencies unless acquired as a result of ownership of securities
(but this shall not prevent the Fund from purchasing or selling
options, futures, swaps and forward contracts or from investing
in securities or other instruments backed by physical
commodities).
6. Lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties
(but this limitation does not apply to purchases of commercial
paper, debt securities or to repurchase agreements.)
7. Act as an underwriter of securities issued by others, except to
the extent that it may be deemed an underwriter in connection
with the disposition of portfolio securi ties of the Fund.
Each Fund may, notwithstanding any other investment policy or limitation
(whether or not fundamental), invest all of its assets in the securities of a
single open-end management investment company with substantially the same
fundamental investment objectives, policies and limitations as the Fund.
Furthermore, the board of directors has adopted additional investment
restrictions for each Fund. These restrictions are operating policies of each
Fund and may be changed by the board of directors without shareholder approval.
The additional investment restrictions adopted by the board of directors to date
include the following:
(a) The Fund's investments in warrants, valued at the lower of cost
or market, may not exceed 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants that are not listed on the
New York or American Stock Exchanges. Warrants acquired by the
Fund in units or attached to securities shall be deemed to be
without value.
(b) The Fund will not (i) enter into any futures contracts or options
on futures contracts if immediately thereafter the aggregate
margin deposits on all outstanding futures contracts positions
held by the Fund and premiums paid on outstanding options on
futures contracts, after taking into account unrealized profits
and losses, would exceed 5% of the market value of the total
assets of the Fund, or (ii) enter into any futures contracts if
the aggregate net amount of the Fund's commitments under
outstanding futures contracts positions of the Fund would exceed
the market value of the total assets of the Fund.
<PAGE>
(c) The Fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securi ties equivalent
in kind and amount to the securities sold short without the
payment of any additional consideration therefor, and provided
that transactions in options, swaps and forward futures contracts
are not deemed to constitute selling securities short.
(d) The Fund does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits
as are necessary for the clearance of transactions, and provided
that margin payments and other deposits in connection with
transactions in options, futures, swaps and forward contracts
shall not be deemed to constitute purchasing securities on
margin.
(e) The Fund does not currently intend to (i) purchase securities of
closed end investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or
(ii) purchase or retain securities issued by other open-end
investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends,
through offers of exchange, or as a result of a reorganization,
consolidation, or merger. If the Fund invests in a money market
fund, the Fund's investment adviser will reduce its advisory fee
by the amount of any investment advisory and administrative
services fees paid to the investment manager of the money market
fund.
(f) The Fund may not mortgage or pledge any securities owned or held
by the Fund in amounts that exceed, in the aggregate, 15% of the
Fund's net asset value, provided that this limitation does not
apply to reverse repurchase agreements or in the case of assets
deposited to margin or guarantee positions in futures, options,
swaps or forward contracts or placed in a segregated account in
connection with such contracts.
(g) The Fund does not currently intend to purchase securities of any
issuer (other than U.S. government agencies and instrumentalities
or instruments guaranteed by an entity with a record of more than
three years' continuous operation, including that of
predecessors) with a record of less than three years' continuous
operation (including that of predecessors) if such purchase would
cause the Fund's investments in all such issuers to exceed 5% of
the Fund's total assets taken at market value at the time of such
purchase.
<PAGE>
(h) The Fund does not currently intend to invest directly in oil,
gas, or other mineral development or exploration programs or
leases; however, the Fund may own debt or equity securities of
companies engaged in those businesses.
(i) The Fund does not currently intend to purchase any security or
enter into a repurchase agreement if, as a result, more than 15%
of its net assets would be invested in repurchase agreements not
entitling the holder to payment of principal and interest within
seven days and in securities that are illiquid by virtue of legal
or contractual restrictions on resale or the absence of a readily
available market. The board of directors, or the Fund's
investment adviser acting pursuant to authority delegated by the
board of directors, may determine that a readily available market
exists for securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933, or any successor to such rule,
and therefore that such securities are not subject to the
foregoing limitation.
(j) The Fund may not invest in companies for the purpose of
exercising control or management, except to the extent that
exercise by the Fund of its rights under agreements related to
portfolio securities would be deemed to constitute such control.
In applying the industry concentration investment restriction (no. 3,
above) the Funds use an industry classification system based on a modified S&P
industry code classification schema which uses various sources to classify.
With respect to investment restriction (i) above, the board of directors
has delegated to Fund Management the authority to determine whether a liquid
market exists for securities eligible for resale pursuant to Rule 144A under the
1933 Act, or any successor to such rule and that such securities are not subject
to this restriction. Under guidelines established by the board of directors,
Fund Management will consider the following factors, among others, in making
this determination: (1) the unregistered nature of a Rule 144A security, (2) the
frequency of trades and quotes for the security; (3) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security; and (5)
the nature of the security and the nature of marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer).
In order to enable California investors to allocate variable annuity or
variable life insurance contract values to one or more of the Funds, the Company
has committed to comply with the following guidelines: (i) the borrowing limits
<PAGE>
for any Fund are (a) 10% of net asset value when borrowing for any general
purpose and (b) 25% of net asset value when borrowing as a temporary measure to
facilitate redemptions (for purposes of this clause, the net asset value of a
Fund is the market value of all investments or assets owned less outstanding
liabilities of the Fund at the time that any new or additional borrowing is
undertaken); and (ii) if a Fund invests in foreign companies, the foreign
country diversifica tion guidelines to be followed by the Fund are as follows:
(a) The Fund will be invested in a minimum of five different foreign
countries at all times. However, this minimum is reduced to four
when foreign country investments comprise less than 80% of the
Fund's net asset value, to three when less than 60% of such
value, to two when less than 40% and to one when less than 20%.
(b) Except as set forth in items (c) and (d) below, the Fund will
have no more than 20% of its net asset value invested in
securities of issuers located in any one country.
(c) The Fund may have an additional 15% of its net asset value
invested in securities of issuers located in any one of the
following countries: Australia, Canada, France, Japan, the United
Kingdom, or Germany.
(d) The Fund's investments in United States issuers are not subject
to the foreign country diversification guide lines.
State insurance laws and regulations may impose additional limitations on
lending securities and the use of options, futures and other derivative
instruments.
FUND MANAGEMENT
Investment Adviser
INVESCO Funds Group, Inc., a Delaware corporation ("IFG"), is employed as
the Company's investment adviser. IFG was established in 1932 and also serves as
an investment adviser to INVESCO Capital Appreciation Funds, Inc. (formerly,
INVESCO Dynamics Fund, Inc.), INVESCO Diversified Funds, Inc., INVESCO Emerging
Opportunity Funds, Inc., INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc.,
INVESCO Industrial Income Fund, Inc., INVESCO International Funds, Inc., INVESCO
Money Market Funds, Inc., INVESCO Multiple Asset Funds, Inc., INVESCO Specialty
Funds, Inc., INVESCO Strategic Portfolios, Inc., INVESCO Tax-Free Income Funds,
Inc., and INVESCO Value Trust.
Investment Sub-Advisers
Pursuant to agreements with IFG, INVESCO Capital Management, Inc. ("ICM")
serves as sub-adviser to the Total Return Fund, INVESCO Realty Advisors, Inc.
("IRAI") serves as the sub-adviser to the Realty Fund and INVESCO Trust Company
("INVESCO Trust") serves as the sub-adviser to the other Funds. INVESCO Trust, a
trust company founded in 1969, is a wholly-owned subsidiary of IFG that, as of
December 31, 1996, managed 55 other investment portfolios, including 31
portfolios in the INVESCO group.
<PAGE>
ICM and IRAI manage institutional investment portfolios, consisting
primarily of discretionary employee benefit plans for corporations and state and
local governments, and endowment funds. In addition, ICM serves as investment
adviser or sub-adviser to 19 investment portfolios of 4 investment companies
(including the Company) and IRAI serves as investment adviser or sub-adviser to
^ 60 investment portfolios of ^ 2 investment companies (including the Company).
ICM is the sole shareholder of INVESCO Services, Inc., a registered broker
dealer.
Distributor
Effective September 30, 1997, INVESCO Distributors, Inc. ("IDI") became
the Funds' distributor. IDI, established in 1997, is a registered broker-dealer
that acts as distributor for all retail mutual funds advised by IFG. Prior to
September 30, 1997, IFG served as the ^ Funds' distributor.
IFG, INVESCO Trust, ICM, IRAI and IDI are indirect wholly-owned
subsidiaries 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, and to AMVESCAP PLC on May 8, 1997 as part of a merger between a direct
subsidiary of INVESCO PLC and A I M Management Group Inc., that created one of
the largest independent investment management businesses in the world with
approximately $177.5 billion in assets under management. INVESCO, INVESCO Trust,
ICM and IRAI continued to operate under their existing names. IFG 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.
AMVESCAP PLC's other North American subsidiaries include the following:
--INVESCO Management & Research, Inc. of Boston, Massachu setts, primarily
manages pension and endowment accounts.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky, specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
--A I M Advisors, Inc. of Houston, Texas provides investment advisory and
administrative services for retail and institutional mutual funds.
<PAGE>
--A I M Capital Management, Inc. of Houston, Texas provides investment
advisory services to individuals, corporations, pension plans and other private
investment advisory accounts and also serves as a sub-advisor to certain retail
and institutional mutual funds, one Canadian mutual fund and one portfolio of an
open-end registered investment company that is offered to separate accounts of
variable insurance companies.
--A I M Distributors, Inc. and Fund Management Company of Houston, Texas
are registered broker-dealers that act as the principal underwriters for retail
and institutional mutual funds.
The corporate headquarters of AMVESCO PLC are located at 11 Devonshire
Square, London, EC2M 4YR, England.
As indicated in the Prospectuses, IFG permits investment and other
personnel to purchase and sell securities for their own accounts in accordance
with a compliance policy governing personal investing by directors, officers and
employees of IFG and its North American affiliates. The policy requires
officers, inside direc tors, investment and other personnel of IFG and its North
American affiliates to pre-clear all transactions in securities not otherwise
exempt under the policy. Requests for trading authority will be denied when,
among other reasons, the proposed personal transaction would be contrary to the
provisions of the policy or would be deemed to adversely affect any transaction
then known to be under consideration for or to have been effected on behalf of
any client account, including the Funds.
