INVESCO COMBINATION STOCK & BOND FUNDS INC, 485BPOS, 1999-09-28

INVESCO COMBINATION STOCK & BOND FUNDS INC
485BPOS, 1999-09-28

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As filed on September 28, 1999 File No. 033-69904

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. __ _
Post-Effective Amendment No. 9 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 10 X

INVESCO COMBINATION STOCK & BOND FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
7800 E. Union Avenue, Denver, Colorado 80237
(Address of Principal Executive Offices)
P.O. Box 173706, Denver, Colorado 80217-3706
(Mailing Address)
Registrant's Telephone Number, including Area Code: (303) 930-6300
Glen A. Payne, Esq.
7800 E. Union Avenue
Denver, Colorado 80237
(Name and Address of Agent for Service)
------------
Copies to:
Ronald M. Feiman, Esq.
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019-5820
------------

Approximate Date of Proposed Public Offering: As soon as practicable after this
post-effective amendment becomes effective.
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
X on September 30, 1999, pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on _____________, pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on _________, pursuant to paragraph (a)(2) of rule 485

If appropriate, check the following box:
X this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

<PAGE>

PROSPECTUS | September 30, 1999
- ----------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- ----------------------------------------------------------------------------

INVESCO
COMBINATION
STOCK & BOND
FUNDS, INC.

INVESCO EQUITY INCOME FUND (FORMERLY, INVESCO INDUSTRIAL INCOME FUND)
INVESCO BALANCED FUND
INVESCO TOTAL RETURN FUND

THREE NO-LOAD MUTUAL FUNDS SEEKING CAPITAL APPRECIATION AND CURRENT INCOME.

TABLE OF CONTENTS

Investment Goals And Strategies...............3
Fund Performance..............................5
Fees And Expenses.............................7
Investment Risks..............................8
Risks Associated With Particular Investments..8
Temporary Defensive Positions................14
Fund Management..............................14
Portfolio Managers...........................15
Potential Rewards............................16
Share Price..................................16
How To Buy Shares............................17
Your Account Services........................20
How To Sell Shares...........................21
Taxes........................................23
Dividends And Capital Gain Distributions.....24
Financial Highlights.........................25

[INVESCO ICON]
INVESCO

The Securities and Exchange Commission has not approved or disapproved the
shares of these Funds. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.

<PAGE>

This Prospectus will tell you more about:

[KEY ICON] Investment Objectives & Strategies

[ARROW ICON] Potential Investment Risks

[GRAPH ICON] Past Performance & Potential Advantages

[INVESCO ICON] Working With Invesco
- -------------------------------------------------------------------------------
[KEY ICON] INVESTMENT GOALS AND STRATEGIES

FACTORS COMMON TO ALL THE FUNDS

INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the Funds.
Together with our affiliated companies, we at INVESCO direct all aspects of the
management and sale of the Funds.

FOR MORE DETAILS ABOUT EACH FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.

The Funds attempt to provide you with high total return through both growth and
current income from these investments. The Funds are aggressively managed. The
Funds invest in a mix of equity securities and debt securities, as well as in
options and other investments whose value is based upon the values of these
securities. Often, but not always, when stock markets are up, debt markets are
down and vice versa. By investing in both types of securities, the Funds attempt
to cushion against sharp price movements in both equity and debt securities.

[ARROW ICON] Although the Funds are subject to a number of risks that could
affect their performance, their principal risk is market risk -- that is, that
the price of the securities in a portfolio will rise and fall due to price
movements in the securities markets, and the securities held in a Fund's
portfolio may decline in value more than the overall securities markets.

Since INVESCO has discretion to allocate the amounts of equity securities and
debt securities held in each Fund, there is an additional risk that the
portfolios of the Fund may not be allocated in the most advantageous way between
equity and debt securities, particularly in times of significant market
movements.

The Funds are subject to other principal risks such as credit, debt securities,
foreign securities, interest rate, duration, liquidity, derivatives, options and
futures, counterparty and lack of timely information risks. these risks are
described and discussed later in the Prospectus under the headings "Investment
Risks" and "Risks Associated With Particular Investments." An investment in a
Fund is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation ("FDIC") or any other government agency.
As with any mutual fund, there is always a risk that you can lose money on your
investment in a Fund.

