PROSPECTUS
December 1, 1998
INVESCO BALANCED FUND
INVESCO Balanced Fund (the "Fund") seeks to achieve a high total return on
investment through capital appreciation and current income. The Fund invests in
a combination of common stocks (normally 50% to 70% of total assets) and
fixed-income securities (normally 25% or more of total assets).
The Fund is a series of INVESCO ^ Combination Stock & Bond Funds, Inc.
(formerly, INVESCO ^ Flexible Funds, Inc.) (the "Company"), a diversified,
managed no-load mutual fund, consisting of two separate portfolios of
investments. A separate Prospectus is available upon request from INVESCO
Distributors, Inc. for the Company's other fund, INVESCO Multi-Asset Allocation
Fund. Investors may purchase shares of either or both of the Funds. Additional
funds may be offered in the future.
This Prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated December 1, 1998, has been filed with the Securities and
Exchange Commission, and is incorporated by reference into this Prospectus. To
request a free copy, write to INVESCO Distributors, Inc., P.O. Box 173706,
Denver, Colorado 80217-3706; call 1-800-525-8085; or visit our web site at
http://www.invesco.com.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
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TABLE OF CONTENTS
Page
ESSENTIAL INFORMATION........................................................2
ANNUAL FUND EXPENSES.........................................................3
FINANCIAL HIGHLIGHTS.........................................................4
INVESTMENT OBJECTIVE AND STRATEGY.........................................^ 5
INVESTMENT POLICIES AND RISKS.............................................^ 5
THE FUND AND ITS MANAGEMENT...............................................^ 8
FUND PRICE AND PERFORMANCE................................................^ 10
HOW TO BUY SHARES.........................................................^ 11
FUND SERVICES.............................................................^ 13
HOW TO SELL SHARES........................................................^ 14
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS..................................^ 15
ADDITIONAL INFORMATION....................................................^ 16
<PAGE>
ESSENTIAL INFORMATION
Investment Goal And Strategy: The Fund seeks a high total return on
investment through capital appreciation and current income by investing in a
mixture of common stocks and fixed-income securities, primarily debt obligations
issued by the U.S. government, its agencies or instrumentalities and investment
grade corporate bonds. There is no guarantee that the Fund will meet its
objective. See "Investment Objective And Strategy" and "Investment Policies And
Risks."
Designed For: Investors seeking a combination of current income and capital
growth. While not intended as a complete investment program, the Fund may be a
valuable element of your investment portfolio. You also may wish to consider the
Fund as part of a Uniform Gifts/Transfers To Minors Act Account or systematic
investing strategy. The Fund may be a suitable investment for many types of
retirement programs, including various Individual Retirement Account ("IRAs"),
401(k), Profit Sharing, Money Purchase Pension and 403(b) plans.
Time Horizon: Because the value of its holdings varies, the Fund's price
per share will fluctuate. Investors should consider this a medium- to long-term
investment.
Risks: The Fund's investments in fixed-income securities are subject to
credit risk and market risk. Its returns on foreign investments may be
influenced by currency fluctuations and other risks of investing overseas. The
Fund may experience rapid portfolio turnover, which may result in higher
brokerage commissions and the acceleration of taxable capital gains. See
"Investment Objective And Strategy" and "Investment Policies And Risks."
Organization and Management: The Fund is a series of the Company. The Fund
is owned by its shareholders. It employs INVESCO Funds Group, Inc. ("INVESCO"),
founded in 1932, to serve as investment adviser, administrator and transfer
agent. INVESCO Distributors, Inc. ("IDI"), founded in 1997 as a wholly-owned
subsidiary of INVESCO, is the Fund's distributor.
The Fund's investments are selected by its portfolio manager or managers:
INVESCO senior vice presidents Charles Mayer, who has 27 years of investment
experience, and Donovan J. (Jerry) Paul, with 21 years of investment experience;
and portfolio manager Peter M. Lovell, who has 6 years of investment experience.
See "The Fund And Its Management."
<PAGE>
INVESCO and IDI are indirect, wholly-owned subsidiaries of AMVESCAP PLC, an
international investment management company that managed approximately ^ $241
billion in assets as of ^ September 30, 1998. AMVESCAP PLC is based in London
with money managers located in Europe, North America, South America and the Far
East.
This Fund offers all of the following services at no charge: Telephone
purchases Telephone exchanges Telephone redemptions Automatic reinvestment of
distributions Regular investment plans, such as EasiVest (the Fund's automatic
monthly investment program), Direct Payroll Purchase and Automatic Monthly
Exchange Periodic withdrawal plans
See "How To Buy Shares" and "How To Sell Shares."
Minimum Initial Investment: $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans.
Minimum Subsequent Investment: $50 (Minimums are lower for certain
retirement plans.)
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares. The Fund is authorized to pay a Rule 12b-1 distribution fee of one
quarter of one percent of the Fund's average net assets each year. (See "How To
Buy Shares -Distribution Expenses.")
Like any company, the Fund has operating expenses such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts and other expenses. These expenses are paid from the Fund's assets.
Lower expenses therefore benefit investors by increasing the Fund's total
return.
We calculate annual operating expenses as a percentage of the Fund's
average annual net assets. To keep expenses competitive, INVESCO voluntarily
reimburses the Fund for certain expenses in excess of 1.25% (excluding excess
amounts that have been offset by the expense offset arrangement described below)
of the Fund's average net assets.
<PAGE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.60%
12b-1 Fees 0.25%
Other Expenses(1) 0.37%
Total Fund Operating Expenses(1) 1.22%
(1) It should be noted that the Fund's actual total operating expenses were
lower than the figures shown, because the Fund's distribution, custodian and
transfer agency fees were reduced under expense offset arrangements. However, as
a result of an SEC requirement, the figures shown above do not reflect these
reductions. In comparing expenses for different years, please note that the
Ratios of Expenses to Average Net Assets shown under "Financial Highlights" do
reflect any reductions for periods prior to the fiscal year ended July 31, 1996.
See "The Fund And Its Management."
Example
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming a hypothetical 5% annual return and redemption at
the end of each time period. (Of course, actual operating expenses are paid from
the Fund's assets and are deducted from the amount of income available for
distribution to shareholders; they are not charged directly to shareholder
accounts.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$13 $39 $68 $149
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE OR EXPENSES,
AND ACTUAL ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
For more information on the Fund's expenses, see "The Fund And Its Management"
and "How To Buy Shares - Distribution Expenses."
Because the Fund pays a 12b-1 distribution fee, investors who own Fund
shares for a long period of time may pay more than the economic equivalent of
the maximum front-end sales charge permitted for mutual funds by the National
Association of Securities Dealers, Inc.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1998 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number on
the back cover of this Prospectus. The Annual Report also contains more
information about the Fund's performance.
<TABLE>
<CAPTION>
Period
Ended
Year Ended July 31 July 31
-------------------------------------------------------- -------
1998 1997 1996 1995 1994^
<S> <C> <C> <C> <C> <C>
Balanced Fund
PER SHARE DATA
Net Asset Value --
Beginning of Period $15.86 $13.36 $12.08 $10.30 $10.00
-------------------------------------------------------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.33 0.34 0.37 0.29 0.12
Net Gains on Securities
(Both Realized and
Unrealized) 1.50 3.37 2.12 2.03 0.30
-------------------------------------------------------- -------
Total from Investment
Operations 1.83 3.71 2.49 2.32 0.42
-------------------------------------------------------- -------
LESS DISTRIBUTIONS
Dividends from Net
<PAGE>
Investment Income 0.35 0.34 0.37 0.29 0.12
Distributions from
Capital Gains 1.63 0.87 0.84 0.25 0.00
----------- ------------------------------------ -------
Total Distributions 1.98 1.21 1.21 0.54 0.12
----------- ------------------------------------ -------
Net Asset Value --
End of Period $15.71 $15.86 $13.36 $12.08 $10.30
=========== ==================================== ========
TOTAL RETURN 12.90% 29.27% 20.93% 23.18% 4.16%*
RATIOS
Net Assets -- End of Period
($000 Omitted) $216,624 $161,921 $115,066 $37,224 $4,252
Ratio of Expenses to
Average Net Assets# 1.22%@ 1.29%@ 1.29%@ 1.25 1.25%~
Ratio of Net Investment Income
to Average Net Assets# 2.18% 2.46% 3.03% 3.12% 2.87%~
Portfolio Turnover Rate 108% 155% 259% 255% 61%*
</TABLE>
^ From December 1, 1993, commencement of investment operations, to July 31,
1994.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by INVESCO the years
ended July 31, 1997, 1996, 1995 and the period ended July 31, 1994. If such
expenses had not been ^ voluntarily absorbed, ^ Ratio of Expenses to
Average Net Assets would have been 1.34%, 1.29%, 1.59% and 4.37%
(annualized), respectively, and ^ Ratio of Net Investment Income (Loss) to
Average Net Assets would have been 2.41%, 3.03%, 2.77% and (0.25%)
(annualized), respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
The Fund seeks a high total return on investment through capital
appreciation and current income. This investment objective is fundamental and
may not be changed without the approval of the Fund's shareholders. The Fund
seeks to achieve this objective by normally investing 50% to 70% of its total
assets in common stocks and the remainder in fixed-income securities, including
cash reserves. At least 25% of the Fund's assets normally will be invested in
fixed-income securities issued by the U.S. government, its agencies and
instrumentalities, or in investment grade corporate bonds. This approach is
designed to cushion a shareholder's investment from the volatility typically
associated with mutual funds that invest primarily in common stocks. There is no
assurance that the Fund's investment objective will be met.
For the equity holdings, we look for companies with better-than-average
earnings growth potential, as well as companies within industries we've
identified as well-positioned for the current and expected economic climate.
Because current income is a component of total return, we also consider dividend
payout records. Most of these holdings are traded on national stock exchanges or
in the over-the-counter ("OTC") market; we may also take positions in securities
traded on regional or foreign exchanges. In addition to common stocks, the Fund
also may hold preferred stocks and securities convertible into common stock.
For the fixed-income portion of the holdings, we select only obligations
of the U.S. government, its agencies and instrumentalities, or investment grade
corporate bonds. These securities tend to offer lower income than bonds of lower
quality but are more shielded from credit risk. Obligations issued by U.S.
government agencies or instrumentalities may include some supported only by the
credit of the issuer rather than by the full faith and credit of the U.S.
government. The Fund may hold securities of any maturity (from less than one
year up to 30 years), with the average maturity varying depending upon economic
and market conditions. The Fund also may hold cash and cash equivalent
securities as cash reserves.
The Fund's investment portfolio is actively traded. There are no
limitations regarding portfolio turnover for either the equity or fixed-income
portions of the Fund's portfolio. Although the Fund does not trade for
short-term profits, securities may be sold without regard to the time they have
been held when, in the opinion of INVESCO, investment considerations warrant
such action. The Fund's portfolio turnover rate therefore may be higher than
other mutual funds with similar objectives. Increased portfolio turnover may
result in greater brokerage commissions and acceleration of capital gains which
are taxable when distributed to shareholders.
<PAGE>
The Statement of Additional Information includes an expanded discussion of the
Fund's portfolio turnover rate, its brokerage practices and certain federal
income tax matters.
The amount invested in stocks, bonds and cash securities may vary from
time to time depending upon INVESCO's assessment of business, economic and
market conditions. When we believe market or economic conditions are
unfavorable, the Fund may assume a defensive position by temporarily investing
up to 100% of its assets in high-quality money market instruments, such as
short-term U.S. government obligations, commercial paper or repurchase
agreements, seeking to protect its assets until conditions stabilize.
INVESTMENT POLICIES AND RISKS
Investors generally should expect to see the price per share and income
levels of the Fund vary with movements in the stock and fixed-income markets,
changes in economic conditions and other factors. The Fund invests in many
different securities and industries; this diversification may help reduce the
Fund's exposure to particular investment and market risks but cannot eliminate
these risks.
Year 2000 Computer Issue. Due to the fact that many computer systems in
use today cannot recognize the Year 2000, but will, unless corrected, revert to
1900 or 1980 or cease to function at that time, the markets for securities in
which the Fund invests may be detrimentally affected by computer failures
affecting portfolio investments or trading of securities beginning January 1,
2000. Improperly functioning trading systems may result in settlement problems
and liquidity issues. In addition, corporate and governmental data processing
errors may result in production issues for individual companies and overall
economic uncertainties. Earnings of individual issuers may be affected by
remediation costs, which may be substantial. The Fund's investments may be
adversely affected.
Debt Securities. When we assess an issuer's ability to meet its interest
rate obligations and repay its debt when due, we are referring to "credit risk."
Debt obligations are rated based on their estimated credit risk by independent
services such as Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P") or Moody's Investors Service, Inc. ("Moody's"). "Market risk" for
debt securities principally refers to sensitivity to changes in interest rates.
For instance, when interest rates go up, the market value of a previously issued
bond generally declines; on the other hand, when interest rates go down, prices
of bonds generally increase.
<PAGE>
The lower a bond's quality, the more it is subject to credit risk and
market risk and the more speculative it becomes; this is also true of most
unrated debt securities. The Fund seeks to reduce these risks by investing only
in investment grade debt securities (those rated AAA, AA, A or BBB by S&P or
Aaa, Aa, A or Baa by Moody's or, if unrated, are judged by INVESCO to be of
equivalent quality). These bonds enjoy strong to adequate capacity to pay
principal and interest. Securities rated BBB or Baa are considered to be of
medium grade and may have speculative characteristics. While INVESCO
continuously monitors all of the debt securities in the Fund's 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.
The Fund's investments in debt securities may include investments in zero
coupon bonds, step-up bonds, mortgage-backed securities and asset-backed
securities. Zero coupon bonds ("zeros") make no periodic interest payments.
Instead, they are sold at a discount from their face value. The buyer of the
zero receives the rate of return by the gradual appreciation in the price of the
security, which is redeemed at face value at maturity. Step-up bonds initially
make no (or low) cash interest payments but begin paying interest (or a higher
rate of interest) at a fixed time after issuance of the bond. Because they are
extremely responsive to changes in interest rates, the market prices of both
zeros and step-up bonds may be more volatile than other bonds. The Fund may be
required to distribute income recognized on these bonds, even though no cash
interest payments may be received, which could reduce the amount of cash
available for investment by the Fund.
Mortgage-backed securities represent interests in pools of mortgages.
Asset-backed securities generally represent interests in pools of consumer
loans. Both usually are structured as pass-through securities. Interest and
principal payments ultimately depend on payment of the underlying loans,
although the securities may be supported, at least in part, by letters of credit
or other credit enhancements or, in the case of mortgage-backed securities,
guarantees by the U.S. government, its agencies or instrumentalities. The
underlying loans are subject to prepayments that may shorten the securities'
weighted average lives and may lower their returns.
Foreign Securities. Up to 25% of the Fund's total assets, measured at the
time of purchase, may be invested directly in foreign equity and corporate debt
securities. Securities of Canadian issuers and American Depository Receipts
("ADRs") are not subject to this 25% limitation. ADRs are receipts
representing shares of a foreign corporation held by a U.S. bank that entitle
the holder to all dividends and capital gains. ADRs are denominated in U.S.
dollars and trade in the U.S. securities markets.
<PAGE>
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 aspects 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; and
-investment income on certain foreign securities 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 the Fund may experience difficulties in pursuing legal remedies
and collecting judgments.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands, Portugal and Spain are presently members of the European Economic
and Monetary Union (the "EMU"). The EMU intends to establish a common European
currency for EMU countries which will be known as the "euro." Each participating
country presently plans to adopt the euro as its currency on January 1, 1999.
The old national currencies will be sub-currencies of the euro until July 1,
2002, at which time the old currencies will disappear entirely. Other European
countries may adopt the euro in the future.
<PAGE>
The planned introduction of the euro presents some uncertainties and
possible risks, including whether the payment and operational systems of banks
and other financial institutions will be ready by January 1, 1999; whether
exchange rates for existing currencies and the euro will be adequately
established; and whether suitable clearing and settlement systems for the euro
will be in operation. These and other factors may cause market disruptions
before or after January 1, 1999 and could adversely affect the value of
securities held by the Fund.
ADRs are subject to some of the same risks as direct investments in foreign
securities, including the risk that material information about the issuer may
not be disclosed in the United States and the risk that currency fluctuations
may adversely affect the value of the ADR.
Illiquid and Rule 144A Securities. The Fund may invest in illiquid
securities, including securities that are subject to restrictions on resale and
securities that are not readily marketable. The Fund may also invest in
restricted securities that are not registered for sale to the general public,
but that may be resold to institutional investors, known as "Rule 144A
Securities." For more information concerning illiquid and Rule 144A Securities,
see "Investment Policies And Restrictions" in the Statement of Additional
Information.
Delayed Delivery or When-Issued Securities. Up to 10% of the value of the
Fund's total assets may be committed to the purchase or sale of securities on a
when-issued or delayed-delivery basis --that is, with settlement taking place in
the future. The payment obligation and the interest rate 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 market value of the
securities may vary. No interest is payable to the Fund prior to settlement.
Repurchase Agreements. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price and date. The Fund could incur costs or delays in seeking
to sell the security if the prior owner defaults on its repurchase obligation.
To reduce that risk, the securities that are the subject of the repurchase
agreement will be maintained with the Fund's custodian in an amount at least
equal to the repurchase price under the agreement (including accrued interest).
These agreements are entered into only with member banks of the Federal Reserve
System, registered broker-dealers and registered U.S. government securities
dealers that are deemed creditworthy under standards established by the
Company's board of directors.
<PAGE>
Securities Lending. The Fund may seek to earn additional income by lending
securities to qualified brokers, dealers, banks, or other financial
institutions, on a fully collateralized basis. For further information on this
policy, see "Investment Policies And Restrictions" in the Statement of
Additional Information.
Futures, Options and Other Derivative Instruments. In order to hedge its
portfolio, the Fund may purchase and write options on securities (including
index options and options on foreign securities) and may invest in futures
contracts for the purchase or sale of foreign currencies, fixed-income
securities and instruments based on financial indices (collectively, "futures
contracts"), options on futures contracts and forward contracts. These practices
and their risks are discussed under "Investment Policies and Restrictions" in
the Statement of Additional Information.
Investment Restrictions. Certain restrictions, which are identified in the
Statement of Additional Information, may not be altered without the approval of
the Fund's shareholders. For example, with respect to 75% of its total assets,
the Fund limits to 5% the portion of its total assets that may be invested in
any one issuer (other than cash items and U.S. government securities). In
addition, the Fund limits to 25% the portion of its total assets that may be
invested in any one industry (other than U.S. government securities). Other
fundamental restrictions prohibit the Fund from lending more than 33-1/3% of its
total assets to other parties and from borrowing money, except that the Fund may
borrow for temporary or emergency purposes and enter into reverse repurchase
agreements in an aggregate amount not exceeding 33 1/3% of its total assets.
For a further discussion of risks associated with an investment in the
Fund, see "Investment Policies And Restrictions" and "Investment Practices" in
the Statement of Additional Information.
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as a diversified, open-end management investment company. It
was incorporated on August 19, 1993, under the laws of Maryland. On September
10, 1998, the name of the Company was changed to INVESCO Flexible Funds, Inc. On
October 29, 1998, the name of the Company was changed to INVESCO Combination
Stock & Bond Funds, Inc.
<PAGE>
The Company's board of directors has responsibility for overall supervision
of the Fund and reviews the services provided by the investment adviser. Under
an agreement with the Company, INVESCO, 7800 E. Union Avenue, Denver, Colorado
80237, serves as the Fund's investment adviser; it is primarily responsible for
providing the Fund with portfolio management and various administrative
services.
INVESCO and IDI are indirect wholly-owned subsidiaries of AMVESCAP PLC.
AMVESCAP ^ PLC is 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. INVESCO
continued to operate under its existing name. AMVESCAP PLC had approximately ^
$241 billion in assets under management as of ^ September 30, 1998. INVESCO was
established in 1932 and, as of July 31, 1998, managed 14 mutual funds,
consisting of 49 separate portfolios, with combined assets of approximately
$19.6 billion on behalf of 884,099 shareholders.
Prior to February 3, 1998, Institutional Trust Company ^ doing business as
INVESCO Trust Company ("ITC") , provided sub-advisory services to the Fund;
termination of its sub-advisory services in no way changed the basis upon which
investment advice is provided to the Fund, the cost of those services to the
Fund or the persons actually performing the investment advisory and other
services previously provided by ITC. INVESCO provides such day-to-day portfolio
management services.
The Fund is managed by members of INVESCO's Equity Income and Fixed Income
Teams, which are headed by Charles P. Mayer and Donovan J. (Jerry) Paul. The
following individuals are primarily responsible for the day-to-day management of
the Fund's holdings:
Charles P. Mayer has been a co-portfolio manager of the Fund since 1996.