In addition to the pre-clearance requirement described above, the policy
subjects officers, inside directors, investment and other personnel of IFG and
its North American affiliates to various trading restrictions and reporting
obligations. All reportable transactions are reviewed for compliance with the
policy. The provisions of this policy are administered by and subject to
exceptions authorized by IFG, INVESCO Trust, IRAI and ICM.
Advisory Agreement
IFG serves as investment adviser pursuant to an investment advisory
agreement (the "Agreement") with the Company which was approved by the board of
directors on November 6, 1996, in each case by a vote cast in person by a
majority of the directors of the Company, including a majority of the directors
who are not "interested persons" of the Company, INVESCO, INVESCO Trust, ICM or
IRAI (the "Independent Directors") at a meeting called for such purpose.
Shareholders of the Industrial Income, Total Return, High Yield and Utilities
Funds approved the Agreement on January 31, 1997 for an initial term expiring
February 28, 1999. The initial shareholder of the Dynamics, Small Company
Growth, Health Sciences and Technology Funds approved the Agreement on January
31, 1997 for an initial term expiring February 28, 1999; the initial shareholder
of the Growth Fund approved the Agreement on May 1, 1997, for an initial term
<PAGE>
expiring May 1, 1999; and the initial shareholder of the Realty Fund
approved the Agreement on ^ February 6, 1998, for an initial term expiring ^
February 6, 2000. Thereafter, the Agreement may be continued from year to year
as to each Fund as long as each such continuance is specifically approved at
least annually by the board of directors of the Company, or by a vote of the
holders of a majority, as defined in the 1940 Act, of the outstanding shares of
the Fund. Any such continuance also must be approved by vote of a majority of
the Independent Directors, cast in person at a meeting called for the purpose of
voting on such continuance. The Agreement may be terminated at any time without
penalty by either party upon sixty (60) days' written notice and terminates
automatically in the event of an assignment to the extent required by the 1940
Act and the rules thereunder. Share holder approval of any continuance of the
Agreement, or of the sub-advisory agreements discussed below, shall be effective
with respect to any Fund if a majority of the outstanding voting securities of
the series of shares of that Fund vote to approve the continuance,
notwithstanding that the continuance may not have been approved by a majority of
the outstanding voting securities of (i) any other Fund affected by the
Agreement or (ii) all of the Funds.
The Agreement provides that IFG shall manage the investment portfolios of
the Funds in conformity with the Funds' investment objectives and policies
(either directly or by delegation to a sub-adviser, which may be a party
affiliated with IFG). Further, IFG shall perform all administrative, internal
accounting (including computation of net asset value), clerical, statistical,
secretarial and all other services necessary or incidental to the administration
of the affairs of the Funds excluding, however, those services that are the
subject of separate agreement between the Company and IFG or any affiliate
thereof, including the distribution and sale of Fund shares and provision of
transfer agency, dividend disbursing agency, and registrar services, and
services furnished under an Administrative Services Agreement with IFG discussed
below. Services provided under the Agreement include, but are not limited to:
supplying the Company with officers, clerical staff and other employees, if any,
who are necessary in connection with the Funds' operations; furnishing office
space, facilities, equipment, and supplies; providing personnel and facilities
required to respond to inquiries related to shareholder accounts; conducting
periodic compliance reviews of the Funds' operations; preparation and review of
required documents, reports and filings by IFG's in-house legal and accounting
staff (including the Prospectuses, Statement of Additional Information, proxy
statements, shareholder reports, tax returns, reports to the SEC, and other
corporate documents of the Funds), except insofar as the assistance of
independent accountants or attorneys is necessary or desirable; supplying basic
telephone service and other utilities; and preparing and maintaining certain of
the books and records required to be prepared and maintained by the Funds under
the 1940 Act. Expenses not assumed by IFG are borne by the Funds.
<PAGE>
As full compensation for its advisory services to the Company, IFG receives
a monthly fee. The fee is based upon a percentage of each Fund's average net
assets determined daily. For the Industrial Income and Total Return Funds, the
advisory fees are each computed at the annual rates of 0.75% of the first $500
million of the Fund's average net assets; 0.65% of the next $500 million of the
Fund's average net assets; and 0.55% of the Fund's average net assets in excess
of $1 billion. For the High Yield and Utilities Funds, the advisory fees are
each computed at the annual rates of 0.60% of the first $500 million of the
Fund's average net assets, 0.55% of the next $500 million of the Fund's average
net assets and 0.45% of the Fund's average net assets in excess of $1 billion.
For the Small Company Growth, Health Sciences and Technology Funds, the advisory
fees are each computed at the rates of 0.75% on the first $350 million of the
Fund's average net assets; 0.65% on the next $350 million of the Fund's average
net assets; and 0.55% on the Fund's average net assets in excess of $700
million. For the Dynamics Fund, the advisory fees are computed at the annual
rates of 0.60% on the first $350 million of the Fund's average net assets; 0.55%
on the next $350 million; and 0.50% on the Fund's average net assets in excess
of $700 million. For the Growth Fund, the advisory fees are computed at the
annual rate of 0.85% of the Fund's average net assets. For the Realty Fund, the
advisory fees are ^ 1.10% ^ of the Fund's average net assets up to $500 million,
^ 0.90% ^ on the next $500 million, and ^ 0.75% ^ of the Fund's net assets in
excess of $1 billion.
Any amendment of the Agreement requires approval of a majority of the
Company's board of directors, including a majority of the Independent Directors,
by votes cast in person at a meeting called for such purpose and (other than
amendments that can become effective without shareholder approval under
applicable law) also requires approval of a majority of the outstanding voting
securi ties of any Fund affected by such amendment.
Sub-Advisory Agreements
Pursuant to sub-advisory agreements with IFG (the "Sub-Agreements"), ICM
serves as sub-adviser to the Total Return Fund, IRAI serves as sub-advisory to
the Realty Fund and INVESCO Trust serves as sub-adviser to the other Funds. The
Sub-Agreements initially with ICM and INVESCO Trust were approved by the board
of directors on November 6, 1996, and the Sub-Agreement with IRAI was initially
approved by the board of directors on ^ February 6, 1998, in each case by a vote
cast in person by a majority of the Independent Directors at a meeting called
for such purpose. Shareholders of the Industrial Income, Total Return, High
Yield and Utilities Funds approved the applicable INVESCO Trust Agreement on
January 31, 1997. The initial shareholder of the Dynamics, Small Company,
Growth, Health Sciences and Technology Funds approved the INVESCO Trust
Agreement, on December 9, 1996, for an initial term expiring December 9, 1999,
and the initial shareholder of the Growth Fund approved the INVESCO Trust
Agreement on May 1, 1997, for an initial term expiring May 1, 1999. The initial
shareholder of the Realty Fund approved the Sub-Agreement with IRAI on ^
February 6, 1998 for an initial term expiring ^ February 6, 2000.
<PAGE>
Thereafter, each Sub-Agreement may be continued from year to year as to a
particular Fund as long as each such continuance is specifically approved at
least annually by the board of directors of the Company, or by a vote of the
holders of a majority, as defined in the 1940 Act, of the outstanding shares of
that Fund. Each such continuance also must be approved by a majority of the
Independent Directors, cast in person at a meeting called for the purpose of
voting on such continuance. Each Sub-Agreement may be terminated at any time
without penalty by either party or the Company upon sixty (60) days' written
notice, and terminates automatically in the event of an assignment to the extent
required by the 1940 Act and the rules thereunder.
The Sub-Agreements provide that, subject to the supervision of INVESCO,
ICM shall manage the investment portfolio of the Total Return Fund, IRAI shall
manage the investment portfolio of the Realty Fund and INVESCO Trust shall
manage the investment portfolio of the other Funds, in conformity with the
respective Funds' investment objectives and policies. In each case, these
management services would include: (a) managing the investment and reinvest ment
of all the assets, now or hereafter acquired, of the Fund, and executing all
purchases and sales of portfolio securities; (b) maintaining a continuous
investment program for the Fund, consis tent with (i) the Fund's investment
objective and policies as set forth in the Company's Articles of Incorporation,
Bylaws, and Registration Statement, as from time to time amended, under the 1940
Act, and in any prospectus and/or statement of additional information of the
Company, as from time to time amended and in use under the 1933 Act, and (ii)
the Company's status as a regulated investment company under the Internal
Revenue Code of 1986, as amended; (c) determining what securities are to be
purchased or sold for the Fund, unless otherwise directed by the directors of
the Company or IFG, and executing transactions accordingly; (d) providing the
Fund the benefit of all of the investment analysis and research, the reviews of
current economic conditions and trends, and the consideration of long-range
investment policy now or hereafter generally available to investment advisory
customers of the Fund's sub-adviser; (e) determining what portion of the Fund
should be invested in the various types of securities authorized for purchase by
that Fund; and (f) making recommendations as to the manner in which voting
rights, rights to consent to Company action and any other rights pertaining to
the portfolio securities of the Fund shall be exercised.
Any amendment of a Sub-Agreement, in order to be applicable to a Fund,
requires approval of a majority of the Company's board of directors, including a
majority of the Independent Directors, by votes cast in person at a meeting
called for such purpose and (other than amendments that can become effective
without sharehold er approval under applicable law) also requires approval of a
majority of the outstanding voting securities of that Fund.
<PAGE>
The INVESCO Trust Sub-Agreement provides that as compensation for its
services, INVESCO Trust shall receive from IFG, at the end of each month, a fee
based upon the average daily value of the net assets of each Fund managed. The
sub-advisory fee for the Industrial Income Fund is computed at the annual rates
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 rates 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 sub-advisory fees for the Dynamics, Small
Company Growth, Health Sciences and Technology Funds are each computed at the
annual rates of 0.25% for the first $200 million of the Fund's average net
assets and 0.20% on the Fund's average net assets in excess of $200 million. The
sub-advisory fee for the Growth Fund is computed at the annual rate of 0.25% of
the Fund's average net assets.
The ICM Sub-Agreement provides that as compensation for its services, ICM
shall receive from IFG, at the end of each month, a fee based upon the average
daily value of the Total Return Fund's net assets at the following annual rates:
0.375% on the Fund's average net assets up to $500 million; 0.325% on the Fund's
average net assets in excess of $500 million but not more than $1 billion; and
0.275% on the Fund's average net assets in excess of $1 billion.