[KEY ICON] INVESCO EQUITY INCOME FUND

The Fund primarily invests in dividend-paying common and preferred stocks.
Stocks selected for the Fund generally are expected to produce relatively high
levels of income and consistent, stable returns. Although the Fund focuses on
the stocks of larger companies with a strong record of paying dividends, it also
may invest in companies that have not paid regular dividends. The Fund's equity
investments are limited to stocks that can be traded easily in the United
States; it may, however, invest in foreign securities in the form of American
Depository Receipts (ADRs).

<PAGE>

The rest of the Fund's assets are invested in debt securities, generally
corporate bonds that are rated investment grade or better. The Fund also may
invest up to 15% of its assets in lower-grade debt securities commonly known as
"junk bonds," which generally offer higher interest rates, but are riskier
investments than investment grade securities.

Because the Fund invests primarily in the securities of larger companies, the
Fund's share price tends to rise and fall with the up and down price movements
of larger company stocks. Due to its investment strategy, the Fund's portfolio
includes relatively few smaller companies, which may be a disadvantage if
smaller companies outperform the broad market.

[KEY ICON] INVESCO BALANCED FUND

The Fund invests in a combination of common stocks and fixed-income securities,
including preferred stocks, convertible securities and bonds. The Fund normally
invests the majority of its total assets in common stocks and approximately
one-quarter of its assets in investment grade debt securities.

The portion of the Fund's portfolio invested in equity securities emphasizes
companies INVESCO believes to have better-than-average earnings growth
potential, as well as companies within industries that INVESCO believes are
well-positioned for the current and expected economic climate. Since current
income is a component of total return, we also consider companies' dividend
payout records. Most of these holdings are traded on national stock exchanges or
in the over-the-counter market. We may also take positions in securities traded
on regional or foreign exchanges.

A portion of the Fund's portfolio invested in debt securities may include
obligations of the U.S. government, government agencies, and 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 may include some supported only by the credit of the issuing
agency rather than by the full faith and credit of the U.S. government. The Fund
may hold securities of any maturity, with the average maturity of the portfolio
varying depending upon economic and market conditions.

[KEY ICON] INVESCO TOTAL RETURN FUND

The Fund primarily invests in a combination of common stocks of companies with a
strong history of paying regular dividends and invests in debt securities. Debt
securities include obligations of the U.S. government and government agencies.
The remaining assets of the Fund are allocated among these and other investments
at INVESCO's discretion, based upon current business, economic and market
conditions.

INVESCO considers a combination of historic financial results, current prices
for stocks and the current yield to maturity available in the debt securities
markets. To determine the actual allocations, the return that INVESCO believes
is available from each category of investments is weighed against the returns
expected from other categories. This analysis is continual, and is updated with
current market information.

The Fund is managed in the value style. That means we seek securities,
particularly stocks, that are currently undervalued by the market -- companies
that are performing well, or have solid management and products, but whose stock

<PAGE>

prices do not reflect that value. Through our value process, we seek to provide
reasonably consistent returns over a variety of market cycles.

[GRAPH ICON] FUND PERFORMANCE

The bar charts below show the Funds' actual yearly performance for the years
ended December 31 (commonly known as their "total return") over the past decade
for Equity Income and Total Return Funds and since inception for Balanced Fund.
The table below shows average annual total returns for various periods ended
December 31 for each Fund compared to the S&P 500 and Lehman
Government/Corporate Bond Indexes. The information in the charts and table
illustrates the variability of each Fund's return and how its performance
compared to a broad measure of market performance. Remember, past performance
does not indicate how a Fund will perform in the future.