Mr. Mayer also co-manages INVESCO Industrial Income Fund and INVESCO
VIF-Industrial Income Fund and is a senior vice president of INVESCO Funds
Group, Inc. Mr. Mayer is the Director of Investments of INVESCO Funds Group,
Inc. Mr. Mayer was previously a portfolio manager with Westinghouse Pension
Investments Corporation from 1984 to 1993. Mr. Mayer received an M.B.A. from St.
John's University and a B.A. in English from St. Peter's College.
Donovan J. (Jerry) Paul, a Chartered Financial Analyst and Certified Public
Accountant, has been a co-portfolio manager of the Fund since 1994. Mr. Paul
also manages INVESCO Select Income Fund, INVESCO High Yield Fund and INVESCO
VIF-High Yield Fund and co-manages INVESCO Industrial Income Fund, INVESCO
<PAGE>
VIF-Industrial Income Fund, and INVESCO Short-Term Bond Fund. Mr. Paul is
also a senior vice president of INVESCO Funds Group, Inc. Mr. Paul was
previously senior vice president and director of fixed-income research (1989 to
1992) and portfolio manager (1987 to 1992) with Stein, Roe & Farnham Inc. and
president of Quixote Investment Management, Inc. (1993 to 1994). Mr. Paul
received an M.B.A. from the University of Northern Iowa and a B.B.A. from the
University of Iowa.
Peter M. Lovell has been a co-portfolio manager of the Fund since 1998. Mr.
Lovell was previously an equity analyst with INVESCO's Equity Income Team
(1996-1998), an equity assistant with INVESCO's Investment Division (1994-1996)
and a financial consultant with Merrill Lynch (1992-1994). Mr. Lovell received
an M.B.A. in Finance and Accounting from Regis University and a B.A. in Speech
Communications from Colorado State University.
INVESCO 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 INVESCO's personnel to conduct their
personal investment activities in a manner that INVESCO believes is not
detrimental to the Fund or INVESCO's other advisory clients. See the Statement
of Additional Information for more detailed information.
The Fund pays INVESCO a monthly management fee which is based upon a
percentage of the Fund's average net assets determined daily. The management fee
is computed at the annual rate of 0.60% on the first $350 million of the Fund's
average net assets; 0.55% on the next $350 million of the Fund's average net
assets; and 0.50% on the Fund's average net assets over $700 million. For the
fiscal year ended July 31, 1998, investment management fees paid by the Fund
amounted to 0.60% of the Fund's average net assets.
Under a Distribution Agreement, IDI provides services relating to the
distribution and sale of the ^ Fund's shares. IDI, established in 1997, is a
registered broker-dealer that acts as distributor for all retail funds advised
by INVESCO. Prior to September 30, 1997, INVESCO served as the Fund's
distributor.
Under a Transfer Agency Agreement, INVESCO acts as registrar, transfer
agent and dividend disbursing agent for the Fund. The Fund pays an annual fee of
$20.00 per shareholder account or, where applicable, per participant in an
omnibus account. Registered broker-dealers, third party administrators of
tax-qualified retirement plans and other entities, including affiliates of
INVESCO, may provide equivalent services to the Fund. In these cases, INVESCO
may pay, out of the fee it receives from the Fund, an annual sub-transfer agency
fee or recordkeeping fee to the third party.
<PAGE>
Under an Administrative Services Agreement, INVESCO handles additional
administrative, recordkeeping and internal sub-accounting services for the Fund.
For the fiscal year ended July 31, 1998, the Fund paid INVESCO a fee for these
services equal to 0.027% of the Fund's average net assets.
The management and custodial services provided to the Fund by INVESCO and
the Fund's custodian, and the services provided to shareholders by INVESCO and
IDI, depend on the continued functioning of their computer systems. Many
computer systems in use today cannot recognize the Year 2000, but will revert to
1900 or 1980 or will cease to function due to the manner in which dates were
encoded and are calculated. That failure could have a negative impact on the
handling of the Fund's securities trades, its share pricing and its account
services. The Fund and its service providers have been actively working on
necessary changes to their computer systems to deal with the Year 2000 issue and
expect that their computer systems will be adapted before that date, but there
can be no assurance that they will be successful. Furthermore, services may be
impaired at that time as a result of the interaction of their systems with the
noncomplying computer systems of others. INVESCO plans to test as many such
interactions as practicable prior to December 31, 1999 and to develop
contingency plans for reasonably anticipated failures.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. Total expenses of the Fund (prior to any
expense offset arrangements) for the fiscal year ended July 31, 1998, including
investment advisory fees (but excluding brokerage commissions, which are a cost
of acquiring securities), amounted to 1.22% of the Fund's average net assets.
Certain Fund expenses ^ may be absorbed voluntarily by INVESCO pursuant to a
commitment to the Fund to ensure that the Fund's total operating expenses (after
expense offset arrangements) ^ do not exceed 1.25% of the Fund's average net
assets. This commitment may be changed following consultation with the Company's
board of directors.
INVESCO places orders for the purchase and sale of portfolio securities
with brokers and dealers based upon INVESCO's evaluation of such brokers' and
dealers' financial responsibility coupled with their ability to effect
transactions at the best available prices. As discussed under "How To Buy Shares
- - Distribution Expenses," the Fund may market its shares through intermediary
brokers or dealers that have entered into Dealer Agreements with INVESCO, or
IDI, as the Fund's distributor. The Fund may place orders for portfolio
transactions with qualified brokers and dealers that recommend the Fund or sell
shares of the Fund, to clients, or act as agent in the purchase of Fund shares
for clients, if INVESCO believes that the quality of the execution of the
transaction and level of commission are comparable to those available from other
qualified brokerage firms. For further information, see "Investment Practices
- -Placement of Portfolio Brokerage" in the Statement of Additional Information.
<PAGE>
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the Fund will vary
daily. The price per share is also known as the Net Asset Value ("NAV"). INVESCO
prices the Fund every day that the New York Stock Exchange is open, as of the
close of regular trading (generally, 4:00 p.m., New York time). NAV is
calculated by adding together the current market value of all of the Fund's
assets, including accrued interest and dividends; subtracting liabilities,
including accrued expenses; and dividing that dollar amount by the total number
of shares outstanding.
Performance Data. To keep shareholders and potential investors informed,
we will occasionally advertise the Fund's total return for one-, five-, and
ten-year periods (or since inception). Total return figures show the average
annual rate of return on a $1,000 investment in the Fund, assuming reinvestment
of all dividends and capital gain distributions for the periods cited.
Cumulative total return shows the actual rate of return on an investment for the
periods cited; average annual total return represents the average annual
percentage change in the value of an investment. Both cumulative and average
annual total returns tend to "smooth out" fluctuations in the Fund's investment
results, because they do not show the interim variations in performance over the
periods cited. More information about the Fund's recent and historical
performance is contained in the Company's Annual Report to Shareholders. You can
get a free copy by calling or writing to IDI using the phone number or address
on the back cover of this Prospectus.
When we quote mutual fund rankings published by Lipper Analytical
Services, Inc., we may compare the Fund to others in its category of Balanced
Funds, as well as the broad-based Lipper general fund groupings. These rankings
allow you to compare the Fund to its peers. Other independent financial media
also produce performance- or service-related comparisons, which you may see in
our promotional materials. For more information, see "Fund Performance" in the
Statement of Additional Information.
Performance figures are based on historical investment results and are not
intended to suggest future performance.
HOW TO BUY SHARES
The following chart shows several convenient ways to invest in the Fund.
Your new Fund shares will be priced at the NAV next determined after your order
is received in proper form. There is no charge to invest, exchange or redeem
shares when you make transactions directly through INVESCO. However, if you
invest in the Fund through a securities broker, you may be charged a commission
or transaction fee. INVESCO may from time to time make
<PAGE>
payments from its revenues to securities dealers and other financial
institutions that provide distribution-related and/or administrative services
for the Company. For all new accounts, please send a completed application form.
Please specify which fund's shares you wish to purchase.
INVESCO reserves the right to increase, reduce or waive the minimum
investment requirements in its sole discretion, where it determines this action
is in the best interests of the Fund. INVESCO reserves the right in its sole
discretion to reject any order for the purchase of Fund shares (including
purchases by exchange) when, in its judgment, such rejection is in the Fund's
best interests.
<PAGE>
HOW TO BUY SHARES
================================================================================
Method Investment Minimum Please Remember
By Check
Mail to: $1,000 for regular If your check does
INVESCO Funds account; not clear, you will
Group, Inc., $250 for an IRA; be responsible for
P.O. Box 173706, $50 minimum for any related loss
Denver, CO each subsequent the Fund or INVESCO
80217-3706. investment. incurs. If you are
Or you may send already a
your check by shareholder in the
overnight courier INVESCO funds, the
to: 7800 E. Union Fund may seek
Ave., reimbursement from
Denver, CO 80237. your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
By Telephone or
Wire
Call 1-800-525-8085 $1,000. Payment must be
to request your received within 3
purchase. Then send business days, or
your check by the transaction may
overnight courier be canceled. If a
to our street purchase is
address: canceled due to
7800 E. Union Ave., nonpayment, you
Denver, CO 80237. will be responsible
Or you may transmit for any related
your payment by loss the Fund or
bank wire (call INVESCO incurs. If
INVESCO for you are already a
instructions). shareholder in the
INVESCO funds, the Fund
may seek reimbursement
from your existing
account(s) for any loss
incurred.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
With EasiVest or
Direct Payroll
Purchase
You may enroll on $50 per month for Like all regular
the fund EasiVest; $50 per investment plans,
application, or pay period for neither EasiVest
call us for the Direct Payroll nor Direct Payroll
correct form and Purchase. You may Purchase ensures a
more details. start or stop your profit or protects
Investing the same regular investment against loss in a
amount on a monthly plan at any time, falling market.
basis allows you to with two weeks' Because you'll
buy more shares notice to INVESCO. invest continually,
when prices are low regardless of
and fewer shares varying price
when prices are levels, consider
high. This your financial
"dollar-cost ability to keep
averaging" may help buying through low
offset market price levels. And
fluctuations. Over remember that you
a period of time, will lose money if
your average cost you redeem your
per share may be shares when the
less than the market value of all
actual average your shares is less
price per share. than their cost.
- --------------------------------------------------------------------------------
By PAL
Your "Personal $1,000; $250 for an Be sure to write
Account Line" is IRA. down the
available for confirmation number
subsequent provided by PAL.
purchases and Payment must be
exchanges 24-hours received within 3
a day. Simply call business days, or
1-800-424-8085. the transaction may
be canceled. If a
telephone purchase is
canceled due to
nonpayment, you will be
responsible for any
related loss the Fund or
INVESCO incurs. If you
are already a shareholder
in the INVESCO funds, the
Fund may seek
reimbursement from your
existing account(s) for
any loss incurred.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy," below.
INVESCO funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an ^ (The exchange
automatic monthly minimum is $250 for
exchange service purchases requested
between two INVESCO by telephone.)
funds; call INVESCO
for further details
and the correct form.
================================================================================
Exchange Policy. You may exchange your shares in this Fund for those in
another INVESCO fund on the basis of their respective net asset values at the
time of the exchange. Before making any exchange, be sure to review the
prospectuses of the funds involved and consider their differences.
Please note these policies regarding exchanges of fund shares:
1) The fund accounts must be identically registered.
2) You may make four exchanges out of each fund during each calendar
year.
3) An exchange is the redemption of shares from one fund followed by
the purchase of shares in another. Therefore, any gain or loss
realized on the exchange is recognizable for federal income tax
purposes (unless, of course, your account is tax-deferred).
4) In order to prevent abuse of this policy to the disadvantage of
other shareholders, the Fund reserves the right to temporarily or
permanently terminate the exchange option of any shareholder who
requests more than four exchanges in a year, or at any time the
Fund determines the actions of the shareholder are detrimental to
Fund performance and shareholders. The Fund will determine
whether to do so based on a consideration of both the number of
exchanges any particular shareholder, or group of shareholders,
has requested and the time period over which those exchange
requests have been made, together with the level of expense to
the Fund which will result from effecting additional exchange
requests. The Fund is intended to be a long-term investment
vehicle and is not designed to provide investors the means of
speculation on short-term market movements.
5) Notice of all modifications or terminations that would affect all
Fund shareholders will be given at least 60 days prior to the
effective date of the change in policy, except in unusual
circumstances (such as when redemptions of the exchanged shares
are suspended under Section 22(e) of the Investment Company Act
of 1940, or when sales of the fund into which you are exchanging
are temporarily suspended).
Distribution Expenses. The Fund is authorized under a Plan and Agreement
of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Plan") to use its assets to finance certain activities relating to the
distribution of its shares to investors. Under the Plan, monthly payments may be
made by the Fund to IDI to permit IDI, at its discretion, to engage in certain
activities and provide certain services approved by the board of directors of
<PAGE>
the Company in connection with the distribution of the Fund's shares to
investors. These activities and services may include the payment of compensation
(including incentive compensation and/or continuing compensation based on the
amount of customer assets maintained in the Fund) to securities dealers and
other financial institutions and organizations, which may include INVESCO- and
IDI-affiliated companies, to obtain various distribution-related and/or
administrative services for the Fund. Such services may include, among other
things, processing new shareholder account applications, preparing and
transmitting electronically to the ^ Fund's transfer agent computer-processable
tapes of all transactions by customers and serving as the primary source of
information to customers in answering questions concerning the Fund and their
transactions with the Fund.
In addition, other permissible activities and services include
advertising, preparation, printing and distribution of sales literature,
printing and distribution of prospectuses to prospective investors and such
other services and promotional activities for the Fund as may from time to time
be agreed upon by the Company and its board of directors, including public
relations efforts and marketing programs to communicate with investors and
prospective investors. These services and activities may be conducted by the
staff of INVESCO, IDI or their affiliates or by third parties.
Under the Plan, the Fund's payments to IDI are limited to an amount
computed at an annual rate of 0.25% of the Fund's average net assets. IDI is not
entitled to payment for overhead expenses under the Plan, but may be paid for
all or a portion of the compensation paid for salaries and other employee
benefits for the personnel of INVESCO or IDI whose primary responsibilities
involve marketing shares of the INVESCO ^ mutual funds, including the Fund.
Payment amounts by the Fund under the Plan, for any month, may be made to
compensate IDI for permissible activities engaged in and services provided by
IDI during the rolling 12-month period in which that month falls. Therefore, any
obligations incurred by IDI in excess of the limitations described above will
not be paid by the Fund under the Plan, and will be borne by IDI. In addition,
IDI and its affiliates may from time to time make additional payments from their
revenues to securities dealers, financial advisers and other financial
institutions that provide distribution-related and/or administrative services
for the Fund. No further payments will be made by the Fund under the Plan in the
event of the Plan's termination. Payments made by the Fund may not be used to
finance directly the distribution of shares of any other Fund of the Company or
other mutual funds advised by INVESCO and distributed by IDI. However, payments
received by IDI which are not used to finance the distribution of shares of the
Fund become part of IDI's revenues and may be used by IDI for activities that
promote the distribution of any of the mutual funds advised by INVESCO. Subject
to review by the Company's directors, payments made by the Fund under the Plan
for compensation of marketing personnel, as noted above, are based on an
<PAGE>
allocation formula designed to ensure that all such payments are
appropriate. IDI will bear any distribution-and service-related expenses in
excess of the amounts which are compensated pursuant to the Plan. The Plan also
authorizes any financing of distribution which may result from ^ INVESCO's or
IDI's use of fees received from the Fund for services rendered by INVESCO,
providing that such fees are legitimate and not excessive. For more information
see "How Shares Can Be Purchased -Distribution Plan" in the Statement of
Additional ^ Information.
FUND SERVICES
Shareholder Accounts. INVESCO will maintain a share account that reflects
your current holdings. Share certificates will be issued only upon specific
request. You will have greater flexibility to conduct transactions if you do not
request certificates.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges and redemptions. If you choose certain recurring
transaction plans (for instance, EasiVest), your transactions will be confirmed
on your quarterly Investment Summary.
Investment Summaries. Each calendar quarter, shareholders receive a
written statement which consolidates and summarizes account activity and value
at the beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and other distributions are
automatically reinvested in additional Fund shares at the NAV on the ex-dividend
or ex-distribution date, unless you choose to have dividends and/or other
distributions automatically reinvested in another INVESCO fund or paid by check
(minimum of $10.00).
Telephone Transactions. All shareholders may exchange and redeem Fund
shares by telephone, unless they expressly decline these privileges. By signing
the new account Application or a Telephone Transaction Authorization Form, or
otherwise using these privileges, the investor has agreed that, if the Fund has
followed reasonable procedures, such as recording telephone instructions and
sending written transaction confirmations, it will not be liable for following
telephoned instructions that it believes to be genuine. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions.
Retirement Plans And IRAs. Fund shares may be purchased for IRAs and many
types of tax-deferred retirement plans. INVESCO can supply you with information
and forms to establish or transfer your existing plan or account.
<PAGE>
HOW TO SELL SHARES
The following chart shows several convenient ways to redeem your Fund
shares. Shares of the Fund may be redeemed at any time at their current NAV next
determined after a request in proper form is received at the Fund's office. The
NAV at the time of the redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the Fund's investment
performance.
Please specify from which fund you wish to redeem shares. Shareholders
have a separate account for each fund in which they invest.
HOW TO SELL SHARES
================================================================================
Method Minimum Redemption Please Remember
- --------------------------------------------------------------------------------
By Telephone
Call us toll-free $250 (or, if less, This option is not
at 1-800-525-8085. full liquidation of available for
the account) for a shares held in
redemption check; IRAs.
$1,000 for a wire
to bank of record.
The maximum amount
which may be
redeemed by
telephone is
generally $25,000.
These telephone
redemption
privileges may be
modified or
terminated in the
future at INVESCO's
discretion.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
In Writing
Mail your request Any amount. The If the shares to be
to INVESCO Funds redemption request redeemed are
Group, Inc., P.O. must be signed by represented by
Box 173706, all registered stock certificates,
Denver, CO account owners. the certificates
80217-3706. You may Payment will be must be sent to
also send your mailed to your INVESCO.
request by address of record,
overnight courier or to a
to 7800 E. Union pre-designated
Ave., Denver, CO bank.
80237.
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy," page 11.
INVESCO funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an (The exchange
automatic monthly minimum is $250 for
exchange service exchanges requested
between two INVESCO by telephone.)
funds; call INVESCO
for further details
and the correct
form.
- --------------------------------------------------------------------------------
Periodic Withdrawal
Plan
You may call us to $100 per payment, You must have at
request the on a monthly or least $10,000 total
appropriate form quarterly basis. invested with the
and more The redemption INVESCO funds, with
information at check may be made at least $5,000 of
1-800-525-8085. payable to any that total invested
party you in the fund from
designate. which withdrawals
will be made.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Payment To Third
Party
Mail your request Any amount. All registered
to INVESCO Funds account owners must
Group, Inc., P.O. sign the request,
Box 173706, with a signature
Denver, CO guarantee from an
80217-3706. eligible guarantor
financial institution,
such as a commercial bank
or recognized national or
regional securities firm.
================================================================================
While the Fund will attempt to process telephone redemptions promptly,
there may be times -- particularly in periods of severe economic or market
disruption -- when you may experience delays in redeeming shares by phone.
Payments of redemption proceeds will be mailed within seven days following
receipt of the redemption request in proper form. However, payment may be
postponed under unusual circumstances -- for instance, if normal trading is not
taking place on the New York Stock Exchange or during an emergency as defined by
the Securities and Exchange Commission. If your shares were purchased by a check
which has not yet cleared, payment will be made promptly upon clearance of the
purchase check (which will take up to 15 days).
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate further
EasiVest purchases unless you instruct us otherwise.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to involuntarily redeem all shares in such
account, in which case the account would be liquidated and the proceeds
forwarded to the shareholder. Prior to any such redemption, a shareholder will
be notified and given 60 days to increase the value of the account to $250 or
more.
<PAGE>
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders substantially all of
its net investment income, net capital gains and net gains from foreign currency
transactions, if any. Distribution of substantially all net investment income to
shareholders allows the Fund to maintain its tax status as a regulated
investment company. The Fund does not expect to pay any federal income or excise
taxes because of its distribution policy and tax status as a regulated
investment company.
Shareholders must include all dividends and other distributions as taxable
income for federal, state and local income tax purposes unless ^ their accounts
are exempt from income taxes. Dividends and other distributions are taxable
whether they are received in cash or automatically reinvested in shares of the
Fund or another fund in the INVESCO group.