The IRAI Sub-Agreement provides that as compensation for its servicing
IRAI shall receive from IFG, at the end of each month, a fee based upon the
average daily value of the Realty Fund's net assets at the following annual
rates: 0.30% on the first $500 million of the Fund's average net assets, 0.25%
on the next $500 million of the Fund's average net assets and 0.2167% on the
Fund's average net assets in excess of $1 billion.
Each sub-advisory fee is paid by IFG, NOT the Funds.
Administrative Services Agreement
IFG, either directly or through affiliated companies, provides certain
administrative, sub-accounting, and record keeping services to the Company
pursuant to an Administrative Services Agreement dated February 28, 1997 (the
"Administrative Agreement"). The Administrative Agreement was approved on
November 6, 1996, by all of the directors of the Company, including all of the
Independent Directors, by votes cast at a meeting called for such purpose. The
Administrative Agreement was for an initial term expiring February 28, 1998 and
has been extended by action of the board of directors of the Company until May
15, 1998. The Administrative Agreement may be continued from year to year
thereafter as long as each such continuance is specifically approved by the
board of directors of the Company, including a majority of the directors, cast
in person at a meeting called for the purpose of voting on such continuance. The
<PAGE>
Administrative Agreement may be terminated at any time without penalty by
IFG on sixty (60) days' written notice, or by the Company upon thirty (30) days'
written notice, and terminates automatically in the event of an assignment
unless the Company's board of directors approves such assignment.
The Administrative Agreement provides that IFG shall provide the following
services to the Funds: (a) such accounting and record keeping services and
functions as are reasonably necessary for the operation of the Funds; and (b)
such accounting, record keeping, and administrative services and functions,
which may be provided by affiliates of IFG, as are reasonably necessary for the
operation of Fund shareholder accounts. As full compensation for services
provided under the Administrative Agreement, each Fund pays a monthly fee to IFG
consisting of a base fee of $10,000 per year, plus an additional incremental fee
computed daily and paid monthly at an annual rate of 0.015% per year of the
average net assets of the Fund.
<PAGE>
For the fiscal years ended December 31, 1996 and 1995 and the fiscal
period ended December 31, 1994, prior to the voluntary absorption of certain
Fund expenses by IFG, the Funds paid IFG advisory fees and administrative
services fees in the following amounts:
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
December 31, 1996 December 31, 1995 December 31, 1994
----------------------- ----------------------- -----------------------
Adminis- Adminis- Adminis-
trative trative trative
Advisory Services Advisory Services Advisory Services
Fees Fees Fees Fees Fees Fees
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Industrial Income Fund $105,932 $12,119 $27,073 $10,541 $848 $10,017
Total Return Fund $77,890 $11,558 $24,649 $10,493 $1,753 $10,035
High Yield Fund $50,693 $11,267 $16,298 $10,407 $735 $10,018
Utilities Fund $5,716 $10,143 $467 $10,011 $0(1) $0(1)
Dynamics Fund(3) $0 $0 $0 $0 $0 $0
Health Sciences Fund(2) $0 $0 $0 $0 $0 $0
Small Company Growth Fund(3) $0 $0 $0 $0 $0 $0
Technology Fund(2) $0 $0 $0 $0 $0 $0
Growth Fund(3) $0 $0 $0 $0 $0 $0
Realty Fund (4) $0 $0 $0 $0 $0 $0
<PAGE>
(1) The Utilities Fund did not commence operations until January 1, 1995.
(2) The Health Sciences and Technology Funds did not commence operations until
May 1997.
(3) The Dynamics, Small Company Growth and Growth Funds did not commence
operations until August 27, 1997.
(4) The Realty Fund had not commenced operations as of the date of this
Statement of Additional Information.
</TABLE>
<PAGE>
Transfer Agency Agreement
IFG also performs transfer agent, dividend disbursing agent, and registrar
services for the Company pursuant to a Transfer Agency Agreement which was
approved by the board of directors of the Company, including a majority of the
Independent Directors, on November 6, 1996, for an initial term expiring
February 28, 1998 and has been extended by action of the board of directors
until May 15, 1998. The Transfer Agency Agreement may be continued thereafter
from year to year as to each Fund as long as such continuance is specifically
approved at least annually by the board of directors of the Company, or by a
vote of the holders of a majority of the outstanding shares of the Fund. Any
such continuance also must be approved by a majority of the Independent
Directors by votes cast in person at a meeting called for the purpose of voting
on such continuance. The Transfer Agency Agreement may be terminated at any time
without penalty by either party upon sixty (60) days' written notice and
terminates automatically in the event of assignment.
The Transfer Agency Agreement provides that the Company shall pay to
INVESCO an annual fee of $5,000 per Fund. This fee is paid monthly at 1/12 of
the annual fee.
Officers and Directors of the Company
The overall direction and supervision of the Company is the responsibility
of the board of directors, which has the primary duty of seeing that the
Company's general investment policies and programs are carried out and that the
Funds are properly adminis tered. The officers of the Company, all of whom are
officers and employees of, and are paid by, IFG, are responsible for the
day-to-day administration of the Company and each of the Funds. IFG (along with
ICM in the case of the Total Return Fund, IRAI in the case of the Realty Fund
and INVESCO Trust in the case of the other Funds) has the primary responsibility
for making investment decisions on behalf of the Funds. These investment
decisions are reviewed by the investment committee of IFG.
All of the officers and directors of the Company hold comparable positions
with INVESCO Capital Appreciation Funds, Inc. (formerly, INVESCO Dynamics Fund),
INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc.,
INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO Industrial Income
Fund, Inc., INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc.,
INVESCO Multiple Asset Funds, Inc., INVESCO Specialty Funds, Inc., INVESCO
Strategic Portfolios, Inc., and INVESCO Tax-Free Income Funds, Inc. All of the
directors of the Company also serve as trustees of INVESCO Value Trust. In
addition, all of the directors of the Company, with the exception of Mr. Hesser,
also are trustees of INVESCO Treasurer's Series Trust. All of the officers of
the Fund also hold comparable positions with INVESCO Value Trust. Set forth
below is information with respect to each of the Company's officers and
<PAGE>
directors. Unless otherwise indicated, the address of the directors and
officers is Post Office Box 173706, Denver, Colorado 80217-3706. Their
affiliations represent their principal occupations during the past five years.
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive Officer and
Director of AMVESCAP PLC, London, England, and of various subsidiaries thereof;
Chairman of the Board of INVESCO Treasurer's Series Trust. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. Vice Chairman of INVESCO
Treasurer's Series Trust. Trustee of INVESCO Global Health Sciences Fund.
Formerly, Chairman of the Executive Committee and Chairman of the Board of
Security Life of Denver Insurance Company, Denver, Colorado; Director of ING
America Life Insurance Company, Urbaine Life Insurance Company and Midwestern
United Life Insurance Company. Address: Security Life Center, 1290 Broadway,
Denver, Colorado. Born: January 12, 1928.
DAN J. HESSER,+* President, CEO and Director. Chairman of the Board,
President, and Chief Executive Officer of INVESCO Funds Group, Inc. and INVESCO
Distributors, Inc.; President and Director of INVESCO Trust Company. President
and Chief Operating Officer of INVESCO Global Health Sciences Fund. Born:
December 27, 1939.
VICTOR L. ANDREWS,** Director. Professor Emeritus, Chairman Emeritus and
Chairman of the CFO Roundtable of the Department of Finance at Georgia State
University, Atlanta, Georgia; President, Andrews Financial Associates, Inc.
(consulting firm); since October 1984, Director of the Center for the Study of
Regulated Industry of Georgia State University; formerly, member of the
faculties of the Harvard Business School and the Sloan School of Management of
MIT. Dr. Andrews is also a director of the Southeastern Thrift and Bank Fund,
Inc. and The Sheffield Funds, Inc. Address: 34 Seawatch Drive, Savannah,
Georgia. Born: June 23, 1930.
BOB R. BAKER,+** Director. President and Chief Executive Officer of AMC
Cancer Research Center, Denver, Colorado, since January 1989; until mid-December
1988, Vice Chairman of the Board of First Columbia Financial Corporation (a
financial institution), Englewood, Colorado. Formerly, Chairman of the Board and
Chief Executive Officer of First Columbia Financial Corporation. Address: 1775
Sherman Street, #1000, Denver, Colorado. Born: August 7, 1936.
LAWRENCE H. BUDNER,# Director. Trust Consultant; prior to June 30, 1987,
Senior Vice President and Senior Trust Officer of InterFirst Bank, Dallas,
Texas. Address: 7608 Glen Albens Circle, Dallas, Texas. Born: July 25, 1930.
DANIEL D. CHABRIS,+# Director. Financial Consultant; Assistant Treasurer of
Colt Industries Inc., New York, New York, from 1966 to 1988. Address: 19
Kingsbridge Way, Madison, Connecticut. Born: August 1, 1923.
<PAGE>
WENDY L. GRAMM, Ph.D.,** Director. Self-employed (since 1993); Professor of
Economics and Public Administration, University of Texas at Arlington. Formerly,
Chairman, Commodity Futures Trading Commission from 1988 to 1993, administrator
for Information and Regulatory Affairs at the Office of Management and Budget
from 1985 to 1988, Executive Director of the Presidential Task Force on
Regulatory Relief and Director of the Federal Trade Commission's Bureau of
Economics. Dr. Gramm is also a director of the Chicago Mercantile Exchange,
Enron Corporation, IBP, Inc., State Farm Insurance Company, State Farm Life
Insurance Company, Independant Women's Forum, International Republic Institute,
and the Republican Women's Federal Forum. Dr. Gramm is also a member of the
Board of Visitors, College of Business Administration, University of Iowa, and a
member of the Board of Visitors, Center for Study of Public Choice, George Mason
University. Address: 4201 Yuma Street, N.W., Washington, D.C. Born: January 10,
1945.
HUBERT L. HARRIS, JR.,* Director. Chairman (since 1996) and President
(January 1990 to May 1996) of INVESCO Services, Inc.; Chief Executive Officer of
INVESCO Individual Services Group. Member of the Executive Committee of the
Alumni Board of Trustees of Georgia Institute of Technology. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: July 15, 1943.