The three charts below contain the following plot points:

<TABLE>

-----------------------------------------------------------------------------------------------
ACTUAL ANNUAL TOTAL RETURN(1),(2)
-----------------------------------------------------------------------------------------------
<CAPTION>
Equity Income Fund

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31.95% 0.91% 46.22% 0.99% 16.74% (3.55%) 27.33% 16.728% 26.45% 14.13%

Best Calendar Qtr. 3/91 16.84%
Worst Calendar Qtr. 9/90 (12.28%)
-----------------------------------------------------------------------------------------------
</TABLE>

<TABLE>

-----------------------------------------------------------------------------------------------
ACTUAL ANNUAL TOTAL RETURN(1),(2),(3)
-----------------------------------------------------------------------------------------------
<CAPTION>
Balanced Fund

'94 '95 '96 '97 '98
<S> <C> <C> <C> <C>
9.44% 36.46% 14.66% 19.53% 17.33%

Best Calendar Qtr. 12/98 13.67%
Worst Calendar Qtr. 9/98 (6.61%)
-----------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

<TABLE>

<CAPTION>
Total Return Fund
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19.13% (0.35% 24.96% 9.84% 12.34% 2.52% 28.64% 13.078% 25.04% 13.62%

Best Calendar Qtr. 6/97 11.86%
Worst Calendar Qtr. 9/90 (8.13%)
-----------------------------------------------------------------------------------------------
</TABLE>

<TABLE>

--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)
AS OF 12/31/98
--------------------------------------------------------------------------------------------

<CAPTION>
10 YEARS
1 YEAR 5 YEARS OR SINCE INCEPTION

Equity Income Fund 14.13% 15.57% 16.82%
Balanced Fund 17.33% 19.15% 18.97%(3)
Total Return Fund 13.62% 16.20% 14.51%
Lehman Government/Corporate Bond 9.47% 7.30% 9.33%
Index(4)
S&P 500 Index(4) 28.58% 24.03% 19.17%
- ---------------------------------------------------------------------------------------------

(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Funds' expenses.

(2) Year-to-date return for Equity Income Fund, Balanced Fund and Total Return
Fund were 11.31%, 10.59% and 6.59%, respectively, as of the calendar quarter
ended June 30, 1999.

(3) The Fund commenced investment operations on December 31, 1993.

(4) The S&P 500 Index is an unmanaged index considered representative of the
performance of the broad U.S. stock market. The Lehman Government/Corporate Bond
Index is an unmanaged index indicative of the broad domestic fixed-income
market. Please keep in mind that the Indexes do not pay brokerage, management,
administrative or distribution expenses, all of which are paid by the Funds and
are reflected in their annual returns.

</TABLE>

<PAGE>

FEES AND EXPENSES

SHAREHOLDER FEES PAID DIRECTLY FROM YOUR ACCOUNT

You pay no fee to purchase Fund shares, to exchange to another INVESCO fund, or
to sell your shares. Accordingly, no fees are paid directly from your
shareholder account. The only Fund costs you pay are annual fund expenses that
are deductible from Fund assets.

ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS

EQUITY INCOME FUND
Management Fees(1) 0.48%
Distribution and Service (12b-1) Fees(2) 0.25%
Other Expenses(1)(3)(4) 0.21%
-----
Total Annual Fund Operating Expenses(1)(3)(4) 0.94%
=====
BALANCED FUND
Management Fees 0.60%
Distribution and Service (12b-1) Fees(2) 0.25%
Other Expenses (3)(4) 0.39%
-----
Total Annual Fund Operating Expenses(3)(4) 1.24%
=====
TOTAL RETURN fund
Management Fees(1) 0.56%
Distribution and Service (12b-1) Fees(2) 0.25%
Other Expenses(1)(3)(4) 0.23%
-----
Total Annual Fund Operating Expenses(1)(3)(4) 1.04%
=====

(1) Certain advisory fees of Equity Income and Total Return Funds were
voluntarily absorbed by INVESCO prior to May 13, 1999. After absorption,
Equity Income Fund's Other Expenses and Total Annual Fund Operating
Expenses changed insignificantly and Total Return Fund's Other Expenses
and Total Annual Fund Operating Expenses were 0.22% and 1.03%,
respectively.

(2) Because the Funds pay 12b-1 distribution fees which are based upon each
Fund's assets, if you own shares of a Fund for a long period of time, you
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.

(3) Each Fund's actual Total Annual Fund Operating Expenses were lower than the
figures shown, because their distribution fees and/or custodian fees were
reduced under expense offset arrangements.

(4) The expense information presented in the table has been restated to reflect
a change in the administrative services fee.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Funds
to the cost of investing in other mutual funds.