Net realized capital gains of the Fund are classified as short-term and
long-term gains depending upon how long the Fund held the security that gave
rise to the gains. Short-term capital gains are included in income from
dividends and interest as ordinary income and are taxed at the taxpayer's
marginal tax rate. ^ During 1997, the Taxpayer Relief Act established a new
maximum capital gains tax rate of 20%. Depending on the holding period of the
asset giving rise to the gain, a capital gain was taxable at a maximum rate of
either 20% or 28%. Beginning January 1, 1998, ^ all long-term gains realized ^
on the sale of securities held more than 12 months will be taxable at a maximum
rate of 20%. Accordingly, all capital gain distributions paid in 1998 will be
taxable at a maximum rate of 20%. In addition, legislation signed in October of
1998 provides that all capital gain distributions from a mutual fund paid to
shareholders during 1998 will be taxable at a maximum rate of 20%. Note that the
rate of capital gains tax is dependent on the shareholder's marginal tax rate
and may be lower than the above rates. At the end of each year, information
regarding the tax status of dividends and other distributions is provided to
shareholders. Shareholders should consult their tax advisers as to the effect of
distributions by the Fund.
Shareholders may realize capital gains or losses when they sell their Fund
shares at more or less than the price originally paid. Capital gains on shares
held for more than one year will be long-term capital gains, in which event they
will be subject to federal income tax at the rates indicated above.
The Fund may be subject to withholding of foreign taxes on dividends or
interest it receives on foreign securities. Foreign taxes withheld will be
treated as an expense of the Fund.
<PAGE>
Individuals and certain other non-corporate shareholders may be subject to
backup withholding of 31% on dividends, capital gain distributions and other
distributions and redemption proceeds. You can avoid backup withholding on your
account by ensuring that we have a correct, certified tax identification number,
unless you are subject to backup withholding for other reasons.
We encourage you to consult a tax adviser with respect to these matters.
For further information see "Dividends, Other Distributions And Taxes" in the
Statement of Additional Information.
Dividends and Other Distributions. The Fund earns ordinary or net
investment income in the form of interest and dividends on investments.
Dividends paid by the Fund will be based solely on the net investment income
earned by it. The Fund's policy is to distribute substantially all of this
income, less expenses, to shareholders on a quarterly basis, at the discretion
of the Company's board of directors. Dividends are automatically reinvested in
additional shares of the Fund at the net asset value on the payable date unless
otherwise requested.
In addition, the Fund realizes capital gains and losses when it sells
securities or derivatives 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 realized on certain foreign currency transactions, if any,
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 payable date unless otherwise requested.
Dividends and other distributions are paid to shareholders who hold shares
on the record date of distribution, regardless of how long the Fund shares have
been held by the shareholder. The Fund's share price will then drop by the
amount of the distribution on the ex-dividend or ex-distribution date. If a
shareholder purchases shares immediately prior to the distribution, the
shareholder will, in effect, have "bought" the distribution by paying the full
purchase price, a portion of which is then returned in the form of a taxable
distribution.
<PAGE>
ADDITIONAL INFORMATION
Voting Rights. All shares of the Company have equal voting rights based on
one vote for each share owned and a corresponding fractional vote for each
fractional share owned. The Company is not generally required and does not
expect to hold regular annual meetings of shareholders. However, when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Fund or as may be required by applicable law or the Company's Articles of
Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Fund. The Company will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
Master/Feeder Option. As a matter of fundamental policy, 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 substantially the same
fundamental investment objective, policies and limitations. It is expected that
any such investment company would be managed by INVESCO in substantially the
same manner as the Fund. If permitted by applicable law, any such investment may
be made in the sole discretion of the Company's board of directors without a
vote of the Fund's shareholders. However, shareholders will be given at least 30
days prior notice of any such investment. Such an investment would be made only
if the board of directors determines it to be in the best interests of the Fund
and its shareholders based on potential cost savings, operational efficiencies
or other factors. No assurance can be given that costs would be materially
reduced if this option were implemented.
<PAGE>
INVESCO Balanced Fund
A no-load mutual fund seeking capital appreciation
and current income.
PROSPECTUS
December 1, 1998
INVESCO FUNDS
INVESCO Distributors, Inc. (SM)
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>
PROSPECTUS
December 1, 1998
INVESCO MULTI-ASSET ALLOCATION FUND
INVESCO Multi-Asset Allocation Fund (the "Fund") seeks to achieve a high
total return on investment through capital appreciation and current income. The
Fund invests in six asset classes: stocks of large-capitalization companies,
stocks of small-capitalization companies, equity real estate securities,
international equity securities, fixed-income securities and cash securities.
Allocating assets among these different classes allows the Fund to take
advantage of attractive investment opportunities in various sectors of the
capital markets while providing diversification to reduce risk.
The Fund is a series of INVESCO ^ Combination Stock & Bond Funds, Inc.
(formerly, INVESCO ^ Flexible Funds, Inc.) (the "Company"), a diversified,
managed no-load mutual fund, consisting of two separate portfolios of
investments. A separate Prospectus is available upon request from INVESCO
Distributors, Inc. for the Company's other Fund, INVESCO Balanced Fund.
Investors may purchase shares of either or both of the Funds. Additional funds
may be offered in the future.
This Prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated December 1, 1998, has been filed with the Securities and
Exchange Commission, and is incorporated by reference into this Prospectus. To
request a free copy, write to INVESCO Distributors, Inc., P.O. Box 173706,
Denver, Colorado 80217-3706; call 1-800-525-8085; or visit our web site at
http://www.invesco.com.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Page
ESSENTIAL INFORMATION........................................................2
ANNUAL FUND EXPENSES.........................................................3
FINANCIAL HIGHLIGHTS.........................................................4
INVESTMENT OBJECTIVE AND STRATEGY............................................5
INVESTMENT POLICIES AND RISKS................................................7
THE FUND AND ITS MANAGEMENT.................................................10
FUND PRICE AND PERFORMANCE..................................................12
HOW TO BUY SHARES...........................................................12
FUND SERVICES...............................................................15
HOW TO SELL SHARES..........................................................15
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS....................................16
ADDITIONAL INFORMATION......................................................18
<PAGE>
ESSENTIAL INFORMATION
Investment Goal And Strategy: The Fund seeks a high total return on
investment through capital appreciation and current income by investing in a
strategic mixture of common stocks (both large- and small-cap), foreign
equities, equity real estate securities (primarily real estate investment
trusts), fixed-income securities and cash. Allocations are based upon the
projected investment returns for each class. There is no guarantee that the Fund
will meet its objective. See "Investment Objective And Strategy" and "Investment
Policies And Risks."
Designed For: Investors who want to diversify their portfolios among
various types of investments in a single fund. While not intended as a complete
investment program, the Fund may be a valuable element of your investment
portfolio. You also may wish to consider the Fund as part of a Uniform
Gifts/Transfers To Minors Act Account or systematic investing strategy. The Fund
may be a suitable investment for many types of retirement programs, including
various Individual Retirement Account ("IRAs"), 401(k), Profit Sharing, Money
Purchase Pension and 403(b) plans.
Time Horizon: Because the value of its holdings varies, the Fund's price
per share will fluctuate. Investors should consider this a medium- to long-term
investment.
Risks: The Fund's investments in fixed-income securities are subject to
credit risk and market risk. Its returns on foreign investments may be
influenced by currency fluctuations and other risks of investing overseas. The
market prices of the small-cap stocks in which the Fund invests may be more
volatile than those of large-cap stocks. The Fund's investments in real estate
securities have many of the same risks as the direct ownership of real estate.
See "Investment Objective And Strategy" and "Investment Policies And Risks."
Organization and Management: The Fund is a series of the Company. The Fund
is owned by its shareholders. It employs INVESCO Funds Group, Inc. ("INVESCO"),
founded in 1932, to serve as investment adviser, administrator and transfer
agent. INVESCO Management & Research, Inc. ("IMR") serves as sub-adviser.
Together, INVESCO and IMR constitute "Fund Management." INVESCO Distributors,
Inc. ("IDI"), founded in 1997 as a wholly-owned subsidiary of INVESCO, is the
Fund's distributor.
The Fund is managed by a team of investment professionals which is headed
by Bob Slotpole. Mr. Slotpole has 20 years of investment experience. See "The
Fund And Its Management."
<PAGE>
INVESCO, IMR and IDI are subsidiaries of AMVESCAP PLC, an international
investment management company that managed approximately ^ $241 billion in
assets as of ^ September 30, 1998. AMVESCAP PLC, is based in London with money
managers located in Europe, North America, South America and the Far East.
This Fund offers all of the following services at no charge:
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
Regular investment plans, such as EasiVest (the Fund's automatic
monthly investment program), Direct Payroll Purchase and Automatic
Monthly Exchange
Periodic withdrawal plans
See "How To Buy Shares" and "How To Sell Shares."
Minimum Initial Investment: $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans.
Minimum Subsequent Investment: $50 (Minimums are lower for certain
retirement plans.)
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares. The Fund is authorized to pay a Rule 12b-1 distribution fee of one
quarter of one percent of the Fund's average net assets each year. (See "How To
Buy Shares --Distribution Expenses.")
Like any company, the Fund has operating expenses such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts and other expenses. These expenses are paid from the Fund's assets.
Lower expenses therefore benefit investors by increasing the Fund's total
return.
We calculate annual operating expenses as a percentage of the Fund's
average annual net assets. To keep expenses competitive, INVESCO and IMR
voluntarily reimburse the Fund for certain expenses in excess of 1.50%
(excluding excess amounts that have been offset by the expense offset
arrangement described below) of the Fund's average net assets.
<PAGE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.75%
12b-1 Fees 0.25%
Other Expenses(1)(2) 0.54%
Total Fund Operating Expenses(1)(2) 1.54%
(1) It should be noted that the Fund's actual total operating expenses were
lower than the figures shown, because the Fund's custodian fees were reduced
under an expense offset arrangement. However, as a result of an SEC requirement,
the figures shown above do not reflect these reductions. In comparing expenses
for different years, please note that the Ratios of Expenses to Average Net
Assets shown under "Financial Highlights" do reflect reductions for periods
prior to the fiscal year ended July 31, 1996. See "The Fund And Its Management."
(2) Certain expenses of the Fund are being absorbed voluntarily by INVESCO and
IMR. In the absence of such absorbed expenses, the Fund's "Other Expenses" and
"Total Fund Operating Expenses" would have been 0.92% and 1.92%, respectively,
based on the Fund's actual expenses for the fiscal year ended July 31, 1998.
Example
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming a hypothetical 5% annual return and redemption at
the end of each time period. (Of course, actual operating expenses are paid from
the Fund's assets and are deducted from the amount of income available for
distribution to shareholders; they are not charged directly to shareholder
accounts.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$16 $49 $85 $186
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE OR EXPENSES,
AND ACTUAL ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
For more information on the Fund's expenses, see "The Fund And Its Management"
and "How To Buy Shares - Distribution Expenses."
Because the Fund pays a 12b-1 distribution fee, investors who own Fund
shares for a long period of time may pay more than the economic equivalent of
the maximum front-end sales charge permitted for mutual funds by the National
Association of Securities Dealers, Inc.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1998 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number
shown on the back of this Prospectus. The Annual Report also contains more
information about the Fund's performance.
<TABLE>
<CAPTION>
Period
Ended
Year Ended July 31 July 31
-------------------------------------------------------- -------
1998 1997 1996 1995 1994^
<S> <C> <C> <C> <C> <C>
Multi-Asset Allocation Fund
PER SHARE DATA
Net Asset Value --
Beginning of Period $13.75 $11.55 $10.84 $9.68 $10.00
-------------------------------------------------------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.24 0.25 0.28 0.28 0.06
Net Gains or (Losses) on
Securities (Both Realized
and Unrealized) 0.77 3.18 0.89 1.16 (0.32)
-------------------------------------------------------- -------
Total from Investment
Operations 1.01 3.43 1.17 1.44 (0.26)
-------------------------------------------------------- -------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.25 0.25 0.28 0.28 0.06
Distributions from
Capital Gains 1.54 0.98 0.18 0.00 0.00
-------------------------------------------------------- -------
Total Distributions 1.79 1.23 0.46 0.28 0.06
-------------------------------------------------------- -------
<PAGE>
Net Asset Value --
End of Period $12.97 $13.75 $11.55 $10.84 $9.68
=========== ====================================== ========
TOTAL RETURN 8.15% 31.41% 10.96% 15.11% (2.60%)*
RATIOS
Net Assets -- End of Period
($000 Omitted) $20,945 $17,117 $9,574 $7,778 $4,958
Ratio of Expenses to
Average Net Assets# 1.54%@ 1.55%@ 1.62%@ 1.50% 1.50%~
Ratio of Net Investment Income
to Average Net Assets# 1.78% 2.19% 2.43% 2.99% 2.23%~
Portfolio Turnover Rate 101% 98% 92% 79% 42%*
Average Commission Rate Paid^^ $0.0594 $0.0555 -- -- --
</TABLE>
^ From December 1, 1993, commencement of investment operations, to July 31,
1994.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by INVESCO and IMR
for the years ended July 31, 1998, 1997, 1996, 1995 and the period ended
July 31, 1994. If such expenses had not been voluntarily absorbed, ^ Ratio
of Expenses to Average Net Assets would have been 1.92%, 1.97%, 2.24%,
2.47% and 5.14% (annualized), respectively, and ^ Ratio of Net Investment
Income (Loss) to Average Net Assets would have been 1.40%, 1.77%, 1.81%,
2.02% and (1.41%) (annualized), respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
The Fund seeks a high total return on investment through capital
appreciation and current income. This investment objective is fundamental and
may not be changed without the approval of the Fund's shareholders. The Fund
seeks to achieve this objective by allocating its assets among six asset
classes: stocks of large-capitalization companies (large-cap stocks); stocks of
small-capitalization companies (small-cap stocks); equity real estate
securities, primarily real estate investment trusts; international equity
securities; fixed-income securities; and cash securities. There is no assurance
that the Fund's investment objective will be met.
The Fund may allocate its assets among these six classes within specified
ranges. Current allocations are based on Fund Management's projections of
investment returns for each class. The Fund's "benchmark mix" of assets
represents the expected allocation when the projected returns for all six
classes are normal relative to the others based on historical investment
returns. If we believe the return for a particular class will be higher than
normal relative to the others, the Fund invests in that class more heavily than
the benchmark suggests. Conversely, if we estimate lower-than-normal returns for
a particular class relative to the others, it is underweighted relative to the
benchmark mix. The historical performance of each class is measured by using a
comparative index of securities for the class. The Fund's six asset classes,
investment ranges, benchmark mix and comparative indices are set forth below:
Percentage Bench-
Asset of Fund's mark
Class Total Assets Mix Comparative Index
- --------------------------------------------------------------------------------
Large-cap stocks 0-70% 35% S&P 500
Small-cap stocks 0-30% 10% Russell 2000
Real estate equity
securities 0-30% 10% NAREIT Equity
REIT Index
International
stocks 0-30% 10% MSCI-EAFE
Fixed-income 0-50% 25% Lehman Brothers
Aggregate Bond
Cash securities 0-30% 10% 90-day T-bills
<PAGE>
Fund Management regularly reviews the Fund's investment allocations and
will vary the amount invested in each class within the ranges set forth above
depending upon its assessment of business, economic and market conditions.
However, we do not attempt to "time" the various markets or make sudden, major
shifts in weightings. Any allocation adjustments are made gradually and in
accordance with the Fund's objective of seeking a high total return. While the
percentage of the Fund's assets invested in each class will vary from time to
time, the Fund does not anticipate altering the benchmark mix. However, Fund
Management reserves the right to add or delete asset classes and to adjust the
percentage of each class in the benchmark mix accordingly. The Fund will not add
or delete asset classes without giving shareholders such notice as may be
required under the circumstances.
The Fund's investment portfolio is actively traded. There are no
limitations regarding portfolio turnover for either the equity or fixed-income
portions of the Fund's portfolio. Although the Fund does not trade for
short-term profits, securities may be sold without regard to the time they have
been held when, in the opinion of Fund Management, investment considerations
warrant such action. The Fund's portfolio turnover rate therefore may be higher
than other mutual funds with similar objectives. Increased portfolio turnover
may result in greater brokerage commissions and acceleration of capital gains
which are taxable when distributed to shareholders. The Statement of Additional
Information includes an expanded discussion of the Fund's portfolio turnover
rate, its brokerage practices and certain federal income tax matters.
The amount invested in stocks, bonds and cash securities may vary from
time to time depending upon Fund Management's assessment of business, economic
and market conditions. When we believe market or economic conditions are
unfavorable, the Fund may assume a defensive position by temporarily investing
up to 100% of its assets in high-quality money market instruments, such as
short-term U.S. government obligations, commercial paper or repurchase
agreements, seeking to protect its assets until conditions stabilize. Under
normal market conditions, the Fund does not expect to have a substantial portion
of its assets invested in cash securities.
Equity Holdings
In managing the equity portions of the Fund's portfolio (large-cap stocks,
small-cap stocks, equity real estate securities and international stocks), Fund
Management applies a combination of quantitative strategies and traditional
stock selection methods to a broad universe of stocks in order to uncover
attractive values. Typically, common stocks and, to a lesser degree, preferred
<PAGE>
stocks and securities convertible into common stocks, will be examined
quantitatively for their exposure to certain factors that we believe are helpful
in selecting equities that can be expected to show superior future performance.
These factors include earnings-to-price ratio, book value-to-price ratio,
earnings estimate revision momentum, relative market strength compared to
competitors, inventory/sales trend and financial leverage. A stock's expected
return is estimated based on these factors and estimated trading costs. Next a
computer optimization process suggests a portfolio that seeks to maximize
expected return at a controlled level of risk. Traditional fundamental analysis
is then employed to make the final selection of holdings.
Large-^ Cap Stocks. These holdings are selected from the 1,000 largest
publicly-traded U.S. companies. Size is determined by measuring a firm's market
capitalization -- the market value of all of a company's equity securities.
These securities are traded principally on U.S. national stock exchanges but
also may be traded on regional stock exchanges or in the over-the-counter (OTC)
market. Large-cap stocks may offer higher dividends than the stocks of
smaller-cap firms.
The index used to measure the historical performance of large-cap stocks
is the Standard & Poor's 500, which is composed of 500 widely held common stocks
listed on the New York or American Stock Exchange or on the NASDAQ OTC market.
Small-^ Cap Stocks. The Fund seeks its small-cap holdings from companies
having market capitalizations smaller than the 1,000 largest publicly-traded
U.S. companies. These small-cap stocks typically pay no or only minimal
dividends and may involve greater risks than securities of larger, more
established companies. However, because of their long-term prospects, they may
offer the potential for greater price appreciation.
The index used to measure the historical performance of small-cap stocks
is the Russell 2000, which is composed of the 2,000 publicly-traded U.S.
companies that are next in size after the 1,000 largest publicly traded U.S.
companies, measured by market capitalization.
Real ^ Estate Equity Securities. The Fund focuses its real estate
investments on equity real estate investment trusts (REITs) but may also invest
in real estate development and real estate operating companies, as well as other
real estate-related businesses. Equity REITs are trusts that sell shares to
investors and invest the proceeds in real estate. The index used is the NAREIT
Equity REIT, which is composed of all tax-qualified REITs listed on the New York
and American Stock Exchanges, plus those listed on the NASDAQ National Market
System.
<PAGE>
International ^ Stocks. The Fund may invest in international equity
securities directly or through American Depository Receipts ("ADRs"). Up to 25%
of the Fund's total assets, measured at the time of purchase, may be invested
directly in foreign securities. Investments in Canadian securities and ADRs are
not included in this limitation. ADRs are receipts representing shares of a
foreign corporation held by a U.S. bank that entitle the holder to all dividends
and capital gains. ADRs are denominated in U.S. dollars and trade in the U.S.
securities markets. The index used is the Morgan Stanley Capital Index-Europe,
Australia and Far East (MSCI-EAFE), which is composed of companies listed on
exchanges in countries of those specific regions.
Fixed Income and Cash Holdings
Fixed-^ Income. For the fixed-income portion of the holdings, we select
only obligations of the U.S. government, its agencies and instrumentalities, or
investment grade corporate bonds. These securities tend to offer lower income
than bonds of lower quality but are more shielded from credit risk. Obligations
issued by government agencies or instrumentalities may include some supported
only by the credit of the issuer rather than backed by the full faith and credit
of the U.S. government. The Fund also may invest up to 25% of its total assets
in fixed-income securities issued by foreign companies. The Fund may hold
securities of any maturity (from less than one year up to 30 years), with the
average maturity varying depending upon economic and market conditions.
The index used to measure the historical performance of fixed-income
securities is the Lehman Brothers Aggregate Bond, which is composed of
fixed-rate, investment grade domestic corporate bond issues, plus U.S.
government treasury and agency securities, Yankee bonds (U.S. traded debt issued
or guaranteed by foreign governments) and mortgage-backed securities.
Cash ^ Securities. The Fund's cash securities may include domestic
certificates of deposit and bankers' acceptances, repurchase agreements,
commercial paper and U.S. government and agency securities and investment grade
corporate bonds with remaining maturities of one year or less.
INVESTMENT POLICIES AND RISKS
Investors generally should expect to see the price per share and income
levels of the Fund vary with movements in the stock and fixed-income markets,
changes in economic conditions and other factors. The Fund invests in many
different securities and industries; this diversification may help reduce the
Fund's exposure to particular investment and market risks but cannot eliminate
these risks.