KENNETH T. KING,# Director. Formerly, Chairman of the Board of The Capitol
Life Insurance Company, Providence Washington Insurance Company, and Director of
numerous subsidiaries thereof in the U.S. Formerly, Chairman of the Board of The
Providence Capitol Companies in the United Kingdom and Guernsey. Chairman of the
Board of the Symbion Corporation (a high technology company) until 1987.
Address: 4080 North Circulo Manzanillo, Tucson, Arizona. Born: November 16,
1925.
JOHN W. MCINTYRE,# Director. Retired. Formerly, Vice Chairman of the Board
of Directors of The Citizens and Southern Corporation and Chairman of the Board
and Chief Executive Officer of The Citizens and Southern Georgia Corp. and
Citizens and Southern National Bank. Director of Golden Poultry Co., Inc.
Trustee of INVESCO Global Health Sciences Fund and Gables Residential Trust.
Address: 7 Piedmont Center, Suite 100, Atlanta, GA. Born: September 14, 1930.
LARRY SOLL, Ph.D.,** Director. Retired. Formerly, Chairman of the Board
(1987 to 1994), Chief Executive Officer (1982 to 1989 and 1993 to 1994) and
President (1982 to 1989) of Synergen Corp. Director of Synergen since its
incorporation in 1982. Director of ISI Pharmaceuticals, Inc. Trustee of INVESCO
Global Health Sciences Fund. Address: 345 Poorman Road, Boulder, Colorado. Born:
April 26, 1942.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995), General
Counsel and Secretary of INVESCO Funds Group, Inc. and INVESCO Trust Company
(since 1989) and INVESCO Distributors, Inc. (since 1997); Vice President (May
1989 to April 1995), Secretary and General Counsel of INVESCO Funds Group, Inc.;
formerly, employee of a U.S. regulatory agency, Washington, D.C. (June 1973
through May 1989). Born: September 25, 1947.
<PAGE>
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
Funds Group, Inc. and INVESCO Trust Company (since 1988). Senior Vice President
and Treasurer of INVESCO Distributors, Inc. (since 1997). Born: October 1, 1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO Funds Group, Inc. (since 1995) and of INVESCO Distributors, Inc. (since
1997) and Trust Officer of INVESCO Trust Company since July 1995 and formerly
(August 1992 to July 1995) Vice President of INVESCO Funds Group, Inc. and trust
officer of INVESCO Trust Company. Formerly, Vice President of 440 Financial
Group from June 1990 to August 1992 and Assistant Vice President of Putnam
Companies from November 1986 to June 1990. Born: August 21, 1956.
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO Funds Group,
Inc. (since 1984) and Trust Officer of INVESCO Trust Company. Born: September
14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO Funds Group,
Inc. (since 1984) and of INVESCO Distributors, Inc. (since 1997) and Trust
Officer of INVESCO Trust Company. Born: February 3, 1948.
#Member of the audit committee of the Company's board of directors.
+Member of the executive committee of the Company's board of directors. On
occasion, the executive committee acts upon the current and ordinary business of
the Company between meetings of the board of directors. Except for certain
powers which, under applicable law, may only be exercised by the full board of
directors, the executive committee may exercise all powers and authority of the
board of directors in the management of the business of the Company. All
decisions are subsequently submitted for ratification by the board of Directors.
*These directors are "interested persons" of the Company as defined in the
Investment Company Act of 1940.
**Member of the management liaison committee of the Company's board of
directors.
As of November 17, 1997, officers and directors of the Company, as a group,
beneficially owned 0% of each Fund's outstanding shares.
<PAGE>
Director Compensation
The following table sets forth, for the fiscal period ended December 31,
1996: the compensation paid by the Company to its eight independent directors
for services rendered in their capacities as directors of the Company; the
benefits accrued as Company expenses with respect to the Defined Benefit
Deferred Compensation Plan discussed below; and the estimated annual benefits to
be received by these directors upon retirement as a result of their service to
the Company. In addition, the table sets forth the total compensation paid by
all of the mutual funds distributed by INVESCO Distributors, Inc. (including the
Company), INVESCO Advisor Funds, Inc., INVESCO Treasurer's Series Trust and The
Global Health Sciences Fund (collectively, the "INVESCO Complex") to these
directors for services rendered in their capacities as directors or trustees
during the year ended December 31, 1996. As of December 31, 1996, there were 49
funds in the INVESCO Complex. Dr. Soll became an independent director of the
Company effective May 15, 1997 and is not included in the following chart. Dr.
Gramm became an independent director of the Company effective July 29, 1997 and
is not included in the following chart. Mr. Frazier resigned as a director of
the Company effective February 28, 1997.
Total
Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
Name of Person, tion From Company Upon Paid To
Position Company(1) Expenses(2) Retirement(3) Directors(1)
- --------------- --------- ---------- ----------- ----------
Fred A.Deering, $ 4,096 $ 83 $ 81 $ 98,850
Vice Chairman of
the Board
Victor L. Andrews 4,089 78 93 84,350
Bob R. Baker 4,091 70 125 84,850
Lawrence H. Budner 4,080 78 93 80,350
Daniel D. Chabris 4,091 89 66 84,850
A. D. Frazier, Jr.4 4,057 0 0 81,500
Kenneth T. King 4,051 86 73 71,350
John W. McIntyre 4,078 0 0 90,350
------ --- --- -------
Total $32,633 $484 $531 $676,450
% of Net Assets 0.0621%(5) 0.0009%(5) 0.0044%(6)
<PAGE>
(1)The vice chairman of the board, the chairmen of the audit, management
liaison and compensation committees, and the members of the executive and
valuation committees each receive compensation for serving in such capacities in
addition to the compensation paid to all independent directors.
(2)Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the election
of the directors.
(3)These figures represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding the Global Health Sciences
Fund which does not participate in any retirement plan) upon the directors
retirement, calculated using the current method of allocating director
compensation among the funds in the INVESCO Complex. These estimated benefits
assume retirement at age 72 and that the basic retainer payable to the directors
will be adjusted periodically for inflation, for increases in the number of
funds in the INVESCO Complex, and for other reasons during the period in which
retirement benefits are accrued on behalf of the respective directors. This
results in lower estimated benefits for directors who are closer to retirement
and higher estimated benefits for directors who are further from retirement.
With the exception of Messrs. Frazier and McIntyre, each of these directors has
served as a director/trustee of one or more of the funds in the INVESCO Complex
for the minimum five-year period required to be eligible to participate in the
Defined Benefit Deferred Compensation Plan.
(4)Effective February 28, 1997, Mr. Frazier resigned as a director of the
Company. Effective November 1, 1996 Mr. Frazier was employed by INVESCO PLC (the
predecessor to AMVESCAP PLC), a company affiliated with IFG.and did not receive
any director's fees or other compensation from the Company or other funds in the
INVESCO Complex for his services as a director.
(5)Totals as a percentage of the Company's net assets as of December 31,
1996.
(6)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1996.
Messrs. Brady and Hesser, as "interested persons" of the Company and the
other funds in the INVESCO Complex, receive compensation as officers or
employees of IFG or its affiliated companies, and do not receive any director's
fees or other compensation from the Company or the other funds in the INVESCO
Complex for their service as directors.
The boards of directors/trustees of the mutual funds managed by IFG and
INVESCO Treasurer's Series Trust have adopted a Defined Benefit Deferred
Compensation Plan for the non-interested directors and trustees of the funds.
Under this plan, each director or trustee who is not an interested person of the
funds (as defined in the 1940 Act) and who has served for at least five years (a
<PAGE>
"qualified director") is entitled to receive, upon retiring from the boards
at the mandatory retirement age of 72 (or the retirement age of 73 to 74, if the
retirement date is extended by the boards for one or two years but less than
three years), continuation of payments for one year (the "first year retirement
benefit") of the annual basic retainer payable by the funds to the qualified
director at the time of his retirement (the "basic retainer"). Commencing with
any such director's second year of retirement, and commencing with the first
year of retirement of a director whose retirement has been extended by the board
for three years, a qualified director shall receive quarterly payments at an
annual rate equal to 40% of the basic retainer. These payments will continue for
the remainder of the qualified director's life or ten years, whichever is longer
(the "reduced retainer payments"). If a qualified director dies or becomes
disabled after age 72 and before age 74 while still a director of the funds, the
first year retirement benefit and the reduced retainer payments will be made to
him or to his beneficiary or estate. If a qualified director becomes disabled or
dies either prior to age 72 or during his 74th year while still a director of
the funds, the director will not be entitled to receive the first year
retirement benefit; however, the reduced retainer payments will be made to his
beneficiary or estate. The plan is administered by a committee of three
directors who are also participants in the plan and one director who is not a
plan participant. The cost of the plan will be allocated among the IFG and
Treasurers Series Trust funds in a manner determined to be fair and equitable by
the committee. The Company is not making any payments to directors under the
plan as of the date of this Statement of Additional Information. The Company has
no stock options or other pension or retirement plans for management or other
personnel and pays no salary or compensation to any of its officers.
The Company has an audit committee which is comprised of five of the
directors who are not interested persons of the Company. The committee meets
periodically with the Company's independent accoun tants and officers to review
accounting principles used by the Company, the adequacy of internal controls,
the responsibilities and fees of the independent accountants, and other matters.
The Company also has a management liaison committee which meets quarterly
with various management personnel of IFG in order (a) to facilitate better
understanding of management and operations of the Company, and (b) to review
legal and operational matters which have been assigned to the committee by the
board of direc tors, in furtherance of the board of directors' overall duty of
supervision.
HOW SHARES ARE VALUED
As described in the section of the Prospectuses entitled "Purchases and
Redemptions," the net asset value of shares of each Fund of the Company is
computed 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
<PAGE>
applies to purchase and redemption orders received prior to that time. Net
asset value per share is also computed on any other day on which there is a
sufficient degree of trading in the securities held by a Fund that the current
net asset value per share might be materially affected by changes in the value
of the securities held, but only if on that day the Company receives a request
to purchase or redeem shares of that Fund. Net asset value per share is not
calculated on days the New York Stock Exchange is closed, such as federal
holidays including New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The net asset value per share of each Fund is calculated by dividing the
value of all securities held by the Fund and its other assets (including
dividends and interest accrued but not collect ed), less the Fund's liabilities
(including accrued expenses), by the number of outstanding shares of that Fund.