The Example assumes that you invested $10,000 in a Fund for the time periods
indicated and redeemed all of your shares at the end of each period. The Example
also assumes that your investment had a hypothetical 5% return each year, and
assumes that a Fund's expenses remained the same. Although a Fund's actual costs
and performance may be higher or lower, based on these assumptions your costs
would have been:

1 year 3 years 5 years 10 years

Equity Income Fund $96 $301 $523 $1,160
Balanced Fund $126 $393 $680 $1,497
Total Return Fund $106 $332 $576 $1,275

<PAGE>

[ARROW ICON] INVESTMENT RISKS

You should determine the level of risk with which you are comfortable before you
invest. The principal risks of investing in any mutual fund, including these
Funds, are:

BEFORE INVESTING IN A FUND, YOU SHOULD DETERMINE THE LEVEL OF RISK WITH WHICH
YOU ARE COMFORTABLE. TAKE INTO ACCOUNT FACTORS LIKE YOUR AGE, CAREER, INCOME
LEVEL, AND TIME HORIZON.

NOT INSURED. Mutual funds are not insured by the FDIC or any other agency,
unlike bank deposits such as CDs or savings accounts.

NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.

POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its performance, nor
assure you that the market value of your investment will increase. You may lose
the money you invest, and the Funds will not reimburse you for any of these
losses.

VOLATILITY. The price of your mutual fund shares will increase or decrease with
changes in the value of a Fund's underlying investments and changes in the
equity markets as a whole.

NOT A COMPLETE INVESTMENT PLAN. An investment in any mutual fund does not
constitute a complete investment plan. The Funds are designed to be only a part
of your personal investment plan.

YEAR 2000. Many computer systems in use today may not be able to recognize any
date after December 31, 1999. If these systems are not fixed by that date, it is
possible that they could generate erroneous information or fail altogether.
INVESCO has committed substantial resources in an effort to make sure that its
own major computer systems will continue to function on and after January 1,
2000. Of course, INVESCO cannot fix systems that are beyond its control. If
INVESCO's own systems, or the systems of third parties upon which it relies, do
not perform properly after December 31, 1999, the Funds could be adversely
affected.

In addition, the markets for, or values of, securities in which the Funds invest
may possibly be hurt by computer failures affecting portfolio investments or
trading of securities beginning January 1, 2000. For example, improperly
functioning computer systems could result in securities trade settlement
problems and liquidity issues, production issues for individual companies and
overall economic uncertainties. Individual issuers may incur increased costs in
making their own systems Year 2000 compliant. The combination of market
uncertainty and increased costs means that there is a possibility that Year 2000
computer issues may adversely affect the Funds' investments. At this time, it is
generally believed that foreign issuers, particularly those in emerging and
other markets, may be more vulnerable to Year 2000 problems than issuers in the
U.S.

[ARROW ICON] RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS

You should consider the special factors associated with the policies discussed
below in determining the appropriateness of investing in a Fund. See the
Statement of Additional Information for a discussion of additional risk factors.

<PAGE>

MARKET RISK

Equity stock prices vary and may fall, thus reducing the value of your Fund's
investments. Certain stocks selected for any Fund's portfolio may decline in
value more than the overall stock market. In general, the securities of large
businesses with outstanding securities worth $5 billion or more have less
volatility than those of mid-size businesses with outstanding securities worth
more than $1 billion, or small businesses with outstanding securities worth less
than $1 billion.

CREDIT RISK

The Funds may invest in debt instruments, such as notes and bonds. There is a
possibility that the issuers of these instruments will be unable to meet
interest payments or repay principal. Changes in the financial strength of an
issuer may reduce the credit rating of its debt instruments and may affect their
value.

DEBT SECURITIES RISK

Debt securities include bonds, notes and other securities that give the holder
the right to receive fixed amounts of principal, interest, or both on a date in
the future or on demand. Debt securities also are often referred to as
fixed-income securities, even if the rate of interest varies over the life of
the security.

Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that the
market value of the security may decline for a variety of reasons, including
changes in interest rates. An increase in interest rates tends to reduce the
market values of debt securities in which the Fund invests. A decline in
interest rates tends to increase the market values of debt securities in which
the Fund invests.