<PAGE>
Year 2000 Computer Issue. Due to the fact that many computer systems in
use today cannot recognize the Year 2000, but will, unless corrected, revert to
1900 or 1980 or cease to function at that time, the markets for securities in
which the Fund invests may be detrimentally affected by computer failures
affecting portfolio investments or trading of securities beginning January 1,
2000. Improperly functioning trading systems may result in settlement problems
and liquidity issues. In addition, corporate and governmental data processing
errors may result in production issues for individual companies and overall
economic uncertainties. Earnings of individual issuers may be affected by
remediation costs, which may be substantial. The Fund's investments may be
adversely affected.
Small-Cap Stocks. Small-cap companies frequently have limited operating
histories, product lines and financial and managerial resources. They may
experience intense competitive pressures from larger, more established firms in
the same industry. The market prices of small-cap stocks may be more volatile
than those of large-cap stocks both because they typically trade in lower
volumes and because small-cap firms may be more vulnerable to changes in their
earnings or prospects. As a result, small-cap companies may experience
substantial losses as well as significant growth.
Real Estate Securities. Real estate securities have many of the same risks
as the direct ownership of real estate, including the risk that the property
will decline in value, and risks related to general and local economic
conditions, overbuilding, property tax and operating expense increases and
fluctuating rental income. REITs have the additional factors of management
skill, potentially inadequate diversification, and favorable financing to
consider. REITs are also subject to the possibility of failing to qualify for
tax-free pass-through of income under the Internal Revenue Code of 1986 and
failing to maintain exemption from the Investment Company Act of 1940.
Debt Securities. When we assess an issuer's ability to meet its interest
rate obligations and repay its debt when due, we are referring to "credit risk."
Debt obligations are rated based on their estimated credit risk by independent
services such as Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P") or Moody's Investors Service, Inc. ("Moody's"). "Market risk" for
debt securities principally refers to sensitivity to changes in interest rates.
For instance, when interest rates go up, the market value of a previously issued
bond generally declines; on the other hand, when interest rates go down, the
prices of bonds generally increase.
The lower a bond's quality, the more it is subject to credit risk and
market risk and the more speculative it becomes; this is also true of most
unrated debt securities. The Fund seeks to reduce these risks by investing only
in investment grade debt securities (those rated AAA, AA, A or BBB by S&P or
Aaa, Aa, A or Baa by Moody's or, if unrated, are judged by Fund Management to be
<PAGE>
of equivalent quality). These bonds enjoy strong to adequate capacity to
pay principal and interest. Securities rated BBB or Baa are considered to be of
medium grade and may have speculative characteristics. While Fund Management
continuously monitors all of the debt securities in the Fund's 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.
The Fund's investments in debt securities may include investments in zero
coupon bonds, step-up bonds, mortgage-backed securities and asset-backed
securities. Zero coupon bonds ("zeros") make no periodic interest payments.
Instead, they are sold at a discount from their face value. The buyer of the
zero receives the rate of return by the gradual appreciation in the price of the
security, which is redeemed at face value at maturity. Step-up bonds initially
make no (or low) cash interest payments but begin paying interest (or a higher
rate of interest) at a fixed time after issuance of the bond. Because they are
extremely responsive to changes in interest rates, the market prices of both
zeros and step-up bonds may be more volatile than other bonds. The Fund may be
required to distribute income recognized on these bonds, even though no cash
interest payments may be received, which could reduce the amount of cash
available for investment by the Fund.
Mortgage-backed securities represent interests in pools of mortgages.
Asset-backed securities generally represent interests in pools of consumer
loans. Both usually are structured as pass-through securities. Interest and
principal payments ultimately depend on payment of the underlying loans,
although the securities may be supported, at least in part, by letters of credit
or other credit enhancements or, in the case of mortgage-backed securities,
guarantees by the U.S. government, its agencies or instrumentalities. The
underlying loans are subject to prepayments that may shorten the securities'
weighted average lives and may lower their returns.
The Fund also may invest in stripped mortgage- or asset-backed securities,
in which the principal and interest payments on the underlying pool of loans are
separated or "stripped" to create two classes of securities. In general, the
interest-only, or IO, class receives all of the interest payments and the
principal-only, or PO, class receives all of the principal payments. The market
prices of these securities generally are more sensitive to changes in interest
and prepayment rates than traditional mortgage and asset-backed securities and
may be extremely volatile.
<PAGE>
Foreign Securities. Up to 25% of the Fund's total assets, measured at the
time of purchase, may be invested directly in foreign equity and corporate debt
securities. Securities of Canadian issuers and American Depository Receipts
("ADRs") are not subject to this 25% limitation. ADRs are receipts representing
shares of a foreign corporation held by a U.S. bank that entitle the holder to
all dividends and capital gains. ADRs are denominated in U.S. dollars and trade
in the U.S. securities 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 aspects 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; and
-investment income on certain foreign securities 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 the Fund may experience difficulties in pursuing legal remedies
and collecting judgments.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands, Portugal and Spain are presently members of the European Economic
and Monetary Union (the "EMU"). The EMU intends to establish a common European
currency for EMU countries which will be known as the "euro." Each participating
country presently plans to adopt the euro as its currency on January 1, 1999.
The old national currencies will be sub-currencies of the euro until July 1,
2002, at which time the old currencies will disappear entirely. Other European
countries may adopt the euro in the future.
<PAGE>
The planned introduction of the euro presents some uncertainties and
possible risks, including whether the payment and operational systems of banks
and other financial institutions will be ready by January 1, 1999; whether
exchange rates for existing currencies and the euro will be adequately
established; and whether suitable clearing and settlement systems for the euro
will be in operation. These and other factors may cause market disruptions
before or after January 1, 1999 and could adversely affect the value of
securities held by the Fund.
ADRs are subject to some of the same risks as direct investments in
foreign securities, including the risk that material information about the
issuer may not be disclosed in the United States and the risk that currency
fluctuations may adversely affect the value of the ADR.
Illiquid and Rule 144A Securities. The Fund may invest in illiquid
securities, including securities that are subject to restrictions on resale and
securities that are not readily marketable. The Fund may also invest in
restricted securities that are not registered for sale to the general public,
but that may be resold to institutional investors, known as "Rule 144A
Securities." For more information concerning illiquid and Rule 144A Securities,
see "Investment Policies And Restrictions" in the Statement of Additional
Information.
Delayed Delivery or When-Issued Securities. Up to 10% of the value of the
Fund's total assets may be committed to the purchase or sale of securities on a
when-issued or delayed-delivery basis --that is, with settlement taking place in
the future. The payment obligation and the interest rate 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 market value of the
securities may vary. No interest is payable to the Fund prior to settlement.
Repurchase Agreements. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price and date. The Fund could incur costs or delays in seeking
to sell the security if the prior owner defaults on its repurchase obligation.
To reduce that risk, the securities that are the subject of the repurchase
<PAGE>
agreement will be maintained with the Fund's custodian in an amount at
least equal to the repurchase price under the agreement (including accrued
interest). These agreements are entered into only with member banks of the
Federal Reserve System, registered broker-dealers and registered U.S. government
securities dealers that are deemed creditworthy under standards established by
the Company's board of directors.
Securities Lending. The Fund may seek to earn additional income by lending
securities to qualified brokers, dealers, banks, or other financial
institutions, on a fully collateralized basis. For further information on this
policy, see "Investment Policies And Restrictions" in the Statement of
Additional Information.
Futures, Options and Other Derivative Instruments. In order to hedge its
portfolio, the Fund may purchase and write options on securities (including
index options and options on foreign securities) and may invest in futures
contracts for the purchase or sale of foreign currencies, fixed-income
securities and instruments based on financial indices (collectively, "futures
contracts"), options on futures contracts and forward contracts. These practices
and their risks are discussed under "Investment Policies and Restrictions" in
the Statement of Additional Information.
Investment Restrictions. Certain restrictions, which are identified in the
Statement of Additional Information, may not be altered without the approval of
the Fund's shareholders. For example, with respect to 75% of its total assets,
the Fund limits to 5% the portion of its total assets that may be invested in
any one issuer (other than cash items and U.S. government securities). In
addition, the Fund limits to 25% the portion of its total assets that may be
invested in any one industry (other than U.S. government securities). Other
fundamental restrictions prohibit the Fund from lending more than 33-1/3% of its
total assets to other parties and from borrowing money, except that the Fund may
borrow for temporary or emergency purposes, and enter into reverse repurchase
agreements in an amount not exceeding 33 1/3% of its total assets.
For a further discussion of risks associated with an investment in the
Fund, see "Investment Policies And Restrictions" and "Investment Practices" in
the Statement of Additional Information.
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as a diversified, open-end, management investment company.
It was incorporated on August 19, 1993, under the laws of Maryland. On September
10, 1998, the name of the Company was changed to INVESCO Flexible Funds, Inc. On
October 29, 1998, the name of the Company was changed to INVESCO Combination
Stock & Bond Funds, Inc.
<PAGE>
The Company's board of directors has responsibility for overall
supervision of the Fund and reviews the services provided by the investment
adviser and investment sub-adviser. Under an agreement with the Company,
INVESCO, 7800 E. Union Avenue, Denver, Colorado 80237, serves as the Fund's
investment adviser; it is primarily responsible for providing the Fund with
various administrative services. An affiliate of INVESCO, IMR, 101 Federal
Street, Boston, Massachusetts, is the Fund's sub-adviser and is primarily
responsible for providing the Fund with portfolio management. INVESCO and IMR
may be referred to herein collectively as "Fund Management."
INVESCO, IMR and IDI are indirect, wholly-owned subsidiaries of AMVESCAP
PLC. AMVESCAP PLC is 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. INVESCO
and IMR continued to operate under their existing names. AMVESCAP PLC had
approximately ^ $241 billion in assets under management as of ^ September 30,
1998. INVESCO was established in 1932 and, as of July 31, 1998, managed 14
mutual funds, consisting of 49 separate portfolios, with combined assets of
approximately $19.6 billion on behalf of 884,099 shareholders. IMR also acts as
sub-adviser to the INVESCO Small Company Value Fund and offers investment
services to U.S. institutions and wealthy individuals.
The Fund is managed by a team of specialists, headed by Bob Slotpole, with
expertise in the various asset classes in which the Fund invests. Mr. Slotpole,
portfolio manager since 1993 for INVESCO Management & Research, Inc., has served
as lead portfolio manager of the Fund since 1994 and is primarily responsible
for the overall allocation of the Fund's investments among the six asset
classes. He is also the portfolio manager of INVESCO Small Company Value Fund.
His recent career includes these highlights: He developed the program trading
department at First Boston (1985 to 1992) and served with the proprietary
options department at Lehman Brothers (1983 to 1984). B.S., State University of
New York at Buffalo; M.B.A., Stanford University.
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 Fund or Fund Management's other advisory
clients. See the Statement of Additional Information for more detailed
information.
<PAGE>
The Fund pays INVESCO a monthly management fee which is based upon a
percentage of the Fund's average net assets determined daily. The management fee
is computed at the annual rate of 0.75% on the first $500 million of the Fund's
average net assets; 0.65% on the next $500 million of the Fund's average net
assets; and 0.50% on the Fund's average net assets over $1 billion. For the
fiscal year ended July 31, 1998, investment management fees paid by the Fund
amounted to 0.75% of the Fund's average net assets. Out of this fee, INVESCO
paid an amount equal to 0.33% of the Fund's average net assets to IMR as a
sub-advisory fee. No fee is paid by the Fund to IMR.
Under a Distribution Agreement, IDI provides services relating to the
distribution and sale of the Fund's shares. IDI, established in 1997, is a
registered broker-dealer that acts as distributor for all retail funds advised
by INVESCO. Prior to September 30, 1997, INVESCO served as the Fund's
distributor.
Under a Transfer Agency Agreement, INVESCO acts as registrar, transfer
agent and dividend disbursing agent for the Fund. The Fund pays an annual fee of
$20.00 per shareholder account or, where applicable, per participant in an
omnibus account. Registered broker-dealers, third party administrators of
tax-qualified retirement plans and other entities, including affiliates of
INVESCO, may provide equivalent services to the Fund. In these cases, INVESCO
may pay, out of the fee it receives from the Fund, an annual sub-transfer agency
fee or recordkeeping fee to the third party.
Under an Administrative Services Agreement, INVESCO handles additional
administrative, recordkeeping and internal sub-accounting services for the Fund.
For the fiscal year ended July 31, 1998, the Fund paid INVESCO a fee for these
services in an amount equal to 0.07% of the Fund's average net assets.
The management and custodial services provided to the Fund by INVESCO and
the Fund's custodian, and the services provided to shareholders by INVESCO and
IDI, depend on the continued functioning of their computer systems. Many
computer systems in use today cannot recognize the Year 2000, but will revert to
1900 or 1980 or will cease to function due to the manner in which dates were
encoded and are calculated. That failure could have a negative impact on the
handling of the Fund's securities trades, its share pricing and its account
services. The Fund and its service providers have been actively working on
necessary changes to their computer systems to deal with the Year 2000 issue and
<PAGE>
expect that their computer systems will be adapted before that date, but
there can be no assurance that they will be successful. Furthermore, services
may be impaired at that time as a result of the interaction of their systems
with the noncomplying computer systems of others. INVESCO plans to test as many
such interactions as practicable prior to December 31, 1999 and to develop
contingency plans for reasonably anticipated failures.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. Total expenses of the Fund (prior to any
expense offset arrangements) for the fiscal year ended July 31, 1998, including
investment advisory fees (but excluding brokerage commissions, which are a cost
of acquiring securities), amounted to 1.54% of the Fund's average net assets.
Certain Fund expenses ^ may be absorbed voluntarily by INVESCO and IMR pursuant
to a commitment to the Fund to ensure that the Fund's total operating expenses
(after expense offset arrangements) ^ do not exceed 1.50% of the Fund's average
net assets. In the absence of this voluntary expense limitation, the Fund's
total operating expenses for the year ended July 31, 1998, would have been 1.92%
of the Fund's average net assets. This commitment may be changed following
consultation with the Company's board of directors.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of
such brokers' and dealers' financial responsibility coupled with their ability
to effect transactions at the best available prices. As discussed under "How To
Buy Shares -Distribution Expenses," the Fund may market its shares through
intermediary brokers or dealers that have entered into Dealer Agreements with
INVESCO or IDI, as the Fund's distributor. The Fund may place orders for
portfolio transactions with qualified brokers and dealers that recommend the
Fund or sell shares of the Fund, to clients, or act as agent in the purchase of
Fund shares for clients, if Fund Management believes that the quality of the
execution of the transaction and level of commission are comparable to those
available from other qualified brokerage firms. For further information, see
"Investment Practices - Placement of Portfolio Brokerage" in the Statement of
Additional Information.
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the Fund will vary
daily. The price per share is also known as the Net Asset Value ("NAV"). INVESCO
prices the Fund every day that the New York Stock Exchange is open, as of the
close of regular trading (generally, 4:00 p.m., New York time). NAV is
calculated by adding together the current market value of all of the Fund's
assets, including accrued interest and dividends; subtracting liabilities,
including accrued expenses; and dividing that dollar amount by the total number
of shares outstanding.
<PAGE>
Performance Data. To keep shareholders and potential investors informed,
we will occasionally advertise the Fund's total return for one-, five-, and
ten-year periods (or since inception). Total return figures show the average
annual rate of return on a $1,000 investment in the Fund, assuming reinvestment
of all dividends and capital gain distributions for the periods cited.
Cumulative total return shows the actual rate of return on an investment for the
periods cited; average annual total return represents the average annual
percentage change in the value of an investment. Both cumulative and average
annual total returns tend to "smooth out" fluctuations in the Fund's investment
results, because they do not show the interim variations in performance over the
periods cited. More information about the Fund's recent and historical
performance is contained in the Fund's Annual Report to Shareholders. You can
get a free copy by calling or writing to IDI using the phone number or address
on the back cover of this Prospectus.
When we quote mutual fund rankings published by Lipper Analytical
Services, Inc., we may compare the Fund to others in its category of Flexible
Portfolio Funds, as well as the broad-based Lipper general fund groupings. These
rankings allow you to compare the Fund to its peers. Other independent financial
media also produce performance- or service-related comparisons, which you may
see in our promotional materials. For more information, see "Fund Performance"
in the Statement of Additional Information.
Performance figures are based on historical investment results and are not
intended to suggest future performance.
HOW TO BUY SHARES
The following chart shows several convenient ways to invest in the Fund.
Your new Fund shares will be priced at the NAV next determined after your order
is received in proper form. There is no charge to invest, exchange or redeem
shares when you make transactions directly through INVESCO. However, if you
invest in the Fund through a securities broker, you may be charged a commission
or transaction fee. INVESCO may from time to time make payments from its
revenues to securities dealers and other financial institutions that provide
distribution-related and/or administrative services for the Company. For all new
accounts, please send a completed application form. Please specify which Fund's
shares you wish to purchase.
Fund Management reserves the right to increase, reduce or waive the
minimum investment requirements in its sole discretion, where it determines
this action is in the best interests of the Fund. Fund Management reserves the
right in its sole discretion to reject any order for the purchase of Fund shares
(including purchases by exchange) when, in its judgment, such rejection is in
the Fund's best interests.
<PAGE>
HOW TO BUY SHARES
================================================================================
Method Investment Minimum Please Remember
- --------------------------------------------------------------------------------
By Check
Mail to: $1,000 for regular If your check does
INVESCO Funds account; not clear, you will
Group, Inc., $250 for an IRA; be responsible for
P.O. Box 173706, $50 minimum for any related loss
Denver, CO each subsequent the Fund or INVESCO
80217-3706. investment. incurs. If you are
Or you may send already a
your check by shareholder in the
overnight courier INVESCO funds, the
to: 7800 E. Union Fund may seek
Ave., reimbursement from
Denver, CO 80237. your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
By Telephone or
Wire
Call 1-800-525-8085 $1,000. Payment must be
to request your received within 3
purchase. Then send business days, or
your check by the transaction may
overnight courier be canceled. If a
to our street purchase is
address: canceled due to
7800 E. Union Ave., nonpayment, you
Denver, CO 80237. will be responsible
Or you may transmit for any related
your payment by loss the Fund or
bank wire (call INVESCO incurs. If
INVESCO for you are already a
instructions). shareholder in the
INVESCO funds, the Fund
may seek reimbursement
from your existing
account(s) for any loss
incurred.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
With EasiVest or
Direct Payroll
Purchase
You may enroll on $50 per month for Like all regular
the fund EasiVest; $50 per investment plans,
application, or pay period for neither EasiVest
call us for the Direct Payroll nor Direct Payroll
correct form and Purchase. You may Purchase ensures a
more details. start or stop your profit or protects
Investing the same regular investment against loss in a
amount on a monthly plan at any time, falling market.
basis allows you to with two weeks' Because you'll
buy more shares notice to INVESCO. invest continually,
when prices are low regardless of
and fewer shares varying price
when prices are levels, consider
high. This your financial
"dollar-cost ability to keep
averaging" may help buying through low
offset market price levels. And
fluctuations. Over remember that you
a period of time, will lose money if
your average cost you redeem your
per share may be shares when the
less than the market value of all
actual average your shares is less
price per share. than their cost.
- --------------------------------------------------------------------------------
By PAL
Your "Personal $1,000; $250 for an Be sure to write
Account Line" is IRA. down the
available for confirmation number
subsequent provided by PAL.
purchases and Payment must be
exchanges 24-hours received within 3
a day. Simply call business days, or
1-800-424-8085. the transaction may
be canceled. If a
telephone purchase is
canceled due to
nonpayment, you will be
responsible for any
related loss the Fund or
INVESCO incurs. If you
are already a shareholder
in the INVESCO funds, the
Fund may seek
reimbursement from your
existing account(s) for
any loss incurred.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy" below.
INVESCO funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an ^ (The exchange
automatic monthly minimum is $250 for
exchange service purchases requested
between two INVESCO by telephone.)
funds; call INVESCO
for further details
and the correct form.
================================================================================
Exchange Policy. You may exchange your shares in this Fund for those in
another INVESCO fund on the basis of their respective net asset values at the
time of the exchange. Before making any exchange, be sure to review the
prospectuses of the funds involved and consider their differences.
<PAGE>
Please note these policies regarding exchanges of fund shares:
1) The fund accounts must be identically registered.
2) You may make four exchanges out of each fund during each calendar
year.
3) An exchange is the redemption of shares from one fund followed by
the purchase of shares in another. Therefore, any gain or loss
realized on the exchange is recognizable for federal income tax
purposes (unless, of course, your account is tax-deferred).