Securities traded on national securities exchanges, the NASDAQ National Market
System, the NASDAQ Small Cap Market and foreign markets are valued at their last
sale prices on the exchanges or markets where such securities are primarily
traded. Securities traded in the over-the-counter market for which last sale
prices are not available, and listed securities for which no sales are reported
on a particular date, are valued at their highest closing bid prices (or, for
debt securities, yield equivalents thereof) obtained from one or more dealers
making markets for such securities. If market quotations are not readily
available, securities will be valued at fair values as determined in good faith
by the Company's board of directors or pursuant to procedures adopted by the
board of directors. The above procedures may include the use of valuations
furnished by a pricing service which employs a matrix to determine valuations
for normal institutional-size trading units of debt securities. Prior to
utilizing a pricing service, the board of directors of the Company reviews the
methods used by such service to assure itself that securities will be valued at
their fair values. The Company's board of directors also periodically monitors
the methods used by such pricing services. Debt securi ties with remaining
maturities of 60 days or less at the time of purchase are normally valued at
amortized cost.
The values of securities held by the Funds, and other assets used in
computing net asset value, generally are determined as of the time regular
trading in such securities or assets is completed each day. Because regular
trading in most foreign securities markets is completed simultaneously with, or
prior to, the close of regular trading on the New York Stock Exchange, closing
prices for foreign securities usually are available for purposes of computing
the Funds' net asset values. However, in the event that the closing price of a
foreign security is not available in time to calculate a Fund's net asset value
on a particular day, the Company's board of directors has authorized the use of
the market price for the security obtained from an approved pricing service at
<PAGE>
an established time during the day which may be prior to the close of
regular trading in the security. The value of all assets and liabilities
initially expressed in foreign currencies will be converted into U.S. dollars at
the spot rate of such currencies against U.S. dollars provided by an approved
pricing service.
PERFORMANCE
As discussed in the section of the Prospectuses entitled "Performance
Information," average annual total return and/or yield data for each of the
Funds may from time to time be included in advertisements, sales literature or
shareholder reports. All presentations of Fund total return and yield data will
conform to applicable requirements of the Securities and Exchange Commission and
the National Association of Securities Dealers, Inc.
Total Return Calculations
Average annual total return performance for the indicated periods ended
December 31, 1996, for each Fund that had commenced operations by that date were
as follows:
Portfolio 1 Year Life of Fund
- --------- ------ ------------
Industrial Income Portfolio 22.28% 21.46%
Total Return Portfolio 12.18% 13.96%
High Yield Portfolio 16.59% 13.59%
Utilities Portfolio 12.76% 10.90%
(1) The dates on which the Industrial Income Fund, Total Return Fund, High Yield
Fund and Utilities Fund commenced operations were August 10, 1994, June 2, 1994,
May 27, 1994 and January 1, 1995, respectively.
Average annual total return performance for each of the periods indicated
was computed by finding the average annual compounded rates of return that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1 + T)exponent n = ERV where:
P = initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown above were
determined by solving the above formula for "T" for each time period and Fund
indicated.
<PAGE>
Yield Calculations
The yields of the Industrial Income Fund, Total Return Fund, High Yield
Fund and Utilities Fund for the month ended December 31, 1996 were 2.38%, 3.20%,
9.70% and 2.87%, respectively. In calculating yield quotations for a Fund,
interest earned is deter mined by computing the yield to maturity (or yield to
call, if applicable) of each obligation held by the Fund, based upon the market
value of each obligation (including actual accrued interest) at the close of
business on the last business day of the month or, with respect to an obligation
purchased during the month, the purchase price plus accrued interest. The
resultant yield to maturity is divided by 360 and multiplied by the market value
of the obligation (including actual accrued interest), and the result is
multiplied by the number of days in the subsequent month that the obligation is
in the Fund (assuming that each month has 30 days). Dividends received on the
stocks held by the Funds are recognized, for purposes of yield calculations, on
a daily accrual basis.
Comparison of Fund Performance
In conjunction with performance reports, comparative data between a Fund's
performance for a given period and other types of investment vehicles may be
provided to prospective investors and shareholders. A Fund's performance is
based upon amounts available for investment under variable annuity or variable
life insurance contracts of Participating Insurance Companies rather than upon
premiums paid for variable annuity or variable life insurance contracts. Thus,
the Fund's total return data does not reflect the impact of sales loads (whether
front-end or deferred) or contract charges deducted from premiums or from the
assets of the Partici pating Insurance Companies' separate accounts that invest
in the Fund. Such sales loads and contract charges may be substantial and may
vary widely among Participating Insurance Companies. Accord ingly, the total
return data for the Funds is most useful for comparison with comparable data for
other investment options under the same variable annuity or variable life
insurance contract.
Comparisons of the Funds' total returns to those of other investment
vehicles are useful in evaluating the historical portfolio management
performance of the Funds' investment adviser and sub-advisers. However, such
comparisons should not be mistaken for comparisons of the returns on a purchase
of a variable annuity or variable life insurance contract of a Participating
Insurance Company and a purchase of another investment vehicle. Owners or
prospective owners of variable annuity contracts of Participating Insurance
Companies should review performance data for the Funds in conjunction with
comparable total return data for the associated variable annuity separate
account to be provided with the Fund data. Owners or prospective owners of
variable life insurance contracts of Participating Insurance Companies should
review the performance data for the Funds in conjunction with data (such as the
data contained in personalized, hypothetical illustrations of variable life
insurance contracts) that permits an evaluation of the magnitude of variable
life insurance charges and expenses and the life insurance benefits not
reflected in the Funds' total return data.
<PAGE>
From time to time, evaluations of performance made by independent sources
may also be used in advertisements, sales literature or shareholder reports,
including reprints of, or selections from, editorials or articles about the
Funds. Sources for Fund performance information and articles about the Funds
include, but are not limited to the following:
American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
CNBC
CNN
Consumer Digest
Financial Times
Financial World
Forbes
Fortune
Ibbotson Associates, Inc.
Institutional Investor
Investment Company Data, Inc.
Investor's Business Daily
Kiplinger's Personal Finance
Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis
Money
Morningstar
Mutual Fund Forecaster
The New York Times
No-Load Analyst
The No-Load Fund Investor
No-Load Fund*X
Personal Investor
Smart Money
United Mutual Fund Selector
USA Today
U.S. News and World Report
Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
PORTFOLIO TURNOVER
There are no fixed limitations regarding portfolio turnover for any of the
Funds. Brokerage costs to the Funds are commensu rate with the rate of portfolio
activity. Portfolio turnover rates for the fiscal years ended December 31, 1996
and 1995 and the fiscal period ended December 31, 1994 were as follows:
<PAGE>
Fund 1996 1995 1994
---- ---- ---- ----
Industrial Income Fund 93% 97% 0%
Total Return Fund 12% 5% 0%
High Yield Fund 380% 310% 23%
Utilities Fund 48% 24% 0%
In computing these portfolio turnover rates, all investments with
maturities or expiration dates at the time of acquisition of one year or less
were excluded. Subject to this exclusion, the turnover rate is calculated by
dividing (a) the lesser of purchases or sales of portfolio securities for the
fiscal year by (b) the monthly average of the value of portfolio securities
owned by the Fund during the fiscal year. The primary reason for the increase in
the High Yield Fund's portfolio turnover rate in 1996 was primarily due to a
doubling in size of the Fund and an effort to take advantage of attractive
opportunities in the bond market. The primary reason for the increase in all of
the Funds' portfolio turnover rates in 1995 was the fact that 1995 was the
Funds' first full year of operations.
PORTFOLIO BROKERAGE
Fund Management places orders for the purchase and sale of securities with
brokers and dealers based upon its evaluation of the broker-dealers' financial
responsibility subject to the broker-dealers' ability to effect transactions at
the best available prices. Fund Management evaluates the overall reason ableness
of brokerage commissions paid by reviewing the quality of executions obtained on
each Fund's portfolio transactions, viewed in terms of the size of transactions,
prevailing market conditions in the security purchased or sold, and general
economic and market conditions. In seeking to ensure that the commissions
charged the Funds are consistent with prevailing and reasonable commissions,
Fund Management also endeavors to monitor brokerage industry practices with
regard to the commissions charged by brokers and dealers on transactions
effected for other comparable institutional investors. While Fund Management
seeks reasonably competitive rates, the Funds do not necessarily pay the lowest
commissions or spread available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, Fund Management may select brokers that provide research
services to effect such transactions. Research services consist of statistical
and analytical reports relating to issuers, industries, securities and economic
factors and trends, which may be of assistance or value to Fund Management in
making informed investment decisions. Research services prepared and furnished
by brokers through which the Funds effect securities transactions may be used by
Fund Management in servicing all of their respective accounts and not all such
services may be used by Fund Management in connection with the Funds.
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, Fund Management, consistent with the
standard of seeking to obtain the best execution on portfolio transactions, may
<PAGE>
place orders with such brokers for the execution of Fund transactions on
which the commissions are in excess of those which other brokers might have
charged for effecting the same transactions.
Fund transactions may be effected through qualified broker-dealers who
recommend the variable annuity or variable life insurance contracts of
Participating Insurance Companies to their clients, or who act as agent in the
purchase of such contracts for their clients. When a number of brokers and
dealers can provide comparable best price and execution on a particular
transaction, Fund Management may consider the sale of such contracts by a broker
or dealer in selecting among qualified broker-dealers.
The aggregate dollar amounts of brokerage commissions paid by the Company
for the fiscal years ended December 31, 1996 and 1995 and the fiscal period
ended December 31, 1994 were $283,949, $94,602 and $2,388, respectively. This
increase was primarily due to the increased size of the Funds. On a Fund basis,
the aggregate amount of brokerage commissions paid in 1996 breaks down as
follows: Industrial Income Fund, $151,867; Total Return Fund, $7,686; High Yield
Fund, $114,443; and Utilities Fund, $9,953. for the year ended December 31,
1996, brokers providing research services received $16,378, $0, $0, and $3,274
in commissions on portfolio transactions effected for the Industrial Income
Fund, Total Return Fund, High Yield Fund and Utilities Fund, respectively, on
aggregate portfolio transactions of $11,104,765, $0, $0, and $1,811,519,
respectively. The Company paid $7 in compensation to brokers for the sale of
Participating Life Insurance Company's variable annuity and variable life
insurance contracts utilizing the Funds during the fiscal year ended December
31, 1996.