Moody's Investor Services, Inc. ("Moody's") and Standard & Poor's ("S&P")
ratings provide a useful but not certain guide to the credit risk of many debt
securities. The lower the rating of a debt security, the greater the credit risk
the rating service assigns to the security. To compensate investors for
accepting that greater risk, lower-rated securities tend to offer higher
interest rates. Lower-rated debt securities are often referred to as "junk
bonds." A debt security is considered lower grade if it is rated Ba or less by
Moody's or BB or less by S&P.

Lower-rated and non-rated debt securities of comparable quality are subject to
wider fluctuations in yields and market values than higher-rated debt securities
and may be considered speculative. Junk bonds are perceived by independent
rating agencies as having a greater risk that their issuers will not be able to
pay the interest and principal as they become due over the life of the bond. In
addition to the loss of interest payments, the market value of a defaulted bond
would likely drop, and the Fund would be forced to sell it at a loss. Debt
securities rated lower than B by either S&P or Moody's are usually considered to
be highly speculative.

In addition to poor individual company performance in the marketplace or in its
internal management, a significant economic downturn or increase in interest
rates may cause issuers of debt securities to experience increased financial
problems which could hurt their ability to pay principal and interest
obligations, to meet projected business goals, and to obtain additional
financing. These conditions more severely impact issuers of lower-rated debt
securities. The market for lower rated straight debt securities may not be as
liquid as the market for higher- rated straight debt securities. Therefore,
INVESCO attempts to limit purchases of lower-rated securities to securities
having an established secondary market.

Debt securities rated Caa by Moody's may be in default or may present risks of
non-payment of principal or interest. Lower-rated securities by S&P (categories
BB, B, CCC) include those which are predominantly speculative because of the
issuer's perceived capacity to pay interest and repay principal in accordance
with their terms; BB indicates the lowest degree of speculation and CCC a high
degree of speculation. While such bonds will likely have some quality and

<PAGE>

protective characteristics, these are usually outweighed by large uncertainties
or major risk exposures to adverse conditions.

FOREIGN SECURITIES RISK

Investments in foreign and emerging markets carry special risks, including
currency, political, regulatory and diplomatic risks. Balanced and Total Return
Funds may invest up to 25% of their assets in securities of non-U.S. issuers.
Equity Income Fund may invest up to 25% of its assets in foreign debt
securities, provided that all such securities are denominated and pay interest
in U.S. dollars (such as Eurobonds and Yankee bonds). Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.

CURRENCY RISK. A change in the exchange rate between U.S. dollars and
a foreign currency may reduce the value of a Fund's investment in a
security valued in the foreign currency, or based on that currency
value.

POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.

REGULATORY RISK. Government regulations may affect the value of a
security. In foreign countries, securities markets that are less
regulated than those in the U.S. may permit trading practices that are
not allowed in the U.S.

DIPLOMATIC RISK. A change in diplomatic relations between the U.S. and
a foreign country could affect the value or liquidity of investments.

EUROPEAN ECONOMIC AND MONETARY UNION. 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") which as of January 1, 1999, adopted the euro as a
common currency. The national currencies will be sub-currencies of the
euro until July 1, 2002, at which time these currencies will disappear
entirely. Other European countries may adopt the euro in the future.

The introduction of the euro presents some uncertainties and possible
risks, which could adversely affect the value of securities held by
the Funds.

EMU countries, as a single market, may affect future investment
decisions of the Funds. As the euro is implemented, there may be
changes in the relative strength and value of the U.S. dollar and
other major currencies, as well as possible adverse tax consequences.
The euro transition by EMU countries present and future - may affect
the fiscal and monetary levels of those participating countries. There
may be increased levels of price competition among business firms
within EMU countries and between businesses in EMU and non-EMU
countries. The outcome of these uncertainties could have unpredictable
effects on trade and commerce and result in increased volatility for
all financial markets.

INTEREST RATE RISK

Changes in interest rates will affect the resale value of debt securities held
in a Fund's portfolio. In general, as interest rates rise, the resale value of
debt securities decreases; as interest rates decline, the resale value of debt
securities generally increases. Debt securities with longer maturities usually
are more sensitive to interest rate movements.

<PAGE>

DURATION RISK

Duration is a measure of a debt security's sensitivity to interest rate changes.
Duration is usually expressed in terms of years, with longer durations usually
more sensitive to interest rate fluctuations.