4) In order to prevent abuse of this policy to the disadvantage of
other shareholders, the Fund reserves the right to temporarily or
permanently terminate the exchange option of any shareholder who
requests more than four exchanges in a year, or at any time the
Fund determines the actions of the shareholder are detrimental to
Fund performance and shareholders. The Fund will determine
whether to do so based on a consideration of both the number of
exchanges any particular shareholder, or group of shareholders,
has requested and the time period over which those exchange
requests have been made, together with the level of expense to
the Fund which will result from effecting additional exchange
requests. The Fund is intended to be a long-term investment
vehicle and is not designed to provide investors the means of
speculation on short-term market movements.
5) Notice of all such modifications or terminations of the exchange
privilege that would affect all Fund shareholders will be given
at least 60 days prior to the effective date of the change in
policy, except in unusual circumstances (such as when redemptions
of the exchanged shares are suspended under Section 22(e) of the
Investment Company Act of 1940, or when sales of the fund into
which you are exchanging are temporarily suspended).
Distribution Expenses. The Fund is authorized under a Plan and Agreement
of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Plan") to use its assets to finance certain activities relating to the
distribution of its shares to investors. Under the Plan, monthly payments may be
made by the Fund to IDI to permit IDI, at its discretion, to engage in certain
activities and provide certain services approved by the board of directors of
the Company in connection with the distribution of the Fund's shares to
investors. These activities and services may include the payment of compensation
<PAGE>
(including incentive compensation and/or continuing compensation based on the
amount of customer assets maintained in the Fund) to securities dealers and
other financial institutions and organizations, which may include INVESCO- and
IDI-affiliated companies, to obtain various distribution-related and/or
administrative services for the Fund. Such services may include, among other
things, processing new shareholder account applications, preparing and
transmitting electronically to the Fund's transfer agent computer-processable
tapes of all transactions by customers and serving as the primary source of
information to customers in answering questions concerning the Fund and their
transactions with the Fund.
In addition, other permissible activities and services include
advertising, preparation, printing and distribution of sales literature,
printing and distribution of prospectuses to prospective investors and such
other services and promotional activities for the Fund as may from time to time
be agreed upon by the Company and its board of directors, including public
relations efforts and marketing programs to communicate with investors and
prospective investors. These services and activities may be conducted by the
staff of INVESCO, IDI or their affiliates or by third parties.
Under the Plan, the Fund's payments to IDI are limited to an amount
computed at an annual rate of 0.25% of the Fund's average net assets. IDI is not
entitled to payment for overhead expenses under the Plan, but may be paid for
all or a portion of the compensation paid for salaries and other employee
benefits for the personnel of INVESCO or IDI whose primary responsibilities
involve marketing shares of the INVESCO ^ mutual funds, including the Fund.
Payment amounts by the Fund under the Plan, for any month, may be made to
compensate IDI for permissible activities engaged in and services provided by
IDI during the rolling 12-month period in which that month falls. Therefore, any
obligations incurred by IDI in excess of the limitations described above will
not be paid by the Fund under the Plan, and will be borne by IDI. In addition,
IDI and its affiliates may from time to time make additional payments from their
revenues to securities dealers, financial advisers and other financial
institutions that provide distribution-related and/or administrative services
for the Fund. No further payments will be made by the Fund under the Plan in the
event of the Plan's termination. Payments made by the Fund may not be used to
finance directly the distribution of shares of any other Fund of the Company or
other mutual funds advised by INVESCO and distributed by IDI. However, payments
received by IDI which are not used to finance the distribution of shares of the
Fund become part of IDI's revenues and may be used by IDI for activities that
promote the distribution of any of the mutual funds advised by INVESCO. Subject
to review by the Company's directors, payments made by the Fund under the Plan
for compensation of marketing personnel, as noted above, are based on an
<PAGE>
allocation formula designed to ensure that all such payments are
appropriate. IDI will bear any distribution-and service-related expenses in
excess of the amounts which are compensated pursuant to the Plan. The Plan also
authorizes any financing of distribution which may result from ^ INVESCO's or
IDI's use of fees received from the Fund for services rendered by INVESCO,
providing that such fees are legitimate and not excessive. For more information
see "How Shares Can Be Purchased -Distribution Plan" in the Statement of
Additional ^ Information.
FUND SERVICES
Shareholder Accounts. INVESCO will maintain a share account that reflects
your current holdings. Share certificates will be issued only upon specific
request. You will have greater flexibility to conduct transactions if you do not
request certificates.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges and redemptions. If you choose certain recurring
transaction plans (for instance, EasiVest), your transactions will be confirmed
on your quarterly Investment Summary.
Investment Summaries. Each calendar quarter, shareholders receive a
written statement which consolidates and summarizes account activity and value
at the beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and other distributions are
automatically reinvested in additional fund shares at the NAV on the ex-dividend
or ex-distribution date, unless you choose to have dividends and/or capital gain
distributions automatically reinvested in another INVESCO fund or paid by check
(minimum of $10.00).
Telephone Transactions. All shareholders may exchange and redeem Fund
shares by telephone, unless they expressly decline these privileges. By signing
the new account Application or a Telephone Transaction Authorization Form, or
otherwise using these privileges, the investor has agreed that, if the Fund has
followed reasonable procedures, such as recording telephone instructions and
sending written transaction confirmations, it will not be liable for following
telephoned instructions that it believes to be genuine. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions.
Retirement Plans ^ and IRAs. Fund shares may be purchased for IRAs and many
types of tax-deferred retirement plans. INVESCO can supply you with information
and forms to establish or transfer your existing plan or account.
<PAGE>
HOW TO SELL SHARES
The following chart shows several convenient ways to redeem your Fund
shares. Shares of the Fund may be redeemed at any time at their current NAV next
determined after a request in proper form is received at the Fund's office. The
NAV at the time of the redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the Fund's investment
performance.
Please specify from which fund you wish to redeem shares. Shareholders
have a separate account for each fund in which they invest.
HOW TO SELL SHARES
================================================================================
Method Minimum Redemption Please Remember
- --------------------------------------------------------------------------------
By Telephone
Call us toll-free $250 (or, if less, This option is not
at 1-800-525-8085. full liquidation of available for
the account) for a shares held in
redemption check; IRAs.
$1,000 for a wire
to bank of record.
The maximum amount
which may be
redeemed by
telephone is
generally $25,000.
These telephone
redemption
privileges may be
modified or
terminated in the
future at INVESCO's
discretion.
- --------------------------------------------------------------------------------
In Writing
Mail your request Any amount. The If the shares to be
to INVESCO Funds redemption request redeemed are
Group, Inc., P.O. must be signed by represented by
Box 173706, all registered stock certificates,
Denver, CO account owners. the certificates
80217-3706. You may Payment will be must be sent to
also send your mailed to your INVESCO.
request by address of record,
overnight courier or to a
to 7800 E. Union pre-designated
Ave., Denver, CO bank.
80237.
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy," page 12.
INVESCO funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an (The exchange
automatic monthly minimum is $250 for
exchange service exchanges requested
between two INVESCO by telephone.)
funds; call INVESCO
for further details
and the correct
form.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Periodic Withdrawal
Plan
You may call us to $100 per payment, You must have at
request the on a monthly or least $10,000 total
appropriate form quarterly basis. invested with the
and more The redemption INVESCO funds, with
information at check may be made at least $5,000 of
1-800-525-8085. payable to any that total invested
party you in the fund from
designate. which withdrawals
will be made.
- --------------------------------------------------------------------------------
Payment To Third
Party
Mail your request Any amount. All registered
to INVESCO Funds account owners must
Group, Inc., P.O. sign the request,
Box 173706, with a signature
Denver, CO guarantee from an
80217-3706. eligible guarantor
financial institution,
such as a commercial bank
or recognized national or
regional securities firm.
================================================================================
While the Fund will attempt to process telephone redemptions promptly,
there may be times -- particularly in periods of severe economic or market
disruption -- when you may experience delays in redeeming shares by phone.
Payments of redemption proceeds will be mailed within seven days following
receipt of the redemption request in proper form. However, payment may be
postponed under unusual circumstances -- for instance, if normal trading is not
taking place on the New York Stock Exchange or during an emergency as defined by
the Securities and Exchange Commission. If your shares were purchased by a check
which has not yet cleared, payment will be made promptly upon clearance of the
purchase check (which will take up to 15 days).
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate further
EasiVest purchases unless you instruct us otherwise.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to involuntarily redeem all shares in such
account, in which case the account would be involuntarily liquidated and the
proceeds forwarded to the shareholder. Prior to any such redemption, a
shareholder will be notified and given 60 days to increase the value of the
account to $250 or more.
<PAGE>
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders substantially all of
its net investment income, net capital gains and net gains from foreign currency
transactions, if any. Distribution of substantially all net investment income to
shareholders allows the Fund to maintain its tax status as a regulated
investment company. The Fund does not expect to pay any federal income or excise
taxes because of its distribution policy and tax status as a regulated
investment company.
Shareholders must include all dividends and other distributions as taxable
income for federal, state and local income tax purposes unless they are exempt
from income taxes. Dividends and other distributions are taxable whether they
are received in cash or automatically reinvested in shares of the Fund or
another fund in the INVESCO group.
Net realized capital gains of the Fund are classified as short-term and
long-term gains depending upon how long the Fund held the security that gave
rise to the gains. Short-term capital gains are included in income from
dividends and interest as ordinary income and are taxed at the taxpayer's
marginal tax rate. ^ During 1997, the Taxpayer Relief Act established a new
maximum capital gains tax rate of 20%. Depending on the holding period of the
asset giving rise to the gain, a capital gain was taxable at a maximum rate of
either 20% or 28%. Beginning January 1, 1998, ^ all long-term gains realized ^
on the sale of securities held ^ more than 12 months will be taxable at a
maximum rate of 20%. In addition, legislation signed in October of 1998 provides
that all capital gain distributions from a mutual fund paid to shareholders
during 1998 will be taxable at a maximum rate of 20%. Accordingly, all capital
gain distributions paid in 1998 will be taxable at a maximum rate of 20%. Note
that the rate of capital gains tax is dependent on the shareholder's marginal
tax rate and may be lower than the above rates. At the end of each year,
information regarding the tax status of dividends and other distributions is
provided to shareholders. Shareholders should consult their tax advisers as to
the effect of distributions by the Fund.
Shareholders may realize capital gains or losses when they sell their Fund
shares at more or less than the price originally paid. Capital gains on shares
held for more than one year will be long-term capital gains, in which event they
will be subject to federal income tax at the rates indicated above.
The Fund may be subject to withholding of foreign taxes on dividends or
interest it receives on foreign securities. Foreign taxes withheld may be
treated as an expense of the Fund.
<PAGE>
Individuals and certain other non-corporate shareholders may be subject to
backup withholding of 31% on dividends, capital gain distributions and other
distributions and redemption proceeds. You can avoid backup withholding on your
account by ensuring that we have a correct, certified tax identification number,
unless you are subject to backup withholding for other reasons.
We encourage you to consult a tax adviser with respect to these matters.
For further information see "Dividends, Other Distributions And Taxes" in the
Statement of Additional Information.
Dividends and Other Distributions. The Fund earns ordinary or net
investment income in the form of interest and dividends on investments.
Dividends paid by the Fund will be based solely on the net investment income
earned by it. The Fund's policy is to distribute substantially all of this
income, less expenses, to shareholders on a quarterly basis, at the discretion
of the Company's board of directors. Dividends are automatically reinvested in
additional shares of the Fund at the net asset value on the payable date unless
otherwise requested.
In addition, the Fund realizes capital gains and losses when it sells
securities or derivatives 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 realized on certain foreign currency transactions, if any,
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 payable date unless otherwise requested.
Dividends and other distributions are paid to shareholders who hold shares
on the record date of distribution, regardless how long the Fund shares have
been held by the shareholder. The Fund's share price will then drop by the
amount of the distribution on the ex-dividend or ex-distribution date. If a
shareholder purchases shares immediately prior to the distribution, the
shareholder will, in effect, have "bought" the distribution by paying the full
purchase price, a portion of which is then returned in the form of a taxable
distribution.
<PAGE>
ADDITIONAL INFORMATION
Voting Rights. All shares of the Company have equal voting rights based on
one vote for each share owned and a corresponding fractional vote for each
fractional share owned. The Company is not generally required and does not
expect to hold regular annual meetings of shareholders. However, when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Fund or as may be required by applicable law or the Company's Articles of
Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Fund. The Company will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
Master/Feeder Option. As a matter of fundamental policy, 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 substantially the same
fundamental investment objective, policies and limitations. It is expected that
any such investment company would be managed by INVESCO in substantially the
same manner as the Fund. If permitted by applicable law, any such investment may
be made in the sole discretion of the Company's board of directors without a
vote of the Fund's shareholders. However, shareholders will be given at least 30
days prior notice of any such investment. Such an investment would be made only
if the board of directors determines it to be in the best interests of the Fund
and its shareholders based on potential cost savings, operational efficiencies
or other factors. No assurance can be given that costs would be materially
reduced if this option were implemented.
<PAGE>
INVESCO Multi-Asset Allocation Fund
A no-load mutual fund seeking capital appreciation
and current income.
PROSPECTUS
December 1, 1998
INVESCO FUNDS
INVESCO Distributors, Inc. (SM)
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
December 1, 1998
INVESCO ^ COMBINATION STOCK & BOND FUNDS, INC.
(formerly, INVESCO ^ Flexible Funds, Inc.)
INVESCO Balanced Fund
INVESCO Multi-Asset Allocation Fund
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 ^ Combination Stock & Bond Funds, Inc. (the "Company") is a
no-load, open-end, diversified management investment company currently
consisting of two separate portfolios of investments, INVESCO Multi-Asset
Allocation Fund (the "Multi-Asset Allocation Fund") and INVESCO Balanced Fund
(the "Balanced Fund") (collectively, the "Funds" and individually, a "Fund").
The investment objective of each Fund is to provide investors with a high total
return on investments through capital appreciation and current income. Each Fund
pursues its objective by investing in a combination of equity securities and
fixed-income securities. Investors may purchase shares of either or both Funds.
Additional funds may be added in the future.
Separate Prospectuses for each of the Funds, dated December 1, 1998, which
provide the basic information you should know before investing in a Fund, may be
obtained without charge from INVESCO Distributors, Inc., P.O. Box 173706,
Denver, Colorado 80217-3706. This Statement of Additional Information is not a
prospectus but contains information in addition to and more detailed than that
set forth in each Prospectus. It is intended to provide you with additional
information regarding the activities and operations of the Fund and should be
read in conjunction with the Prospectuses.
Investment Adviser: INVESCO FUNDS GROUP, INC.
Distributor: INVESCO DISTRIBUTORS, INC.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT POLICIES AND RESTRICTIONS 3
THE FUNDS AND THEIR MANAGEMENT 18
HOW SHARES CAN BE PURCHASED 33
HOW SHARES ARE VALUED 37
FUND PERFORMANCE 39
SERVICES PROVIDED BY THE FUND 41
TAX-DEFERRED RETIREMENT PLANS 42
HOW TO REDEEM SHARES 42
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES 43
INVESTMENT PRACTICES 46
ADDITIONAL INFORMATION 50
APPENDIX A 54
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
As discussed in their respective Prospectuses in the sections entitled
"Investment Objective And Strategy" and "Investment Policies And Risks," the
Funds may invest in a variety of securities and employ a broad range of
investment techniques in seeking to achieve their respective investment
objectives. Such securities and techniques include the following:
Equity Securities. As described in the Prospectuses, equity securities
which may be purchased by the Funds consist of common, preferred and convertible
preferred stocks, and securities having equity characteristics such as rights,
warrants and convertible debt securities. Common stocks and preferred stocks
represent equity ownership interests in a corporation and participate in the
corporation's earnings through dividends which may be declared by the
corporation. Unlike common stocks, preferred stocks are entitled to stated
dividends payable from the corporation's earnings, which in some cases may be
"cumulative" if prior stated dividends have not been paid. Dividends payable on
preferred stock have priority over distributions to holders of common stock, and
preferred stocks generally have preferences on the distribution of assets in the
event of the corporation's liquidation. Preferred stocks may be "participating,"
which means that they may be entitled to dividends in excess of the stated
dividend in certain cases. The rights of common and preferred stocks are
generally subordinate to rights associated with a corporation's debt securities.
Rights and warrants are securities which entitle the holder to purchase the
securities of a company (generally, its common stock) at a specified price
during a specified time period. Because of this feature, the values of rights
and warrants are affected by factors similar to those which determine the prices
of common stocks and exhibit similar behavior (although often more volatile
behavior). Rights and warrants may be purchased directly or acquired in
connection with a corporate reorganization or exchange offer.
Convertible securities which may be purchased by the Funds include
convertible debt obligations and convertible preferred stock. A convertible
security entitles the holder to exchange it for a fixed number of shares of
common stock (or other equity security), usually at a fixed price within a
specified period of time. Until conversion, the holder receives the interest
paid on a convertible bond or the dividend preference of a preferred stock.
Convertible securities have an "investment value" which is the theoretical
value determined by the yield they provide in comparison with similar securities
without the conversion feature. Investment value changes are based upon
prevailing interest rates and other factors. They also have a "conversion value"
<PAGE>
which is their worth in market value if the securities were exchanged for
their underlying equity securities. Conversion value fluctuates directly with
the price of the underlying security. If conversion value is substantially below
investment value, the price of the convertible security is governed principally
by its investment value. If the conversion value is near or above investment
value, the price of the convertible security generally will rise above
investment value and may represent a premium over conversion value due to the
combination of the convertible security's right to interest (or dividend
preference) and the possibility of capital appreciation from the conversion
feature. A convertible security's price, when price is influenced primarily by
its conversion value, generally will yield less than a senior non-convertible
security of comparable investment value. Convertible securities may be purchased
at varying price levels above their investment values or conversion values.
However, there is no assurance that any premium above investment value or
conversion value will be recovered because prices change and, as a result, the
ability to achieve capital appreciation through conversion may be eliminated.
American Depository Receipts. As discussed in the Prospectuses, the Funds
may invest in American Depository Receipts ("ADRs"). ADRs are receipts
representing shares of a foreign corporation held by a U.S. bank that entitle
the holder to all dividends and capital gains. 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.
Illiquid and 144A Securities. As discussed in the section of the Funds'
Prospectuses entitled "Investment Policies And Risks," each Fund may invest in
illiquid securities, including restricted securities and other investments that
are not readily marketable. Restricted securities are securities which are
subject to restrictions on their resale because they have not been registered
under the Securities Act of 1933 (the "1933 Act"). However, a Fund will not
purchase any such security if the purchase would cause the Fund to invest more
than 15% of its net assets, measured at the time of purchase, in illiquid
securities. Repurchase agreements maturing in more than seven days will be
considered as 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.
<PAGE>
Each Fund also may invest in restricted securities, including restricted
securities that can be resold to institutional investors pursuant to Rule 144A
under the 1933 Act ("Rule 144A Securities") if a liquid institutional trading
market exists.
In recent years, a large institutional market has developed for Rule 144A
Securities. 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 Rule 144A 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 restrictions 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 securitis to
qualified institutional buyers. Institutional markets for Rule 144A Securities
may provide both readily ascertainable values for Rule 144A 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 a Rule 144A Security held by the Fund, however, could adversely
affect the marketability of such security, and the Fund might be unable to
dispose of such security promptly or at reasonable prices.
Obligations of Domestic Banks. These obligations consist of certificates
of deposit ("CDs") and bankers' acceptances issued by domestic banks (including
their foreign branches) having total assets in excess of $5 billion, which meet
the Funds' minimum rating requirements. CDs are issued against deposits in a
commercial bank for a specified period and rate and are normally negotiable.
Eurodollar CDs are certificates issued by a foreign branch (usually London) of a
U.S. domestic bank, and, as such, the credit is deemed to be that of the
domestic bank.
Bankers' acceptances are short-term credit instruments evidencing the
promise of the bank (by virtue of the bank's "acceptance") to pay at maturity a
draft which has been drawn on it by a customer (the "drawer"). These instruments
are used to finance the import, export, transfer or storage of goods and reflect
the obligation of both the bank and the drawer to pay the face amount.
<PAGE>
Commercial Paper. These obligations are short-term promissory notes issued
by domestic corporations to meet current working capital requirements. Such
paper may be unsecured or backed by a letter of credit. Commercial paper issued
with a letter of credit is, in effect, "two-party paper," with the issuer
directly responsible for payment, plus a bank's guarantee that if the note is
not paid at maturity by the issuer, the bank will pay the principal and interest
to the buyer. Commercial paper is sold either as interest-bearing or on a
discounted basis, with maturities not exceeding 270 days.
Mortgage-Backed Securities. The Funds may invest in mortgage-backed
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or institutions such as banks, insurance companies and
savings and loans. 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
Freddie Mac certificates, are not.
Mortgage-backed securities represent interests in a pool of mortgages.
Principal and interest payments made on the mortgages in the underlying mortgage
pool are passed through to the Funds. Unscheduled prepayments of principal
shorten the securities' weighted average life and may lower their total return.
The value of these securities also may change because of changes in the market's
perception of the creditworthiness of the federal agency or private institution
that issued them. In addition, the mortgage securities market in general may be
adversely affected by changes in governmental regulation, interest rates or tax
policies.