At December 31, 1996, the Funds then in operation held securities of their
regular brokers or dealers, or their parents, as follows:
Value of Securities
Fund Broker or Dealer at 12/31/96
- ---- ---------------- -------------------
Industrial Income Fund None
Total Return Fund Morgan Stanley Group,
Incorporated 108,537.50
State Street Boston
Corporation 135,450.00
High Yield Fund None
Utilities Fund None
None of IFG, INVESCO Trust, ICM or IRAI receives any brokerage commissions
on portfolio transactions effected on behalf of any of the Funds, and there is
no affiliation between INVESCO, INVESCO Trust, ICM, IRAI, or any person
affiliated with IFG, INVESCO Trust, ICM, IRAI, or the Company and any broker or
dealer that executes transactions for the Funds.
<PAGE>
REDEMPTIONS
It is possible that in the future conditions may exist which would, in the
opinion of IFG, make it undesirable for one or more of the Funds to pay for
redeemed shares in cash. In such cases, IFG may authorize payment to be made in
portfolio securities or other property of the Fund. However, the Company is
obligated under the Investment Company Act of 1940 to redeem for cash all shares
of a Fund presented for redemption by any one shareholder having a value up to
$250,000 (or 1% of the applicable Fund's net assets if that is less) in any
90-day period. Securities delivered in payment of redemptions are selected
entirely by Fund Management based on what is in the best interests of the
Company and its shareholders, and are valued at the value assigned to them in
computing the Fund's net asset value per share. Shareholders receiving such
securities are likely to incur brokerage costs on their subsequent sales of the
securities.
ADDITIONAL INFORMATION
Common Stock
The Company was incorporated under the laws of the state of Maryland on
August 19, 1993. The authorized capital stock of the Company consists of
1,000,000,000 shares of common stock, par value of $0.01 per share. The shares
of common stock are currently divided into ten classes (or series), INVESCO VIF
- - Dynamics Portfolio common stock, INVESCO VIF - Growth Portfolio common stock,
INVESCO VIF - Health Sciences Portfolio common stock, INVESCO VIF - High Yield
Portfolio common stock, INVESCO VIF -Industrial Income Portfolio common stock,
INVESCO VIF - Realty Portfolio common stock, INVESCO VIF - Small Company Growth
Portfolio common stock, INVESCO VIF - Total Return Portfolio common stock,
INVESCO VIF - Technology Portfolio common stock and INVESCO VIF - Utilities
Portfolio common stock. As of October 31, 1997, 2,021,012 shares of the
Industrial Income Fund, 1,284,823 shares of the Total Return Fund, 1,780,127
shares of the High Yield Fund, 292,288 shares of the Utilities Fund, 33,579
shares of the Technology Fund, 25,100 shares of the Small Company Growth Fund,
43,667 shares of the Health Sciences Fund, 25,100 shares of the Dynamics Fund,
25,100 shares of the Growth Fund and -0- shares of the Realty Fund were
outstanding. Each class consists of 100 million shares. The Company reserves the
right to issue additional classes of shares without the consent of shareholders.
All shares issued and outstanding are, and all shares offered hereby, when
issued, will be, fully paid and nonassessable.
Shares of each class represent the interests of the sharehold ers of that
class in a particular portfolio of investments of the Company. Each class of the
Company's shares is preferred over all other classes with respect to the assets
specifically allocated to that class, and all income, earnings, profits and
proceeds from those assets, subject only to the rights of creditors, are
allocated to shares of that class. The assets of each class are segregated on
the books of account and are charged with the liabilities of that class and with
a share of the Company's general liabilities. The board of directors determines
those assets and liabilities deemed to be general assets or liabilities of the
Company and those items are allocated among classes in a manner deemed by the
board to be fair and equitable. Generally, such allocation will be made based
<PAGE>
upon the relative total net assets of each class. In the unlikely event that a
liability allocable to one class exceeds the assets belonging to the class, all
or a portion of such liability may have to be borne by the holders of shares of
the Company's other classes.
All dividends on shares of a particular class shall be paid only out of
the income belonging to that class, pro rata to the holders of that class. In
the event of the liquidation or dissolution of the Company or of a particular
class, the sharehold ers of each class that is being liquidated shall be
entitled to receive, as a class, when and as declared by the board of direc
tors, the excess of the assets belonging to that class over the liabilities
belonging to that class. The holders of shares of any class shall not be
entitled to any distribution upon liquidation of any other class. The assets so
distributable to the shareholders of any particular class shall be distributed
among those sharehold ers in proportion to the number of shares of that class
held by them and recorded on the books of the Company.
All Fund shares, regardless of class, have equal voting rights. Voting
with respect to certain matters, such as ratifica tion of independent
accountants or election of directors, will be by all classes of the Company.
When not all classes are affected by a matter to be voted upon, such as approval
of an investment advisory contract or changes in a Fund's investment policies,
only shareholders of the class affected by the matter will be entitled to vote.
Company shares have noncumulative voting rights, which means that the holders of
a majority of the shares voting for the election of directors of the Company can
elect 100% of the directors if they choose to do so. In such event, the holders
of the remaining shares voting for the election of directors will not be able to
elect any person or persons to the board of directors. After they have been
elected by shareholders, the directors will continue to serve until their
successors are elected and have qualified or they are removed from office, in
either case by a shareholder vote, or until death, resignation, or retirement.
Directors may appoint their own successors, provided that always at least a
majority of the directors have been elected by the Company's shareholders. It is
the intention of the Company not to hold annual meetings of shareholders. The
directors may call annual or special meetings of shareholders for action by
sharehold er vote as may be required by the 1940 Act or the Company's Articles
of Incorporation, or at their discretion.
<PAGE>
Principal Shareholders
As of November 1, 1997, the following persons held more than 5% of the
Funds' outstanding equity securities.
Amount and Nature
Name and Address of Ownership Percent of Class
- ---------------- ----------------- ----------------
Industrial Income Fund
Great West Life & Annuity 851,386.0150 42.127%
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Security Life 405,312.8410 20.055
Separate Account A1 Record
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Security Life 290,444.7710 14.371%
Separate Account L1 Record
Attn: Debra Bechtel
Unit Valuations 272
8515 E. Orchard Road
Englewood, CO 80111
Separate Account VA-5 of 267,254.5860 13.224%
Transamerica Occidental Record
Life Insurance Company
Variable Annuity Dept B-100
1150 S. Olive
Los Angeles, CA 90015
Total Return Fund
Great West Life & Annuity 656,666.3350 51.109%
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Security Life 303,352.5260 23.610%
Separate Account A1 Record
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Security Life 162,461.0920 12.645%
Separate Account L1 Record
Attn: Debra Bachtel
Unit Valuations 2T2
8515 E. Orchard Rd.
Englewood, CO 80111
<PAGE>
Separate Account VA-5 of 122,126.1830 9.505%
Transamerica Occidental
Life Insurance Company
Variable Annuity Dept. D-100
1150 S. Olive
Los Angeles, CA 90015
High Yield Fund
Great-West Life & Annuity 820,305.5670 46.081%
Unit Valuations 2T2 Record
8515 E. Orchard Road
Englewood, CO 80111
Security Life 382,991.4240 21.515%
Separate Account A1 Record
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Security Life 339,120.4550 19.050%
Separate Account L1 Record
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Separate Account VA-5 of 176,145.3950 9.895%
Transamerica Occidental Record
Life Insurance Company
Variable Annuity Dept B-100
1150 S. Olive
Los Angeles, CA 90015
Utilities Fund
Security Life 222,889.7100 76.257%
Separate Account A1 Record
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Security Life 65,076.4970 22.264%
Separate Account L1 Record
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Independent Accountants
Price Waterhouse LLP, 950 Seventeenth Street, Denver, Colorado, has been
selected as the independent accountants of the Company. The independent
accountants are responsible for auditing the financial statements of the
Company.
<PAGE>
Custodian
State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts,
has been designated as custodian of the cash and investment securities of the
Funds. The custodian bank is also responsible for, among other things, receipt
and delivery of the Funds' investment securities in accordance with procedures
and conditions specified in the custody agreement.
Transfer Agent
INVESCO, 7800 E. Union Avenue, Denver, Colorado 80237, acts as registrar,
dividend disbursing agent, and transfer agent for the Company pursuant to the
Transfer Agency Agreement described above under the caption, "Fund Management."
Such services include the issuance, cancellation and transfer of shares of the
Company and the maintenance of records regarding the ownership of such shares.
Reports to Shareholders
The Company's fiscal year ends on December 31 of each year. The Company
distributes reports at least semiannually to its shareholders. Financial
statements regarding the Company, audited by the independent accountants, are
sent to shareholders annually.
Legal Counsel
The firm of Kirkpatrick & Lockhart LLP, Washington, D.C., is legal counsel
for the Company. The firm of Moye, Giles, O'Keefe, Vermeire & Gorrell, Denver,
Colorado, acts as special counsel to the Company.
Financial Statements
The Company's audited financial statements and the notes thereto for the
fiscal year ended December 31, 1996, and the report of Price Waterhouse LLP with
respect to such financial statements, are incorporated herein by reference from
the Company's Annual Report to Shareholders for the fiscal year ended December
31, 1996.
Prospectus
The Company will furnish, without charge, a copy of the appropriate
Prospectus upon request. Such requests should be made to the Company at the
mailing address or telephone number set forth on the first page of this
Statement of Additional Information.
<PAGE>
Registration Statement
This Statement of Additional Information and the Prospectuses do not
contain all of the information set forth in the Registration Statement the
Company has filed with the Securities and Exchange Commission. The complete
Registration Statement may be obtained from the Securities and Exchange
Commission upon payment of the fee prescribed by the rules and regulations of
the Commission.
<PAGE>
APPENDIX A
DESCRIPTION OF FUTURES AND OPTIONS CONTRACTS
Options on Securities
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price, in the case of a put option. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such as
the Chicago Board of Options Exchange and the New York Stock Exchange, which are
regulated by the Securities and Exchange Commission. The Options Clearing
Corporation ("OCC") guarantees the performance of each party to an
exchange-traded option, by in effect taking the opposite side of each such
option. A holder or writer may engage in transactions in exchange-traded options
on securities and options on indices of securities only through a registered
broker/dealer which is a member of the exchange on which the option is traded.