Asset-Backed Securities. The Funds may invest in asset-backed securities.
Asset-backed securities represent interests in pools of consumer loans
(generally unrelated to mortgage loans) and most often are structured as
pass-through securities. Interest and principal payments ultimately depend on
payment of the underlying loans by individuals, although the securities may be
supported by letters of credit or other credit enhancements. The underlying
assets (e.g., loans) are subject to prepayments which shorten the securities'
weighted average life and may lower their returns. If the credit support or
enhancement is exhausted, losses or delays in payment may result if the required
payments of principal and interest are not made. The value of these securities
also may change because of changes in the market's perception of the
creditworthiness of the servicing agent for the pool, the originator of the pool
or the financial institution providing the credit support or enhancement.
Zero Coupon Bonds. The Funds may invest in zero coupon bonds or "strips."
Zero coupon bonds do not make regular interest payments; rather, they are sold
at a discount from face value.
<PAGE>
Principal and accreted discount (representing interest accrued but not paid) are
paid at maturity. "Strips" are debt securities that are stripped of their
interest after the securities are issued but otherwise are comparable to zero
coupon bonds. The market value of "strips" and zero coupon bonds generally
fluctuates in response to changes in interest rates to a greater degree than
interest-paying securities of comparable term and quality. In order for a Fund
to maintain its qualification as a regulated investment company, it may be
required to distribute income recognized on zero coupon bonds even though no
cash may be paid to the Fund until the maturity or call date of the bond, and
such distribution could reduce the amount of cash available for investment by
the Fund.
When-Issued and Delayed Delivery Securities. As discussed in the section
of each Fund's Prospectus entitled "Investment Policies And Risks," each Fund
may make commitments in an amount of up to 10% of the value of its total assets
at the time any commitment is made to purchase and sell securities on a
when-issued or delayed delivery basis. When-issued or delayed delivery
transactions arise when securities (normally, debt obligations of issuers
eligible for investment by the Funds) are purchased or sold by the Funds 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 the Funds engage in when-issued and delayed delivery
transactions, they rely on the seller or buyer, as the case may be, to
consummate the sale. Failure to do so may result in the Funds missing the
opportunity of obtaining a price or yield considered to be advantageous.
When-issued and delayed delivery transactions generally may be expected to
settle within one month from the date a transaction is entered into, but in no
event later than 90 days after the transaction date. No payment or delivery is
made by the Funds until they receive delivery or payment from the other party to
the transaction. However, when a Fund purchases a security on a when-issued or
delayed delivery basis, it assumes the risk that the market price of the
security may fluctuate between the date of purchase and the date of delivery.
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 sets
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, additionalassets 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.
<PAGE>
Securities Lending. The Funds also may lend their securities to qualified
brokers, dealers, banks or other financial institutions provided that such loans
are callable at any time by the Fund and are at all times secured by collateral
consisting of cash, letters of credit or securities issued or guaranteed by the
United States government or its agencies, or any combination thereof, equal to
at least the market value, determined daily, of the loaned securities. The
advantage of such loans is that a Fund continues to have the benefits (and
risks) of ownership of the loaned securities, while at the same time receiving
income from the borrower of the securities. Loans will be made only to firms
deemed by INVESCO (under procedures established by the Company's board of
directors) to be creditworthy and when the amount of interest income it receives
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 (at least 100% of the market
value of the borrowed securities, plus accrued interest and dividends), 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 in the value of the loaned securities during the loan
period would inure to the Fund. A Fund will not lend any security if, as a
result of the loan, the aggregate value of securities then on loan would exceed
33-1/3% of the Fund's total assets (taken at market value).
Futures and Options on Futures and Securities. As described in each Fund's
Prospectus, the Funds may enter into futures contracts, and purchase and sell
("write") options to buy or sell futures contracts and other securities which
are included in the types of instruments sometimes referred to as "derivatives,"
because their value depends upon or derives from the value of an underlying
asset. 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 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 Commodity 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.
<PAGE>
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 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,
because 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 a 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
Fund's 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
futures and options on futures and other 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 contract and the
portion of the portfolio being hedged, the price of futures may not correlate
perfectly with movements in the prices 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 the underlying securities and the
value of the futures contract. 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 speculators in the futures
market. Such increased participation may also cause temporary price distortions.
Due to the possibility of price distortion in the futures market and because of
the imperfect correlation between movements in the value of the underlying
securities and movements in the prices of futures contracts, the value of
futures contracts as a hedging device may be reduced.
In addition, if the Fund has insufficient available cash, it may at times
have to sell securities to meet variation margin requirements. 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; options are also included in the types
of instruments sometimes known as derivatives. 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 of 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
<PAGE>
the futures price at expiration of the option is higher than the exercise
price, the 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, which are included in the types of instruments sometimes
known as derivatives, to purchase or sell foreign currencies (i.e., non-U.S.
currencies) as a hedge against possible variations in foreign exchange rates. A
forward foreign currency exchange contract ("forward 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 forward contract. A forward
contract generally has no deposit requirement, and such transactions do not
involve commissions. 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 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 their investment
adviser or sub-adviser. The Funds will not enter into forward contracts for a
term of more than one year.
<PAGE>
Swaps and Swap-Related Products. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments.
The exchange commitments can involve payments to be made in the same currency or
in different currencies. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the party selling the interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the interest rate
floor.
Although the Funds currently do not intend to use interest rate swaps,
caps and floors, they are permitted to enter into such transactions on either an
asset-based or liability-based basis, depending upon whether they are hedging
their assets or their liabilities. Interest rate swaps usually are entered into
on a net basis, i.e., the two payment streams are netted out, with a Fund
receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of a Fund's obligations over its
entitlement with respect to each interest rate swap will be calculated on a
daily basis, and an amount of cash or high-grade liquid assets having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Funds' custodian. If a Fund enters
into an interest rate swap on other than a net basis, the Fund would maintain a
segregated account in the full amount accrued on a daily basis of the Fund's
obligations with respect to the swap. The Funds will not enter into any interest
rate swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in one of the three
highest rating categories of at least one nationally recognized statistical
rating organization at the time of entering into such transaction. The Funds'
adviser or sub-adviser will monitor the creditworthiness of all counterparties
on an ongoing basis. If there is a default by the other party to such a
transaction, a Fund would have contractual remedies pursuant to the agreements
related to the transaction.
<PAGE>
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the extent a
Fund sells (i.e., writes) caps and floors, it will maintain in a segregated
account cash or high-grade liquid assets having an aggregate net asset value at
least equal to the full amount, accrued on a daily basis, of the Fund's
obligations with respect to any caps or floors.
There is no limit on the amount of interest rate swap transactions that
may be entered into by a Fund. These transactions may in some instances involve
the delivery of securities or other underlying assets by a Fund or its
counterparty to collateralize obligations under the swap. The documentation
currently used in those markets attempts to limit the risk of loss with respect
to interest rate swaps to the net amount of the payments that a party is
contractually obligated to make. If the other party to an interest rate swap
that is not collateralized defaults, the Fund would anticipate losing the net
amount of the payments that the Fund contractually is entitled to receive over
the payments that the Fund is contractually obligated to make. The Funds may buy
and sell (i.e., write) caps and floors without limitation, subject to the
segregated account requirement described above as well as the Funds' other
investment restrictions set forth below.
Investment Restrictions
As ^ discussed in the section of each Fund's Prospectus entitled
"Investment Policies And Risks," each Fund operates under certain investment
restrictions. For purposes of the following limitations, 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.
The following restrictions are fundamental and may not be changed with
respect to a Fund without prior approval of a majority of the outstanding voting
securities of such Fund, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
Under these restrictions, 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;
<PAGE>
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 securities).
4. Invest directly in real estate or interests in real estate;
however, the Fund may own debt or equity securities issued by
companies engaged in those businesses.
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 securities of the Fund.
As a fundamental policy in addition to the above, 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.
<PAGE>
In applying restriction (3) above, the Funds use a modified S&P industry
code classification schema which uses various sources to classify securities.
Additional investment restrictions adopted by the Company on behalf of the
Funds and which may be changed by the directors, at their discretion, without
shareholder approval, include the following:
(1) 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.
(2) 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.
(3) The Fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent
in kind and amount to the securities sold short without the
payment of any additional consideration therefor, and provided
that transactions in futures, options, swaps and forward
contracts are not deemed to constitute selling securities short.
(4) 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.
<PAGE>
(5) 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 waive its advisory fee
on the assets of the Fund which are invested in the money market
fund during the time that those assets are so invested.
(6) 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.
(7) 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.
(8) 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.
(9) 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
<PAGE>
board of directors, may determine that a readily available market
exists for securities eligible for resale pursuant to Rule 144A
under the 1933 Act, or any successor to such rule, and therefore
that such securities are not subject to the foregoing limitation.
(10) 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.
With respect to investment restriction (9) above, the board of directors
has delegated to the Funds' investment adviser the authority to determine
whether a liquid market exists for securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, or any successor to such rule and
whether or not such securities are subject to the non-fundamental restriction
(9) above. Under guidelines established by the board of directors, the adviser
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).
THE FUNDS AND THEIR MANAGEMENT
The Company. The Company was incorporated on August 19, 1993, under the
laws of Maryland. On September 10, 1998, the name of the Company was changed to
INVESCO Flexible Funds, Inc. On October 29, 1998, the name of the Company was
changed to INVESCO Combination Stocks & Bond Funds, Inc.
The Investment Adviser. INVESCO Funds Group, Inc., a Delaware corporation
("INVESCO"), is employed as the Company's investment adviser. INVESCO was
established in 1932 and also serves as an investment adviser to INVESCO Bond
Funds, Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO Diversified Funds,
Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO ^ Growth Funds, Inc.
(formerly, ^ INVESCO Growth Fund, ^ Inc.), INVESCO Industrial Income Fund, Inc.,
INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc., INVESCO
Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.), INVESCO
Specialty Funds, Inc., INVESCO ^ Stock Funds, Inc. (formerly, INVESCO Equity
Funds, Inc.), INVESCO Tax-Free Income Funds, Inc., INVESCO Value Trust, and
INVESCO Variable Investment Funds, Inc.
<PAGE>
The Investment Sub-Adviser. INVESCO, as investment adviser, has contracted
with INVESCO Management & Research, Inc. ("IMR") to provide investment advisory
and research services on behalf of INVESCO Multi-Asset Allocation Fund. IMR has
the primary responsibility for providing portfolio investment management
services to the Multi-Asset Allocation Fund. IMR is a wholly-owned subsidiary of
INVESCO North American Holdings, Inc. ("INAH"), which is also the parent company
of INVESCO. Prior to February 3, 1998, Institutional Trust Company ^ doing
business as, INVESCO Trust Company ("ITC"), provided sub-advisory services to
the Balanced Fund. Effective February 3, 1998, ITC no longer provided
sub-advisory services to this Fund and INVESCO provides such day-to-day
portfolio management services as the investment adviser to the Balanced Fund.
This change did not change the basis upon which investment advice is provided to
the Balanced Fund, the cost of those services to this Fund or the persons
actually performing the investment advisory and other services previously
provided by ITC.
The Distributor. ^ INVESCO Distributors, Inc. ("IDI") ^ is the Funds'
distributor. IDI, established in 1997, is a registered broker-dealer that acts
as distributor for all retail mutual funds advised by INVESCO. Prior to
September 30, 1997, INVESCO served as the Funds' distributor.
INVESCO, IMR, and IDI are indirect wholly-owned subsidiaries of AMVESCAP
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 investment management
businesses in the world with approximately ^ $241 billion in assets under
management as of ^ September 30, 1998. INVESCO was established in 1932, and, as
of July 31, 1998, managed 14 mutual funds, consisting of 49 separate portfolios,
on behalf of 884,099 shareholders. AMVESCAP PLC's other North American
subsidiaries include the following:
--INVESCO Retirement and Benefit Services, Inc. ("IRBS"), Atlanta, Georgia,
develops and provides domestic and international defined contribution retirement
plan services to plan sponsors, institutional retirement plan sponsors,
institutional plan providers and foreign governments.
--INVESCO Retirement Plan Services ("IRPS"), Atlanta, Georgia, a division
of IRBS, provides recordkeeping and investment selection services to defined
contribution plan sponsors of plans with between $2 and $200 million in assets.
Additionally, IRPS provides investment consulting services to institutions
seeking to provide retirement plan products and services.
<PAGE>
--ITC of Denver, Colorado, a division of IRBS, provides retirement account
custodian and/or trust services for individual retirement accounts ("IRAs") and
other retirement plan accounts. This includes services such as recordkeeping,
tax reporting and compliance. ITC acts as trustee or custodian to these plans.
ITC accepts contributions and provides, through INVESCO, complete transfer
agency functions: correspondence, sub-accounting, telephone communications and
processing of distributions.
--INVESCO Capital Management, Inc. of Atlanta, Georgia,
manages institutional investment portfolios, consisting primarily
of discretionary employee benefit plans for corporations and state
and local governments, and endowment funds. INVESCO Capital
Management, Inc. is the sole shareholder of INVESCO Services, Inc.,
a registered broker-dealer whose primary business is the
distribution of shares of one registered investment company.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
--INVESCO Realty Advisors of Dallas, Texas is responsible for providing
advisory services in the U.S. real estate markets for INVESCO PLC's clients
worldwide. Clients include corporate plans and public pension funds as well as
endowment and foundation accounts.
--INVESCO (NY), Inc., New York, is an investment adviser for separately
managed accounts, such as corporate and municipal pension plans, Taft-Hartley
Plans, insurance companies, charitable institutions and private individuals.
INVESCO NY also offers the opportunity for its clients to invest both directly
and indirectly through partnerships in primarily private investments or
privately negotiated transactions. INVESCO NY further serves as investment
adviser to several closed-end investment companies, and as subadviser with
respect to certain commingled employee benefit trusts. INVESCO NY specializes in
the fundamental research investment approach, with the help of quantitative
tools.
--A I M Advisors, Inc. of Houston, Texas provides investment advisory and
administrative services for retail and institutional mutual funds.
--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-adviser to certain retail
<PAGE>
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 insurance companies that issue variable annuity and/or variable life
products.
--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 AMVESCAP PLC are located at 11 Devonshire
Square, London, EC2M 4YR, England.
As indicated in the Funds' Prospectuses, INVESCO and IMR permit 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 INVESCO, IMR and their North American affiliates. The
policy requires officers, inside directors, investment and other personnel of
INVESCO, IMR and their 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 INVESCO,
IMR and their North American affiliates to various trading restrictions and
reporting obligations. All reportable transactions are reviewed for compliance
with the policy. The provisions of the policy are administered by and subject to
exceptions authorized by INVESCO.
Investment Advisory Agreement. INVESCO serves as investment adviser to the
Funds pursuant to an investment advisory agreement dated February 28, 1997 (the
"Agreement") with the Company, which was approved by the board of directors on
November 6, 1996, 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 or INVESCO at a meeting called for such purpose. The Agreement
was approved by the Funds' shareholders on January 31, 1997,for an initial term
expiring February 28, 1999. On May 13, 1998, this period was extended by the
Company's board of directors to May 15, 1999. Thereafter, the Agreement may be
<PAGE>
continued from year to year with respect 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 applicable Fund. Any such continuance
also must be approved by a majority of the Company's directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, 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, or by a Fund with respect to that Fund, 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 Agreement provides that INVESCO shall manage the investment portfolios
of the Funds in conformity with each Fund's investment policies (either directly
or by delegation to a sub-adviser, which may be a party affiliated with
INVESCO). Further, INVESCO 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
any separate agreement between the Company and INVESCO or any affiliate thereof,
including the distribution and sale of each Fund's shares and provision of
transfer agency, dividend disbursing agency and registrar services, and services
furnished under an Administrative Services Agreement with INVESCO 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 INVESCO's in-house legal and
accounting staff (including the prospectus, 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 INVESCO are borne by the Funds.
As full compensation for advisory services provided to the Company, INVESCO
receives a monthly fee. The fee is based upon a percentage of each Fund's
average net assets, determined daily. With respect to the Multi-Asset Allocation
Fund, the fee is calculated at the annual rate of: 0.75% of the first $500
million of the Fund's average net assets; 0.65% of the next $500 million of the
Fund's average net assets; and 0.50% of the Fund's average net assets over $1
billion. With respect to the Balanced Fund, the fee is calculated at the annual
rate of: 0.60% of the first $350 million of the Fund's average net assets; 0.55%
<PAGE>
of the next $350 million of the Fund's average net assets; and 0.50% of the
Fund's average net assets over $700 million. For the fiscal years ended July 31,
1998, 1997, and 1996, prior to the voluntary absorption of certain Fund expenses
by INVESCO and, with respect to the Multi-Asset Allocation Fund, IMR, the
Multi-Asset Allocation Fund paid INVESCO advisory fees of $136,420, $100,445 and
$69,539, respectively, and the Balanced Fund paid INVESCO advisory fees of
$1,115,082, $797,409 and $561,473, respectively.
Sub-Advisory Agreement. IMR serves as sub-adviser to the Multi-Asset
Allocation Fund pursuant to a sub-advisory agreement (the "Sub-Agreement") with
INVESCO which was approved by the board of directors on November 6, 1996 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 or IMR at a meeting called for such purpose. Shareholders of the
Multi-Asset Allocation Fund approved the Sub-Agreement on January 31, 1997, for
an initial term expiring February 28, 1999. On May 13, 1998, this period was
extended by the Company's board of directors to May 15, 1999. Thereafter, the
Sub-Agreement may be continued from year to year as long as each such
continuance is specifically approved 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 Multi-Asset Allocation Fund. Any such continuance also
must be approved by a majority of the directors who are not parties to the
Sub-Agreement or interested persons (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
continuance. The 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-Agreement provides that IMR, as sub-adviser to the Multi-Asset
Allocation Fund subject to the supervision of INVESCO, shall manage the
investment portfolio of the Fund in conformity with the Fund's investment
policies. These management services would include: (a) managing the investment
and reinvestment 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, consistent with (i) the Fund's
investment 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, as amended, and in any prospectus and/or statement of additional
information of the Company, as from time to time amended and in use under the
<PAGE>
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 INVESCO, 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 Sub-Adviser; (e) determining
what portion of the Fund should be invested in the various types of securities
authorized for purchase by the 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.
The Sub-Agreement provides that as compensation for its services, IMR
shall receive from INVESCO, at the end of each month, a fee based upon the
average daily value of the Multi-Asset Allocation Fund's net assets. The fee is
calculated at the following annual rates: prior to January 1, 1998, 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 0.25% on the Fund's average net
assets over $1 billion; and effective January 1, 1998, 0.25% on the first $500
million of the Fund's average net assets, 0.2166% on the next $500 million of
the Fund's average net assets and 0.1667% on the Fund's average net assets in
excess of $1 billion. The Sub-Advisory fees are paid by INVESCO, NOT the Fund.
Administrative Services Agreement. INVESCO, either directly or through
affiliated companies, also provides certain administrative, sub-accounting and
recordkeeping services to the Funds pursuant to an Administrative Services
Agreement dated February 28, 1997 (the "Administrative Agreement"). The
Administrative Agreement was approved by the board of directors on November 6,
1996, 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 or INVESCO at a meeting called for such purpose. The Administrative
Agreement is for an initial term expiring February 28, 1998, and has been
continued by action of the board of directors until May 15, 1999. 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 who are not parties to the
Administrative Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such continuance. The Administrative Agreement may be terminated at any time
without penalty by INVESCO upon 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.
<PAGE>
The Administrative Agreement provides that INVESCO shall provide the
following services to the Funds: (A) such sub-accounting and recordkeeping
services and functions as are reasonably necessary for the operation of the
Funds; and (B) such sub-accounting, recordkeeping, and administrative services
and functions, which may be provided by affiliates of INVESCO, as are reasonably
necessary for the operation of Fund shareholder accounts maintained by certain
retirement plans and employee benefit plans for the benefit of participants in
such plans.
As full compensation for services provided under the Administrative
Agreement, each Fund pays a monthly fee to INVESCO 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
applicable Fund. During the fiscal years ended July 31, 1998, 1997, and 1996,
prior to the voluntary absorption of certain Fund expenses by INVESCO and, with
respect to the Multi-Asset Allocation Fund, IMR, the Multi-Asset Allocation Fund
paid INVESCO administrative services fees in the amount of $12,728, $12,009 and
$11,391, respectively, and the Balanced Fund paid INVESCO administrative
services fees in the amount of $37,877, $29,935 and $24,037, respectively.
Transfer Agency Agreement. INVESCO also performs transfer agent, dividend
disbursing agent and registrar services for the Funds pursuant to a Transfer
Agency Agreement dated February 28, 1997, which was approved by the board of
directors of the Company, including a majority of the Company's directors who
are not parties to the Transfer Agency Agreement or "interested persons" of any
such party, 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, 1999.
Thereafter, the Transfer Agency Agreement may be continued from year to year
with respect to a 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 such Fund. Any such
continuance also must be approved by a majority of the Company's directors who
are not parties to the Transfer Agency Agreement or interested persons (as
defined by the 1940 Act) of any such party, 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.
<PAGE>
The Transfer Agency Agreement provides that the Funds will pay to INVESCO
an annual fee of $20.00 per shareholder account or where applicable, per
participant in an omnibus account. This fee is paid monthly at a rate of 1/12 of
the annual fee and is based upon the number of shareholder accounts and omnibus
account participants in existence at any time during each month. For the fiscal
years ended July 31, 1998, 1997, and 1996, prior to the voluntary absorption of
certain Fund expenses by INVESCO and, with respect to the Multi-Asset Allocation
Fund, IMR, the Multi-Asset Allocation Fund paid INVESCO transfer agency fees of
$64,749, $44,706, and $25,922, respectively, and the Balanced Fund paid INVESCO
transfer agency fees of $447,515, $397,860, and $203,967, respectively.
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 general investment policies and
programs of each of the Funds are carried out and that the Funds are properly
administered. The officers of the Company, all of whom are officers and
employees of, and paid by, INVESCO, are responsible for the day-to-day
administration of the Company and each of the Funds. The investment sub-adviser
for each Fund has the primary responsibility for making investment decisions on
behalf of that Fund. These investment decisions are reviewed by the investment
committee of INVESCO.
All of the officers and directors of the Company hold comparable positions
with INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO
Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO ^
Growth Funds, Inc. (formerly, ^ INVESCO Growth Fund, ^ Inc.), INVESCO Industrial
Income Fund, Inc., INVESCO International Funds, Inc., INVESCO Money Market
Funds, Inc., INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios,
Inc.), INVESCO Specialty Funds, Inc.^, INVESCO Tax-Free Income Funds, Inc.,
INVESCO Value Trust and INVESCO Variable Investment Funds, Inc. ^ Set forth
below is information with respect to each of the Company's officers and
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 Global Health Sciences Fund. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. 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. Address: Security Life Center,
1290 Broadway, Denver, Colorado. Born: January 12, 1928.
<PAGE>
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 at 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: ^ 1600
Pierce Street, #1000, ^ Lakewood, 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.
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.
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.
<PAGE>
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
Corporation and Citizens and Southern National Bank. Trustee of INVESCO Global
Health Sciences Fund and Gables Residential Trust. Address: 7 Piedmont Center,
Suite 100, Atlanta, Georgia. 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
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.
MARK H. WILLIAMSON, +* President, CEO and Director. President, CEO and
Director of IDI; President, CEO and Director of INVESO and President of INVESCO
Global Health Sciences Fund. Formerly, Chairman and CEO of NationsBanc Advisors,
Inc. (1995 to 1997) and Chairman of NationsBanc Investments, Inc. (1997 to
1998). Born: May 24, 1951.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995), General
Counsel (since 1989) and Secretary (since 1989) of INVESCO and Senior Vice
President, Secretary and General Counsel of IDI (since 1997); Vice President
(May 1989 to April 1995) of INVESCO; Senior Vice President (1995 to 1998),
Secretary (1989 to 1998) and General Counsel (1989 to 1998) of ITC. Formerly,
employee of a U.S. regulatory agency, Washington, D.C., (June 1973 through May
1989). Born: September 25, 1947.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
(since 1988). Senior Vice President and Treasurer of IDI (since 1997). Senior
Vice President and Treasurer of ITC (1988 to 1998). Born: October 1, 1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO (since 1995) and of IDI (since 1997) and formerly, Trust Officer of ITC
(1995 to 1998) and Vice President of INVESCO (1992 to 1995). Formerly, Vice
President of 440 Financial Group from June 1990 to August 1992; Assistant Vice
President of Putnam Companies from November 1986 to June 1990. Born: August 21,
1956.
<PAGE>
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO (since
1984). Formerly, Trust Officer of ITC. Born: September 14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO (since 1984)
and of IDI (since 1997). Formerly, Trust Officer of ITC. Born: February 3, 1948.
*These directors are "interested persons" of the Company as defined in the
1940 Act.
#Member of the audit committee of the ^ Company.
@Member of the derivatives committee of the ^ Company.
@@Member of the soft dollar brokerage committee of the ^ Company.
+Member of the executive committee of the Company. 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.
**Member of the management liaison committee of the Company's board of
directors.
As of September 16, 1998, officers and directors of the Company, as a
group, beneficially owned less than 1% of the Company's outstanding shares and
less than 1% of any portfolio's outstanding shares.
Director Compensation
The following table sets forth, for the fiscal year ended July 31, 1998:
the compensation paid by the Company to its 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 IDI and advised by INVESCO (including the Company), INVESCO
Treasurer's Series Trust and INVESCO 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, 1997. As
of December 31, 1997, there were 49 funds in the INVESCO Complex.
<PAGE>
Total
Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
tion From Company Upon Paid To
Company(1) Expenses(2) Retirement(3) Directors(1)
Fred A.Deering, $ 2,458 $ 439 $ 281 $113,350
Vice Chairman of
the Board
Victor L. Andrews 2,434 414 326 92,700
Bob R. Baker 2,475 370 437 96,050
Lawrence H. Budner 2,409 414 326 91,000
Daniel D. Chabris(4) 2,437 448 243 89,350
Wendy L. Gramm 2,363 0 0 39,000
Kenneth T. King 2,374 455 255 94,350
John W. McIntyre 2,384 0 0 104,000
Larry Soll 2,384 0 0 78,000
------- ------ ------ --------
Total $21,718 $2,540 $1,868 $797,800
% of Net Assets 0.0091%(5) 0.0011%(5) 0.0046%(6)
(1)The vice chairman of the board, the chairmen of the audit, management
liaison, derivatives, soft dollar brokerage 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.
<PAGE>
(3)These figures represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding INVESCO Global Health
Sciences Fund which does not participate in this 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 Mr. McIntyre, and Drs. Gramm and Soll, 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)Mr. Chabris retired as a director effective September 30, 1998.
(5)Total as a percentage of the Company's net assets as of July 31, 1998
(6)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1997.
Messrs. Brady and Williamson, as "interested persons" of the Company, the
Funds and the other funds in the INVESCO Complex, receive compensation as
officers or employees of INVESCO or its affiliated companies, and do not receive
any director's fees or other compensation from the Company or other funds in the
INVESCO Complex for their services as directors.
The boards of directors/trustees of the mutual funds managed by INVESCO
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
"qualified director") is entitled to receive, upon termination of service as a
director (normally, upon retiring from the boards at the 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 payment
for one year (the "first year retirement benefit") of the annual basic retainer
and annualized board meeting fees payable by the funds to the qualified director
at the time of his or her 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
<PAGE>
three years, a qualified director shall receive quarterly payments at an
annual rate equal to 50% of the basic retainer and annualized board meeting
fees. 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 her or to his or her beneficiary or
estate. If a qualified director becomes disabled or dies either prior to age 72
or during his/her 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 or her 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 INVESCO and Treasurer's Series Trust funds in a
manner determined to be fair and equitable by the committee. The Company began
making plan payments to Mr. Chabris on October 1, 1998. 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 independent directors have contributed to a deferred compensation
plan, pursuant to which they have deferred receipt of a portion of the
compensation which they would otherwise have been paid as directors of selected
INVESCO Funds. The deferred amounts are being invested in the shares of all of
the INVESCO and Treasurer's Series Trust Funds. Each independent director is,
therefore, an indirect owner of shares of each INVESCO and Treasurer's Series
Trust Funds.
The Company has an audit committee that is comprised of four of the
directors who are not interested persons of the Company. The committee meets
periodically with the Company's independent accountants 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 INVESCO 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 directors, in furtherance of the board of directors' overall duty of
supervision.
The Company also has a soft dollar brokerage committee. The committee meets
periodically to review soft dollar brokerage transactions by the Funds, and to
review policies and procedures of the Funds' adviser with respect to soft dollar
brokerage transactions. It reports on these matters to the Company's board of
directors.
<PAGE>
The Company also has a derivatives committee. The committee meets
periodically to review derivatives investments made by the Funds. It monitors
derivatives usage by the Funds and the procedures utilized by the Funds' adviser
to ensure that the use of such instruments follows the policies on such
instruments adopted by the Company's board of directors. It reports on these
matters to the Company's board of directors.
HOW SHARES CAN BE PURCHASED
The shares of each Fund are sold on a continuous basis at the net asset
value per share of the Fund next calculated after receipt of a purchase order in
good form. The net asset value per share is computed separately for each Fund
and is determined once each day that the New York Stock Exchange is open as of
the close of regular trading on that Exchange but may also be computed at other
times.
See "How Shares Are Valued."
The Company has authorized one or more brokers to accept purchase orders
on the Funds' behalf. Such brokers are authorized to designate other
intermediaries to accept purchase orders on the Funds' behalf. The Funds will be
deemed to have received a purchase order when an authorized broker, or, if
applicable, a broker's authorized designee, accepts the order. A purchase order
will be priced at a Fund's net asset value next calculated after the order has
been accepted by an authorized broker or the broker's authorized designee.
IDI acts as the Funds' distributor under a distribution agreement with the
^ Company and bears all expenses, including the costs of printing and
distributing prospectuses, incident to direct sales and distribution of Fund
shares on a no-load basis.
Distribution Plan. As discussed under "How To Buy Shares --Distribution
Expenses" in the Prospectuses, the Company has adopted a Plan and Agreement of
Distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. The Plan
provides that each of the Funds may make monthly payments to IDI of amounts
computed at an annual rate no greater than 0.25% of each Fund's average net
assets to permit IDI, at its discretion, to engage in certain activities and
provide services in connection with the distribution of each Fund's shares to
investors. Payment by a Fund under the Plan, for any month, may be made to
compensate IDI for permissible activities engaged in and services provided by
IDI during the rolling 12-month period in which that month falls. For the fiscal
<PAGE>
year ended July 31, 1998, the Multi-Asset Allocation Fund and the Balanced
Fund made payments to INVESCO (the predecessor of IDI as distributor of shares
of the Funds) and IDI under the 12b-1 Plan in the amount of $44,552 and
$451,807, respectively, prior to the voluntary absorption of certain Fund
expenses by INVESCO and, with respect to the Multi-Asset Allocation Fund, IMR.
In addition, as of July 31, 1998 $4,869 and $49,525 of additional distribution
accruals had been incurred under the Plan for the Multi-Asset Allocation Fund
and Balanced Fund, respectively, and will be paid during the fiscal year ending
July 31, 1999. As noted in the Prospectuses, one type of expenditure is the
payment of compensation to securities companies and other financial institutions
and organizations, which may include INVESCO-affiliated companies, in order to
obtain various distribution-related and/or administrative services for the
Funds. Each Fund is authorized by the Plan to use its assets to finance the
payments made to obtain those services. Payments will be made by IDI to
broker-dealers who sell shares of the Funds and may be made to banks, savings
and loan associations and other depository institutions. Although the
Glass-Steagall Act limits the ability of certain banks to act as underwriters of
mutual fund shares, the Company does not believe that these limitations would
affect the ability of such banks to enter into arrangements with IDI but can
give no assurance in this regard. However, to the extent it is determined
otherwise in the future, arrangements with banks might have to be modified or
terminated, and, in that case, the size of one or more of the Funds possibly
could decrease to the extent that the banks would no longer invest customer
assets in a particular Fund. Neither the Company nor its investment adviser will
give any preference to banks or other depository institutions which enter into
such arrangements when selecting investments to be made by each Fund.
For the fiscal year ended July 31, 1998, allocation of 12b-1 amounts paid
by the Multi-Asset Allocation Fund for the following categories of expenses
were: advertising -- $5,059; sales literature, printing and postage -- $18,238;
direct mail -- $2,864; public relations/promotion -- $2,174; compensation to
securities dealers and other organizations -- $7,040; marketing personnel
- --$9,177. For the fiscal year ended July 31, 1998, allocation of 12b-1 amounts
paid by the Balanced Fund for the following categories of expenses were:
advertising -- $146,478 sales literature, printing and postage -- $80,184;
direct mail --$22,071; public relations/promotion -- $20,601 compensation to
securities dealers and other organizations -- $123,899 marketing personnel --
$58,574.
The nature and scope of services which are provided by securities dealers
and other organizations may vary by dealer but include, among other things,
processing new stockholder account applications, preparing and transmitting to
the Company's Transfer Agent computer processable tapes of transactions by each
Fund's customers, serving as the primary source of information to customers in
answering questions concerning each Fund and assisting in other customer
transactions with each Fund.
<PAGE>
The Plan was approved on October 20, 1993, at a meeting called for such
purpose by a majority of the directors of the Company, including a majority of
the directors who neither are "interested persons" of the Company nor have any
financial interest in the operation of the Plan ("independent directors"). The
board of directors, on February 4, 1997, approved amending the Plan to a
compensation type 12b-1 plan. This amendment of the Plan did not result in
increasing the amount of the Company's payments thereunder. The Plan has been
continued by action of the board of directors until May 15, 1999. Pursuant to
authorization granted by the Company's board of directors on September 2, 1997,
a new Plan became effective on September 29, 1997, under which IDI assumed all
obligations related to distribution from INVESCO.
The Plan provides that it shall continue in effect with respect to each
Fund for so long as such continuance is approved at least annually by the vote
of the board of directors of the Company cast in person at a meeting called for
the purpose of voting on such continuance. The Plan can also be terminated at
any time with respect to any Fund, without penalty, if a majority of the
independent directors, or shareholders of such Fund, vote to terminate the Plan.
The Company may, in its absolute discretion, suspend, discontinue or limit the
offering of shares of any of the Funds at any time. In determining whether any
such action should be taken, the board of directors intends to consider all
relevant factors including, without limitation, the size of the Funds, the
investment climate for any particular Fund, general market conditions and the
volume of sales and redemptions of Fund shares. The Plan may continue in effect
and payments may be made under the Plan following any such temporary suspension
or limitation of the offering of a Fund's shares; however, the Company is not
contractually obligated to continue the Plan for any particular period of time.
Suspension of the offering of a Fund's shares would not, of course, affect a
shareholder's ability to redeem his shares. So long as the Plan is in effect,
the selection and nomination of persons to serve as independent directors of the
Company shall be committed to the independent directors then in office at the
time of such selection or nomination. The Plan may not be amended to increase
materially the amount of any Fund's payments thereunder without approval of the
shareholders of that Fund, and all material amendments to the Plan must be
approved by the board of directors of the Company, including a majority of
the independent directors. Under the agreement implementing the Plan, IDI or the
Funds, the latter by vote of a majority of the independent directors or of the
holders of a majority of any Fund's outstanding voting securities, may terminate
such agreement without penalty upon 30 days' written notice to the other party.
No further payments will be made by any Fund under the Plan in the event of its
termination as to that Fund.
<PAGE>
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it shall remain in effect as such, so
as to authorize the use of each Fund's assets in the amounts and for the
purposes set forth therein, notwithstanding the occurrence of an assignment, as
defined by the 1940 Act and rules thereunder. To the extent it constitutes an
agreement pursuant to a plan, each Fund's obligation to make payments to IDI
shall terminate automatically in the event of such "assignment," in which case
the Funds may continue to make payments, pursuant to the Plan, to IDI or another
organization only upon the approval of new arrangements, which may or may not be
with IDI, regarding the use of the amounts authorized to be paid by it under the
Plan, by the directors, including a majority of the independent directors, by a
vote cast in person at a meeting called for such purpose.
Information regarding the services rendered under the Plan and the amounts
paid therefor by each Fund are provided to, and reviewed by, the directors on a
quarterly basis. On an annual basis, the directors consider the continued
appropriateness of the Plan at the level of compensation provided therein.
The only directors or interested persons, as that term is defined in
Section 2(a)(19) of the 1940 Act, of the Company who have a direct or indirect
financial interest in the operation of the Plan are the officers and directors
of the Company listed herein under the section entitled "The Funds And Their
Management -Officers And Directors of the Company" who are also officers either
of IDI or companies affiliated with IDI. The benefits which the Company believes
will be reasonably likely to flow to the Funds and their shareholders under the
Plan include the following:
(1) Enhanced marketing efforts, if successful, should result in an
increase in net assets through the sale of additional shares and
afford greater resources with which to pursue the investment
objectives of the Funds;
(2) The sale of additional shares reduces the likelihood that redemption
of shares will require the liquidation of securities of the Funds in
amounts and at times that are disadvantageous for investment
purposes;
(3) The positive effect which increased Fund assets will have on its
revenues could allow INVESCO and its affiliated companies:
<PAGE>
(a) To have greater resources to make the financial commitments
necessary to improve the quality and level of each Fund's
shareholder services (in both systems and personnel),
(b) To increase the number and type of mutual funds available to
investors from INVESCO and its affiliated companies (and
support them in their infancy) and thereby expand the
investment choices available to all shareholders, and
(c) To acquire and retain talented employees who desire to be
associated with a growing organization; and
(4) Increased Fund assets may result in reducing each investor's share
of certain expenses through economies of scale (e.g., exceeding
established breakpoints in the advisory fee schedule and allocating
fixed expenses over a larger asset base), thereby partially
offsetting the costs of the Plan.
HOW SHARES ARE VALUED
As ^ discussed in the section of each Fund's Prospectus entitled "Fund
Price And Performance," the net asset value of shares of each Fund is computed
once each day that the New York Stock Exchange is open as of the close of
regular trading on that Exchange (generally 4:00 p.m., New York time) and
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 of such Fund might be materially affected by changes in the
value of the securities held, but only if on such day that Fund receives a
request to purchase or redeem shares. 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 collected), less the Fund's liabilities
(including accrued expenses), by the number of outstanding shares of the 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
<PAGE>
are not available, and listed securities for which no sales were 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 or other assets will be valued at their 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 Company's board of directors 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 securities with remaining
maturities of 60 days or less at the time of purchase are normally valued at
amortized cost.
The value of securities and other assets held by each Fund 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 a Fund's net asset value. 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 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.
FUND PERFORMANCE
As discussed in the section of each Fund's Prospectus entitled "Fund Price
And Performance," the Company advertises the total return performance of the
Funds. The total return performance for each Fund for the indicated periods
ended July 31, 1998 was as
follows:
Fund 1 Year Life of Fund*
---- ------ -------------
Multi-Asset Allocation Fund 8.15% 12.99%
Balanced Fund 12.90% 19.14%
<PAGE>
*Commencement of Operations December 1, 1993.
Average annual total return performance is 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 shown.
In conjunction with performance reports, comparative data between the
Fund's performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
In conjunction with performance reports and/or analyses of shareholder
service for the Funds, comparative data between a Fund's performance for a given
period and recognized indices of investment results for the same period, and/or
assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company,
Standard & Poor's, Lipper Analytical Services, Inc., Lehman Brothers, National
Association of Securities Dealers Automated Quotations, 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 Deutcher Aktienindex,
all of which are unmanaged market indicators. In addition, rankings, ratings and
comparisons of investment performance and/or assessments of the quality of
shareholder service made by independent sources may be used in advertisements,
sales literature or shareholder reports, including reprints of, or selections
from, editorials or articles about the Funds. These sources utilize information
compiled (i) internally; (ii) by Lipper Analytical Services, Inc.; or (iii) by
other recognized analytical services. The Lipper Analytical Services, Inc.
mutual fund rankings and comparisons which may be used by the Multi-Asset
Allocation Fund and the Balanced Fund in performance reports will be drawn
from the Flexible Portfolio Funds and Balanced Funds mutual fund groupings,
respectively, in addition to the broad-based Lipper general fund groupings.
Sources for Fund performance information and articles about the Funds include,
but are not limited to, the following:
<PAGE>
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
No-Load Analyst
No-Load Fund X
Personal Investor
Smart Money
The New York Times
The No-Load Fund Investor
U.S. News and World Report
United Mutual Fund Selector
USA Today
Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
SERVICES PROVIDED BY THE FUND
Periodic Withdrawal Plan. As ^ discussed in the section of each Fund's
Prospectus entitled "How To Sell Shares," each Fund offers a Periodic Withdrawal
Plan. All dividends and other distributions on shares owned by shareholders
participating in this Plan are reinvested in additional shares. Because
withdrawal payments represent the proceeds from sales of shares, the amount of
shareholders' investments in a Fund will be reduced to the extent that
withdrawal payments exceed dividends and other distributions paid and
reinvested. Any gain or loss on such redemptions must be reported for tax
purposes. In each case, shares will be redeemed at the close of business on or
about the 20th day of each month preceding payment and payments will be mailed
within five business days thereafter.
<PAGE>
The Periodic Withdrawal Plan involves the use of principal and is not a
guaranteed annuity. Payments under such Plan do not represent income or a return
on investment.
Participation in the Periodic Withdrawal Plan may be terminated at any
time by sending a written request to INVESCO. Upon termination, all future
dividends and capital gain distributions will be reinvested in additional shares
unless a shareholder requests otherwise.