An option position in an exchange-traded option may be closed out only on
an exchange which provides a secondary market for an option of the same series.
Although the Funds generally will purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option at
<PAGE>
any particular time. In such event it might not be possible to effect
closing transactions in a particular option with the result that a Fund would
have to exercise the option in order to realize any profit. This would result in
the Fund incurring brokerage commissions upon the disposition of underlying
securities acquired through the exercise of a call option or upon the purchase
of underlying securities upon the exercise of a put option. If the Fund, as a
covered call option writer, is unable to effect a closing purchase transaction
in a secondary market, unless the Fund is required to deliver the securities
pursuant to the assignment of an exercise notice, it will not be able to sell
the underlying security until the option expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insuffi cient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transac tions or both; (iii) trading halts, suspensions
or other restric tions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or particular class or series of options) in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange which had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at a particular time, render certain of the facilities of any of the
clearing corporations inadequate and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders. However, the OCC, based on forecasts provided by the U.S.
exchanges, believes that its facilities are adequate to handle the volume of
reasonably anticipated options transactions, and such exchanges have advised
such clearing corporation that they believe their facilities will also be
adequate to handle reasonably anticipated volume.
In addition, options on securities may be traded over-the-counter ("OTC")
through financial institutions dealing in such options as well as the underlying
instruments. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the
Company on behalf of a Fund. With OTC options, such variables as expiration
date, exercise price and premium will be agreed upon between the Fund and the
transacting dealer, without the intermedi ation of a third party such as the
OCC. If the transacting dealer fails to make or take delivery of the securities
underlying an option it has written, in accordance with the terms of that option
<PAGE>
as written, the Fund would lose the premium paid for the option as well as
any anticipated benefit of the transaction. The Fund will engage in OTC option
transactions only with primary U.S. government securities dealers recognized by
the Federal Reserve Bank of New York.
Futures Contracts
A futures contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future, for a fixed price. By its terms, a futures contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that they are bilateral agree ments,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, futures contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their term.
The purchase or sale of a futures contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index or instrument underlying the futures contract fluctuates, making positions
in the futures contract more or less valuable, a process known as "marking to
market."
A futures contract may be purchased or sold only on an exchange, known as
a "contract market," designated by the Commodity Futures Trading Commission for
the trading of such contract, and only through a registered futures commission
merchant which is a member of such contract market. A commission must be paid on
each completed purchase and sale transaction. The contract market clearing house
guarantees the performance of each party to a futures contract, by in effect
taking the opposite side of such contract. At any time prior to the expiration
of a futures contract, a trader may elect to close out its position by taking an
opposite position on the contract market on which the position was entered into,
subject to the availability of a secondary market, which will operate to
terminate the initial position. At that time, a final determination of variation
<PAGE>
margin is made and any loss experienced by the trader is required to be
paid to the contract market clearing house while any profit due to the trader
must be delivered to it.
Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury bonds, Treasury notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities, U.S. Treasury bills, bank certificates of deposit and commercial
paper. In addition, interest rate futures contracts include contracts on indices
of municipal securities. Foreign currency futures contracts currently are traded
on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German
mark and on Eurodollar deposits.
Options on Futures Contracts
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract, in the
case of a put option, at a fixed exercise price to a stated expiration date.
Upon exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of futures contracts, such as payment
of variation margin deposits. In addition, the writer of an option on a futures
contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
A position in an option on a futures contract may be terminat ed by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
<PAGE>
INVESCO Variable Investment Funds, Inc.
INVESCO VIF - Health Sciences Fund
INVESCO VIF - Technology Fund
The following unaudited financial statements of the INVESCO VIF - Health
Sciences and INVESCO VIF - Technology Funds supplement the Company's 1996 Annual
Report to Shareholders which is incorporated by reference into the Company's
Statement of Additional Information.
Statement of Investment Securities
September 30,1997
UNAUDITED
Shares
or Principal
Description Amount Value
- --------------------------------------------------------------------------------
HEALTH SCIENCES Portfolio
COMMON STOCKS 67.56%
BIOTECHNOLOGY 3.53%
Genentech Inc* 215 $12,497
-----------
DRUGS 38.77%
Abbott Laboratories 200 12,787
American Home Products 170 12,410
Bristol-Myers Squibb 160 13,240
Glaxo Wellcome PLC Sponsored ADR
Representing 2 Ord Shrs 300 13,481
Johnson & Johnson 100 5,763
Lilly (Eli) & Co 115 13,850
Merck & Co 130 12,992
Pfizer Inc 215 12,913
Schering-Plough Corp 250 12,875
SmithKline Beecham PLC Sponsored ADR
Representing 5 Ord Shrs 278 13,587
Warner-Lambert Co 100 13,494
-----------
137,392
-----------
ELECTRONICS 3.30%
Perkin-Elmer Corp 160 11,690
-----------
<PAGE>
HEALTH MAINTENANCE ORGANIZATIONS 6.75%
Oxford Health Plans* 160 11,980
PacifiCare Health Systems Class B* 175 11,922
-----------
23,902
-----------
INFORMATION MANAGEMENT 3.62%
HBO & Co 340 12,835
-----------
MEDICAL EQUIPMENT & DEVICES 7.87%
Guidant Corp 280 15,680
Medtronic Inc 260 12,220
-----------
27,900
-----------
PRIMARY CARE 3.72%
Quorum Health Group* 540 13,196
-----------
TOTAL COMMON STOCKS (Cost $227,689) 239,412
-----------
SHORT-TERM INVESTMENTS -
US GOVERNMENT AGENCY OBLIGATIONS 32.44%
Federal Home Loan Mortgage
5.550%, 10/3/1997 65,000 64,980
Federal National Mortgage Association
5.550%, 10/3/1997 50,000 49,985
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $114,965) 114,965
-----------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $342,654)
(Cost for Income Tax Purposes $344,669) 354,377
===========
TECHNOLOGY Portfolio
COMMON STOCKS 92.64%
BIOTECHNOLOGY 0.53%
Aviron* 100 2,513
-----------
COMMUNICATIONS - EQUIPMENT &
MANUFACTURING 9.95%
PairGain Technologies* 500 14,250
Pittway Corp Class A 300 19,481
Scientific-Atlanta Inc 600 13,575
-----------
47,306
-----------
<PAGE>
COMPUTER SOFTWARE & SERVICES 29.77%
America Online* 200 15,087
American Software Class A* 1,600 23,400
CBT Group PLC Sponsored ADR* 200 16,050
CIENA Corp* 100 4,953
Edwards (J D) & Co* 500 16,750
Learning Co* 1,500 22,125
Novell Inc* 600 5,381
Peritus Software Services* 200 5,125
PLATINUM technology* 300 6,450
Rational Software* 300 4,800
SEEC Inc* 100 2,925
VIASOFT Inc* 300 14,850
Wonderware Corp* 200 3,675
-----------
141,571
-----------
COMPUTER SYSTEMS 2.60%
GEAC Computer Ltd* 200 12,381
-----------
COMPUTERS - HARDWARE 11.39%
Compaq Computer* 200 14,950
Data General* 500 13,312
HMT Technology* 300 4,706
International Business Machines 200 21,187
-----------
54,155
-----------
ELECTRICAL EQUIPMENT 5.20%
PCD Inc* 1,000 24,750
-----------
ELECTRONICS - INSTRUMENTS 3.89%
Sawtek Inc* 400 18,500
-----------
ELECTRONICS - SEMICONDUCTOR 9.11%
Cypress Semiconductor* 1,000 15,500
MRV Communications* 200 7,300
National Semiconductor* 500 20,500
-----------
43,300
-----------
EQUIPMENT - SEMICONDUCTOR 3.90%
Kulicke & Soffa Industries* 400 18,525
-----------
LEISURE TIME 5.10%
International Game Technology 800 18,200
WMS Industries* 200 6,038
-----------
24,238
-----------
<PAGE>
MANUFACTURING 0.82%
Flanders Corp* 500 3,875
-----------
POLLUTION CONTROL 1.69%
Laidlaw Environmental Services* 1,400 8,050
-----------
RETAIL 2.12%
Tandy Corp 300 10,088
-----------
SERVICES 0.68%
CORESTAFF Inc* 100 3,238
-----------
TELECOMMUNICATIONS - LONG DISTANCE 5.89%
Bell Canada International* 400 7,550
Premiere Technologies* 600 20,475
-----------
28,025
-----------
TOTAL COMMON STOCKS (Cost $411,688) 440,515
-----------
SHORT-TERM INVESTMENTS -
US GOVERNMENT AGENCY OBLIGATIONS 7.36%
Federal Home Loan Mortgage
5.500%, 10/1/1997
(Cost $35,000) 35,000 35,000
-----------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $446,688)
(Cost for Income Tax Purposes $447,057) 475,515
===========
* Security is non-income producing.
See Notes to the Financial Statements
<PAGE>
Statement of Assets and Liabilities
September 30, 1997
UNAUDITED
Health Sciences Technology
Portfolio Portfolio
--------------------------------
ASSETS
Investment Securities:
At Cost $342,654 $446,688
=========== ===========
At Value $354,377 $475,515
Cash 3,455 34,607
Receivables:
Fund Shares Sold 0 50
Dividends and Interest 83 55
----------- -----------
TOTAL ASSETS 357,915 510,227
----------- -----------
LIABILITIES
Payables:
Investment Securities Purchased 0 16,623
Fund Shares Repurchased 1,416 25,014
----------- -----------
TOTAL LIABILITIES 1,416 41,637
----------- -----------
Net Assets at Value $356,499 $468,590
=========== ===========
NET ASSETS
Paid-in Capital* $347,453 $437,384
Accumulated Undistributed Net
Investment Income 915 1,171
Accumulated Undistributed Net
Realized Gain (Loss) on
Investment Securities (3,592) 1,208
Net Appreciation of Investment
Securities 11,723 28,827
----------- -----------
Net Assets at Value $356,499 $468,590
=========== ===========
Shares Outstanding 33,595 37,468
Net Asset Value, Offering and
Redemption Price per Share $10.61 $12.51
=========== ===========
* The Fund has 900 million authorized shares of common stock, par value of $0.01
per share. Of such shares, 100 million have been allocated to each individual
Portfolio.
See Notes to Financial Statements
<PAGE>
Statement of Operations
Period Ended September 30, 1997 (Note 1)
UNAUDITED
Health Sciences Technology
Portfolio Portfolio
---------------------------------
INVESTMENT INCOME
INCOME
Dividends $113 $64
Interest 802 1,107
----------- -----------
TOTAL INCOME 915 1,171
----------- -----------
EXPENSES
Investment Advisory Fees 0 0
Transfer Agent Fees 0 0
Administrative Fees 0 0
Custodian Fees and Expenses 0 0
Directors' Fees and Expenses 0 0
Professional Fees and Expenses 0 0
Registration Fees and Expenses 0 0
Other Expenses 0 0
----------- -----------
TOTAL EXPENSES 0 0
Fees and Expenses Absorbed by
Investment Adviser 0 0
----------- -----------
NET EXPENSES 0 0
----------- -----------
NET INVESTMENT INCOME 915 1,171
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on
Investment Securities (3,592) 1,208
Change in Net Appreciation of
Investment Securities 11,723 28,827
----------- -----------
NET GAIN ON INVESTMENT SECURITIES 8,131 30,035
----------- -----------
Net Increase in Net Assets
from Operations $9,046 $31,206
=========== ===========
See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets Period Ended September 30, 1997 (Note 1)
UNAUDITED
Health Sciences Technology
Portfolio Portfolio
-----------------------------------
OPERATIONS
Net Investment Income $915 $1,171
Net Realized Gain (Loss) on
Investment Securities (3,592) 1,208
Change in Net Appreciation
of Investment Securities 11,723 28,827
----------- -----------
NET INCREASE IN NET
ASSETS FROM OPERATIONS 9,046 31,206
----------- -----------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 661,866 1,088,589
Amounts Paid for Repurchases
of Shares (315,413) (652,205)
----------- -----------
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 346,453 436,384
----------- -----------
Total Increase in Net Assets 355,499 467,590
NET ASSETS
Initial Subscription (Note 1) 1,000 1,000
Beginning of Period 0 0
----------- -----------
End of Period $356,499 $468,590
=========== ===========
Accumulated Undistributed Net
Investment Income Included in
Net Assets At End of Period $915 $1,171
FUND SHARE TRANSACTIONS
Initial Subscription (Note 1) 100 100
Shares Sold 64,773 97,380
----------- -----------
64,873 97,480
Shares Repurchased (31,278) (60,012)
----------- -----------
Net Increase in Fund Shares 33,595 37,468
=========== ===========
See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
UNAUDITED
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Variable
Investment Funds, Inc. (the "Fund") was incorporated in Maryland and presently
consists of nine separate Portfolios: Dynamics Portfolio, Growth Portfolio,
Health Sciences Portfolio, High Yield Portfolio, Industrial Income Portfolio,
Small Company Growth Portfolio, Technology Portfolio, Total Return Portfolio and
Utilities Portfolio. Health Sciences Portfolio and Technology Portfolio, (the
"Portfolios") are presented herein. The investment objective of the Portfolios
is to seek capital appreciation and income on securities principally engaged in
specific business sectors. Health Sciences and Technology Portfolios commenced
investment operations on May 22, 1997 and May 21, 1997, respectively. On August
26, 1997, INVESCO Funds Group, Inc. ("IFG") invested an additional $250,000 in
each Portfolio. The Fund is registered under the Investment Company Act of 1940
(the "Act") as a diversified, open-end management investment company. The Fund'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 the Participating Insurance Companies. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
A. SECURITY VALUATION - Equity securities traded on national securities
exchanges or in the over-the-counter market are valued at the last sales price
in the market where such securities are primarily traded. If last sales prices
are not available, securities are valued at the highest closing bid price
obtained from one or more dealers making a market for such securities or by a
pricing service approved by the Fund's board of directors.
If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good faith by
the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates
market value) if maturity is 60 days or less at the time of purchase, or market
value if maturity is greater than 60 days.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are accounted for on the trade date and dividend income is recorded
on the ex dividend date. Interest income, which may be comprised of stated
coupon rate, market discount, original issue discount and amortized premium, is
recorded on the accrual basis. Cost is determined on the specific identification
basis.
<PAGE>
C. FEDERAL AND STATE TAXES - The Fund has complied, and continues to comply,
with the provisions of the Internal Revenue Code applicable to regulated
investment companies and, accordingly, has made or intends to make sufficient
distributions of net investment income and net realized capital gains, if any,
to relieve it from all federal and state income taxes and federal excise taxes.
To the extent future capital gains are offset by capital loss carryovers,
such gains will not be distributed to shareholders.
Dividends paid by the Fund from net investment income and distributions of
net realized short-term capital gains are, for federal income tax purposes,
taxable as ordinary income to shareholders.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and
distributions to shareholders are recorded by the Fund on the ex
dividend/distribution date. The Fund distributes net realized capital gains, if
any, to its shareholders at least annually, if not offset by capital loss
carryovers. Income distributions and capital gain distributions are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to differing
treatments for nontaxable dividends, net operating losses and expired capital
loss carryforwards.
E. EXPENSES - Each of the Portfolios bears expenses incurred specifically
on its behalf and, in addition, each Portfolio bears a portion of general
expenses, based on the relative net assets of each Portfolio.
NOTE 2 - INVESTMENT ADVISORY AND OTHER AGREEMENTS. IFG serves as the Fund's
investment adviser. As compensation for its services to the Fund, IFG receives
an investment advisory fee which is accrued daily at the applicable rate and
paid monthly. The fee is based on the annual rate of each Portfolio's average
net assets as follows:
AVERAGE NET ASSETS
----------------------------------
$0 to $350 to Over
$350 $700 $700
Portfolio Million Million Million
- ------------------------------------------------------------------------------
Health Sciences Portfolio 0.75% 0.65% 0.55%
Technology Portfolio 0.75% 0.65% 0.55%
In accordance with a Sub-Advisory Agreement between IFG and INVESCO Trust
Company ("ITC"), a wholly owned subsidiary of IFG, investment decisions of the
Portfolios are made by ITC. Fees for such sub-advisory services are paid by IFG.
In accordance with an Administrative Agreement, each Portfolio pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.015% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG receives a transfer agent fee of $5,000 per Portfolio per year. The fee
is paid monthly at one-twelfth of the annual fee.
<PAGE>
IFG has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by each Portfolio.
NOTE 3 - PURCHASES AND SALES OF INVESTMENT SECURITIES. For the four months
ended September 30, 1997, the aggregate cost of purchases and proceeds from
sales of investment securities (excluding all U.S. Government securities and
short-term securities) were as follows:
Portfolio Purchases Sales
- ------------------------------------------------------------------------------
Health Sciences Portfolio $354,972$ $123,691
Technology Portfolio 445,927 35,451
There were no purchases or sales of U.S. Government securities.
NOTE 4 - APPRECIATION AND DEPRECIATION. At September 30, 1997, the gross
appreciation of securities in which there was an excess of value over tax cost,
the gross depreciation of securities in which there was an excess of tax cost
over value and the resulting net appreciation by Portfolio were as follows:
Gross Gross Net
Portfolio Appreciation Depreciation Appreciation
- ------------------------------------------------------------------------------
Health Sciences Portfolio $11,205 $1,497 $9,708
Technology Portfolio 41,994 13,536 28,458
NOTE 5 - TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or ITC.
The Fund has adopted an unfunded deferred compensation plan covering all
independent directors of the Fund who will have served as an independent
director for at least five years at the time of retirement. Benefits under this
plan are based on an annual rate equal to 40% of the retainer fee at the time of
retirement.
Pension expenses for the four months ended September 30, 1997, included in
Directors' Fees and Expenses in the Statement of Operations, and unfunded
accrued pension costs and pension liability included in Prepaid Expenses and
Accrued Expenses, respectively, in the Statement of Assets and Liabilities were
insignificant.
NOTE 6 - LINE OF CREDIT. The Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the Net Assets at Value of each respective
Portfolio. Each Portfolio agrees to pay annual fees and interest on the unpaid
principal balance based on prevailing market rates as defined in the agreement.
At September 30, 1997, there were no such borrowings.
<PAGE>
Financial Highlights
(For a Fund Share Outstanding Throughout the Period)
Period Ended September 30, 1997 (Note 1)
UNAUDITED
Health Sciences Portfolio
PER SHARE DATA
Net Asset Value - Beginning of Period $10.00
----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03
Net Gains on Securities
(Both Realized and Unrealized) 0.58
----------
Total from Investment Operations 0.61
----------
Net Asset Value - End of Period $10.61
==========
TOTAL RETURN 6.10%*
RATIOS+
Net Assets - End of Period ($000 Omitted) $356
Ratio of Expenses to Average Net Assets 0.00%~
Ratio of Net Investment Income to
Average Net Assets 2.24%~
Portfolio Turnover Rate 460%*
Average Commission Rate Paid^^ $0.0600*
+ All of the expenses of the Portfolio were voluntarily absorbed by IFG for the
period ended September 30, 1997, since investment operations began May 22, 1997.
~ Annualized
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
^^ 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.
<PAGE>
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout the Period)
Period Ended September 30, 1997 (Note 1)
UNAUDITED
Technology Portfolio
PER SHARE DATA
Net Asset Value - Beginning of Period $10.00
----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03
Net Gains on Securities
(Both Realized and Unrealized) 2.48
----------
Total from Investment Operations 2.51
----------
Net Asset Value - End of Period $12.51
==========
TOTAL RETURN 25.10%*
RATIOS+
Net Assets - End of Period ($000 Omitted) $469
Ratio of Expenses to Average Net Assets 0.00%~
Ratio of Net Investment Income to
Average Net Assets 1.81%~
Portfolio Turnover Rate 26%*
Average Commission Rate Paid^^ $0.1583*
+ All of the expenses of the Portfolio were voluntarily absorbed by IFG for the
period ended September 30, 1997, since investment operations began May 21, 1997.
~ Annualized
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
^^ 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.