Exchange Policy. As discussed in the section of each Fund's Prospectus
entitled "How To Buy Shares -- Exchange Policy," each Fund offers shareholders
the ability to exchange shares of the Funds for shares of another fund or for
shares of certain other no-load mutual funds advised by INVESCO. Exchange
requests may be made either by telephone or by written request to INVESCO, using
the telephone number or address on the cover of this Statement of Additional
Information. Exchanges made by telephone must be in an amount of at least $250
if the exchange is being made into an existing account of one of the INVESCO
funds. All exchanges that have established a new account must meet the fund's
applicable minimum initial investment requirements. Written exchange requests
into an existing account have no minimum requirements other than the fund's
applicable minimum subsequent investment requirements. Any gain or loss realized
on such an exchange is recognized for federal income tax purposes. This ability
is not an option or right to purchase securities and is not available in any
state or other jurisdiction where the shares of the mutual fund into which
transfer is to be made are not qualified for sale, or when the net asset value
of the shares presented for exchange is less than the minimum dollar purchase
required by the appropriate prospectus.
TAX-DEFERRED RETIREMENT PLANS
As described in the section of each Fund's Prospectus entitled "Fund
Services - Retirement Plans And IRAs," shares of a Fund may be purchased as the
investment medium for various tax-deferred retirement plans. Persons who request
information regarding these plans from INVESCO will be provided with prototype
documents and other supporting information regarding the type of plan requested.
Each of these plans involves a long-term commitment of assets and is subject to
possible regulatory penalties for excess contributions, premature distributions
or for insufficient distributions after age 70-1/2. The legal and tax
implications may vary according to the circumstances of the individual investor.
<PAGE>
Therefore, the investor is urged to consult with an attorney or tax adviser
prior to the establishment of such a plan.
HOW TO REDEEM SHARES
Normally, payments for shares redeemed will be mailed within seven days
following receipt of the required documents as described in the section of each
Fund's Prospectus entitled "How To Sell Shares." The right of redemption may be
suspended and payment postponed when: (a) the New York Stock Exchange is closed
for other than customary weekends and holidays; (b) trading on that exchange is
restricted; (c) an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets; or (d)
the SEC by order so permits.
The Company has authorized one or more brokers to accept ^ redemption
orders on the Funds' behalf. Such brokers are authorized to designate other
intermediaries to accept ^ redemption orders on the Funds' behalf. The Funds
will be deemed to have received a ^ redemption order when an authorized broker,
or, if applicable, a broker's authorized designee, accepts the order. A ^
redemption order will be priced at a Fund's Net Asset Value next calculated
after the order has been accepted by an authorized broker or the broker's
authorized designee.
It is possible that in the future conditions may exist which would, in the
opinion of the Company's investment adviser, make it undesirable for a Fund to
pay for redeemed shares in cash. In such cases, the investment adviser may
authorize payment to be made in portfolio securities or other property of the
Fund. However, the Company is obligated under the 1940 Act 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 Fund's net assets if that is less) in any
90-day period. Securities delivered in payment of redemptions are selected
entirely by the investment adviser based on what is in the best interests of the
Fund 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.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
^ The Company intends ^ to conduct its business and satisfy the applicable
diversification of assets, distribution and source of income requirements to
qualify as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). ^ The Company so
qualified for the taxable year ended July 31, 1998, and intends to continue to
qualify during its current taxable year. As a result, it is anticipated that ^
the Company will pay federal income or excise taxes and that ^ the Company will
be accorded conduit or "pass through" treatment for federal income tax purposes.
<PAGE>
Dividends paid by each Fund from net investment income as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
each Fund sends shareholders information regarding the amount and character of
dividends paid in the year.
Distributions by each Fund of net capital gain (the excess of net
long-term capital gain over net short-term capital loss) are, for federal income
tax purposes, taxable to the shareholder as long-term capital gains regardless
of how long a shareholder has held shares of the Fund. Long-term gains realized
between May 7, 1997 and July 28, 1997 on the sale of securities held for more
than 12 months are taxable at the maximum rate of 20%. Long-term gains realized
between July 29, 1997 and December 31, 1997 on the sale of securities held for
more than one year but not for more than 18 months are taxable at the maximum
rate of 28%. ^ During 1997, the Taxpayer Relief Act established a new maximum
capital gains tax rate of 20%. Depending on the holding period of the asset
giving rise to the gain, a capital gain was taxable at a maximum rate of either
20% or 28%. Beginning January 1, 1998, ^ all long-term gains realized ^ on the
sale of securities held ^ more than 12 months will be taxable at a maximum rate
of 20%. In addition, legislation signed in October of 1998 provides that all
capital gain distributions from a mutual fund paid to shareholders during 1998
will be taxed at a maximum rate of 20%. Accordingly, all capital gain
distributions paid in 1998 will be taxable at a maximum rate of 20%. Note that
the rate of capital gains tax is dependent on the ^ shareholder's marginal tax
rate and may be lower than the above rates. At the end of each year, information
regarding the tax status of dividends and other distributions is provided to
shareholders. Shareholders should consult their tax advisers as to the effect of
distributions by a Fund.
All dividends and other distributions are regarded as taxable to the
investor, regardless whether such dividends and distributions are reinvested in
additional shares of one of the Funds or another fund in the INVESCO group. The
net asset value of Fund shares reflects accrued net investment income and
undistributed realized capital and foreign currency gains; therefore, when a
distribution is made, the net asset value is reduced by the amount of the
distribution. If the net asset value of Fund shares were reduced below a
<PAGE>
shareholder's cost as a result of a distribution, such distribution would
be taxable to the shareholder although a portion would be, in effect, a return
of invested capital. If shares are purchased shortly before a distribution, the
full price for the shares will be paid and some portion of the price may then be
returned to the shareholder as a taxable dividend or capital gain. However, the
net asset value per share will be reduced by the amount of the distribution,
which would reduce any gain (or increase any loss) for tax purposes on any
subsequent redemption of shares.
INVESCO may provide Fund shareholders with information concerning the
average cost basis of their shares in order to help them prepare their tax
returns. This information is intended as a convenience to shareholders and will
not be reported to the Internal Revenue Service (the "IRS"). The IRS permits the
use of several methods to determine the cost basis of mutual fund shares. The
cost basis information provided by INVESCO will be computed using the
single-category average cost method, although neither INVESCO nor a Fund
recommends any particular method of determining cost basis. Other methods may
result in different tax consequences. If a shareholder has reported gains or
losses for a Fund in past years, the shareholder must continue to use the cost
basis method previously used unless the shareholder applies to the IRS for
permission to change the method.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as a long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a non-deductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of it
ordinary income for that year and net capital gains for the one-year period
ending on October 31 of that year, plus certain other amounts.
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. Foreign taxes withheld may be
treated as an expense of the Fund.
Each Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation (other than a controlled
foreign corporation) that, in general, meets either of the following tests: (1)
at least 75% of its gross income is passive or (2) an average of at least 50% of
<PAGE>
its assets produce, or are held for the production of, passive income.
Under certain circumstances, a Fund will be subject to federal income tax on a
portion of any "excess distribution" received on the stock of a PFIC or of any
gain on disposition of the stock (collectively "PFIC income"), plus interest
thereon, even if a Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to a
Fund to the extent that income is distributed to its shareholders.
Each Fund may elect to "mark-to-market" its stock in any PFIC.
Marking-to-market, in this context, means including in ordinary income for each
taxable year the excess, if any, of the fair market value of the PFIC stock over
a Fund's adjusted tax basis therein as of the end of that year. Once the
election has been made, a Fund also will be allowed to deduct from ordinary
income the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the end of the year, but only to the extent of any
net mark-to-market gains with respect to that PFIC stock included by a Fund for
taxable years beginning after December 31, 1997. A Fund's adjusted tax basis in
each PFIC's stock with respect to which it makes this election will be adjusted
to reflect the amounts of income included and deductions taken under the
election.
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time each Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and other
distributions generally will be subject to applicable state and local taxes.
Qualification as a regulated investment company under the Code for federal
income tax purposes does not entail government supervision of management or
investment policies.
INVESTMENT PRACTICES
Portfolio Turnover. There are no fixed limitations regarding a Fund's
portfolio turnover. The rate of portfolio turnover can fluctuate under
constantly changing economic conditions and market circumstances. Securities
initially satisfying the basic policies and objectives of a Fund may be disposed
of when they are no longer suitable. Brokerage costs to these Funds are
commensurate with the rate of portfolio activity. Portfolio turnover rates for
the fiscal years ended July 31, 1998, 1997 and 1996 for the Multi-Asset
Allocation Fund were 101%, 98% and 92%, respectively, and for the Balanced Fund
were 108%, 155% and 259%, respectively. In computing portfolio turnover rates,
all investments with maturities or expiration dates at the time of acquisition
of one year or less are 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.
<PAGE>
Placement of Portfolio Brokerage. INVESCO, as the Company's investment
adviser, or, with respect to the Multi-Asset Allocation Fund, IMR, as the
Company's sub-adviser, places orders for the purchase and sale of securities
with broker-dealers' based upon INVESCO's or the sub-adviser's, if applicable,
evaluation of such brokers' and dealers' financial responsibility, subject to
their ability to effect transactions at the best available prices. INVESCO or
the sub-adviser, if applicable, evaluates the overall reasonableness of
brokerage commissions or underwriting discounts (the difference between the full
acquisition price to acquire the new offering and the discount offered to
members of the underwriting syndicate) paid by reviewing the quality of
executions obtained on the portfolio transactions of each Fund, 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 or discounts charged the Funds are consistent with
prevailing and reasonable commissions or discounts, INVESCO or the sub-adviser,
if applicable, also endeavors to monitor brokerage industry practices with
regard to the commissions or discounts charged by ^ brokers and dealers on
transactions effected for other comparable institutional investors. While
INVESCO or the sub-adviser, if applicable, seeks reasonably competitive rates,
the Funds do not necessarily pay the lowest commission, spread or discount
available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, INVESCO or the sub-adviser, if applicable, 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 INVESCO or the sub-adviser, if applicable, in making
<PAGE>
informed investment decisions. Research services prepared and furnished by
brokers through which the Funds effect securities transactions may be used by
INVESCO or the sub-adviser, if applicable, in servicing all of their respective
accounts and not all such services may be used by INVESCO or the sub-adviser, if
applicable, in connection with the Funds.
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, INVESCO or the sub-adviser, if applicable,
consistent with the standard of seeking to obtain the best execution on
portfolio transactions, may place orders with such brokers for the execution of
transactions for the Funds on which the commissions or discounts are in excess
of those which other brokers might have charged for effecting the same
transactions.
^ Fund transactions may be effected through qualified brokers and dealers
that recommend the Funds to their clients, or that act as agent in the purchase
of a Fund's shares for their clients. When a number of brokers and dealers can
provide comparable best price and execution on a particular transaction, INVESCO
may consider the sale of Fund shares by a broker or dealer in selecting among
qualified brokers and dealers.
Certain financial institutions (including brokers who may sell shares of
the Funds, or affiliates of such brokers) are paid a fee (the "Services Fee")
for recordkeeping, shareholder communications and other services provided by the
brokers to investors purchasing shares of the Funds through no transaction fee
programs ("NTF Programs") offered by the financial institution or its affiliated
broker (an "NTF Program Sponsor"). The Services Fee is based on the average
daily value of the investments in each Fund made in the name of such NTF Program
Sponsor and held in omnibus accounts maintained on behalf of investors
participating in the NTF Program. With respect to certain NTF Programs, the
directors of the Company have authorized the Funds to apply dollars generated
from the Company's Plan and Agreement of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan") to pay the entire Services Fee, subject to the
maximum Rule 12b-1 fee permitted by the Plan. With respect to other NTF
Programs, the Company's directors have authorized the Funds to pay transfer
agency fees to INVESCO based on the number of investors who have beneficial
interests in the NTF Program Sponsor's omnibus accounts in the Funds. INVESCO,
in turn, pays these transfer agency fees to the NTF Program Sponsor as a
sub-transfer agency or recordkeeping fee in payment of all or a portion of the
Services Fee. In the event that the sub-transfer agency or recordkeeping fee is
insufficient to pay all of the Services Fee with respect to these NTF Programs,
the directors of the Company have authorized the Company to apply dollars
generated from the Plan to pay the remainder of the Services Fee, subject to the
<PAGE>
maximum Rule 12b-1 fee permitted by the Plan. INVESCO itself pays the
portion of a Fund's Services Fee, if any, that exceeds the sum of the
sub-transfer agency or recordkeeping fee and Rule 12b-1 fee. The Company's
directors have further authorized INVESCO to place a portion of each Fund's
brokerage transactions with certain NTF Program Sponsors or their affiliated
brokers, if INVESCO reasonably believes that, in effecting the Fund's
transactions in portfolio securities, the broker is able to provide the best
execution of orders at the most favorable prices. A portion of the commissions
earned by such a broker from executing portfolio transactions on behalf of the
Funds may be credited by the NTF Program Sponsor against its Services Fee. Such
credit shall be applied first against any sub-transfer agency or recordkeeping
fee payable with respect to the Funds, and second against any Rule 12b-1 fees
used to pay a portion of the Services Fee, on a basis which has resulted from
negotiations between INVESCO or IDI and the NTF Program Sponsor. Thus, the Funds
pay sub-transfer agency or recordkeeping fees to the NTF Program Sponsor in
payment of the Services Fee only to the extent that such fees are not offset by
a Fund's credits. In the event that the transfer agency fee paid by the Funds to
INVESCO with respect to investors who have beneficial interests in a particular
NTF Program Sponsor's omnibus accounts in a Fund exceeds the Services Fee
applicable to the Fund, after application of credits, INVESCO may carry forward
the excess and apply it to future Services Fees payable to that NTF Program
Sponsor with respect to a Fund. The amount of excess transfer agency fees
carried forward will be reviewed for possible adjustment by INVESCO prior to
each fiscal year-end of the Funds. The Company's board of directors has also
authorized the Funds to pay to IDI the full Rule 12b-1 fees contemplated by the
Plan as payment for expenses incurred by IDI in engaging in the activities and
providing the services on behalf of the Funds contemplated by the Plan, subject
to the maximum Rule 12b-1 fee permitted by the Plan, notwithstanding that
credits have been applied to reduce the portion of the 12b-1 fee that would have
been used to compensate IDI for payments to such NTF Program Sponsor absent such
credits.
* With respect to INVESCO Multiple Asset Funds, Inc., the Company's directors
have not authorized INVESCO to place any portion of the INVESCO Multi-Asset
Allocation Fund's brokerage transactions with brokers that sponsor NTF Programs
in order to obtain such credits.
The aggregate dollar amounts of brokerage commissions paid by the
Multi-Asset Allocation Fund for the fiscal years ended July 31, 1998, 1997 and
1996, were $11,354, $28,745 and $16,522, respectively. The aggregate dollar
amounts of brokerage commissions paid by the Balanced Fund for the years ended
July 31, 1998, 1997 and 1996, were $1,318,035, $1,382,425 and $1,262,695,
respectively. The higher levels of brokerage commissions paid by the Funds for
the years ended July 31, 1996 were primarily due to the increased size of the
Funds, increased portfolio turnover and the fact that the fiscal 1996 figures
reflect a full year of operations. For the fiscal year ended July 31, 1998,
brokers providing research services received $305,214 in commissions on
portfolio transactions effected for the Funds. The aggregate dollar amount of
such portfolio transactions was $205,920,368. On a Fund-by-Fund basis, this
figure breaks down as follows: Multi-Asset Allocation, $194,457 and Balanced,
$205,725,911. As a result of selling shares of the Funds, brokers received $0 in
commissions on portfolio transactions effected for the Funds during the fiscal
year ended July 31, 1998.
<PAGE>
At July 31, 1998, each of the Funds held securities of its regular brokers
or dealers, or their parent companies, as follows:
Value of Securities
Fund Broker or Dealer at 7/31/98
Multi-Asset State Street Bank & Trust $2,453,000
Allocation Fund Bear Stearns $145,000
Morgan Stanley Dean Witter $17,000
Associate Corp. Of North America $108,000
Salomon Smith Barney Fixed Income $75,000
Balanced Fund State Street Bank & Trust $11,981,000
Neither INVESCO nor IMR receives any brokerage commissions on portfolio
transactions effected on behalf of the Funds, and there is no affiliation
between INVESCO, IMR or any person affiliated with INVESCO, IMR or the Funds and
any broker or dealer that executes transactions for the Funds.
ADDITIONAL INFORMATION
Common Stock. The Company has 1,600,000,000 authorized shares of common
stock with a par value of $0.01 per share. Of the Company's authorized shares,
100,000,000 shares have been allocated to each of two series, representing the
Company's two Funds. As of August 31, 1998, 1,684,256 shares of the INVESCO
Multi-Asset Allocation Fund and 13,597,684 shares of the INVESCO Balanced Fund
were outstanding. All shares offered hereby, when issued, will be fully paid and
nonassessable. The board of directors has the authority to designate additional
series of common stock without seeking the approval of shareholders and may
classify and reclassify any authorized but unissued shares.
Shares of each series represent the interests of the shareholders of such
series in a particular portfolio of investments of the Company. Each series of
the Company's shares is preferred over all other series in respect of the assets
<PAGE>
specifically allocated to that series, and all income, earnings, profits and
proceeds from such assets, subject only to the rights of creditors, are
allocated to shares of that series. The assets of each series 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 these items are allocated among series in a manner deemed by the
board of directors to be fair and equitable. Generally, such allocation will be
made based upon the relative total net assets of each series. In the unlikely
event that a liability allocable to one series exceeds the assets belonging to
the series, all or a portion of such liability may have to be borne by the
holders of shares of the Company's other series.
All Fund shares, regardless of series, have equal voting rights. Voting
with respect to certain matters, such as ratification of independent accountants
or election of directors, will be by all series of the Company. When not all
series 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 series affected by the matter may 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 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. The 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 will
call annual or special meetings of shareholders for action by shareholder vote
as may be required by the 1940 Act or the Company's Articles of Incorporation,
or at their discretion.
Principal Shareholders. As of August 31, 1998, the following persons held
more than 5% of the Funds' outstanding equity securities.
<PAGE>
Shares Held and Percent
Name and Address Nature of Ownership of Class
- ---------------- ------------------- --------
Multi-Asset
Allocation Fund
Charles Schwab & Co., Inc. 290,908.3290 17.34%
Special Custody Acct. For Record
The Exclusive Benefit
of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
INVESCO Trust Co. 207,766.0330 12.39%
Eagle Hardware and Garden Record
Retirement Savings Plan 401k
981 Powell Ave. S.W.
Renton, WA 98055-2908
Balanced Fund
Charles Schwab & Co., Inc. 3,309,384.5670 24.53%
Special Custody Acct. For Record
The Exclusive Benefit
of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Saxon & Co. TR 971,498.0820 7.20%
91 Vested Interest Omnibus Record
Asset
A/C #20-01-302-9912426
P.O. Box 7780-1888
Philadelphia, PA 19182-0001
Independent Accountants. PricewaterhouseCoopers 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.
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 Company. The bank is also responsible for, among other things,
receipt and delivery of the investment securities of the Company's Funds in
accordance with procedures and conditions specified in the custody agreement.
Under
<PAGE>
its contract with the Company, the custodian is authorized to establish separate
accounts in foreign countries and to cause foreign securities owned by the Funds
to be held outside the United States in branches of U.S. banks and, to the
extent permitted by applicable regulations, in certain foreign banks and foreign
securities depositories.
Transfer Agent. The Company is provided with transfer agent, registrar and
dividend disbursing agent services by INVESCO Funds Group, Inc., 7800 E. Union
Avenue, Denver, Colorado 80237, pursuant to the Transfer Agency Agreement
described herein. Such services include the issuance, cancellation and transfer
of shares of the Funds and the maintenance of records regarding the ownership of
such shares.
Reports to Shareholders. The Company's fiscal year ends on July 31. 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 July 31, 1998, and the report of
PricewaterhouseCoopers LLP with respect to such financial statements, are
incorporated herein by reference from the Funds' Annual Report to Shareholders
for the fiscal year ended July 31, 1998.
Prospectuses. The Company will furnish, without charge, a copy of any
Fund's Prospectus upon request. There is a separate Prospectus available for
each Fund. 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.
Registration Statement. This Statement of Additional Information and the
related Prospectuses do not contain all of the information set forth in the
Registration Statement the Company has filed with the SEC. The complete
Registration Statement may be obtained from the SEC upon payment of the fee
prescribed by the rules and regulations of the SEC.
<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, 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 will generally purchase or write only those options for which
<PAGE>
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
any particular time. In such event it might not be possible to effect closing
transactions in a particular option with the result that the Funds would have to
exercise the option in order to realize any profit. This would result in the
Funds 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 insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions 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 intermediation 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
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.
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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 agreements,
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 equivalent, 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
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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 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 terminated 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.