LIQUIDITY RISK

A Fund's portfolio is liquid if the Fund is able to sell the securities it owns
at a fair price within a reasonable time. Liquidity is generally related to the
market trading volume for a particular security. Investments in smaller
companies or in foreign companies or companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.

DERIVATIVES RISK

A derivative is a financial instrument whose value is "derived," in some manner,
from the price of another security, index, asset or rate. Derivatives include
options and futures contracts, among a wide range of other instruments. The
principal risk of investments in derivatives is that the fluctuations in their
values may not correlate perfectly with the overall securities markets. Some
derivatives are more sensitive to interest rate changes and market price
fluctuations than others. Also, derivatives are subject to counterparty risk
described below.

OPTIONS AND FUTURES RISK

Options and futures are common types of derivatives that a Fund may occasionally
use to hedge its investments. An option is the right to buy or sell a security
or other instrument, index or commodity at a specific price on or before a
specific date. A future is an agreement to buy or sell a security or other
instrument, index or commodity at a specific price on a specific date.

COUNTERPARTY RISK

This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the transaction with a
Fund.

LACK OF TIMELY INFORMATION RISK

Timely information about a security or its issuer may be unavailable, incomplete
or inaccurate. This risk is more common to securities issued by foreign
companies and companies in emerging markets than it is to the securities of
U.S.-based companies.

The Funds generally invest in equity and debt securities. However, in an effort
to diversify their holdings and provide some protection against the risk of
other investments, the Funds also may invest in other types of securities and
other financial instruments, as indicated in the chart below. These investments,
which at any given time may constitute a significant portion of a Fund's
portfolio, have their own risks.

<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
EQUITY TOTAL
INVESTMENT RISKS INCOME BALANCED RETURN
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS) Market, X X X
These are securities issued by U.S. banks Information,
that represent shares of foreign corpora- Political,
tions held by those banks. Although traded Regulatory,
in U.S. securities markets and valued in Diplomatic,
U.S. dollars, ADRs carry most of the risks Liquidity and
of investing directly in foreign securities. Currency Risks
- ---------------------------------------------------------------------------------------------------
DEBT SECURITIES Market, Credit, X X X
Securities issued by private companies or Interest Rate
governments representing an obligation to and Duration
pay interest and to repay principal when Risks
the security matures.
- ---------------------------------------------------------------------------------------------------

FORWARD FOREIGN CURRENCY CONTRACTS Currency, X X
A contract to exchange an amount of cur- Political,
rency on a date in the future at an Diplomatic,
agreed-upon exchange rate might be used by Counterparty
the Fund to hedge against changes in foreign and Regulatory
currency exchange rates when the Fund Risks
invests in foreign securities. Does not
reduce price fluctuations in foreign securi-
ties, or prevent losses if the prices of
those securities decline.

- ---------------------------------------------------------------------------------------------------
FUTURES
A futures contract is an agreement to buy or Market, X X X
sell a specific amount of a financial Liquidity and
instrument (such as an index option) at a Options and
stated price on a stated date. The Fund may Futures Risks
use futures contracts to provide liquidity
and to hedge portfolio value.
- ---------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot be sold quickly Liquidity Risk X X X
at its fair value.
- ---------------------------------------------------------------------------------------------------
JUNK BONDS
Debt Securities that are rated BB or lower Market, X
by S&P or Ba or lower by Moody's. Tend to Credit,
pay higher interest rates than higher-rated Interest Rate
debt securities, but carry a higher credit and Duration
risk. Risks
- ---------------------------------------------------------------------------------------------------

<PAGE>

- ---------------------------------------------------------------------------------------------------
EQUITY TOTAL
INVESTMENT RISKS INCOME BALANCED RETURN
- ---------------------------------------------------------------------------------------------------
OPTIONS
The obligation or right to deliver or Credit, Infor- X X X
receive a security or other instrument, mation,
index or commodity, or cash payment Liquidity and
depending on the price of the underlying Options and
security or the performance of an index or Futures Risks
other benchmark. Includes options on
specific securities and stock indices, and
options on stock index futures. May be used
in the Fund's portfolio to provide liquidity
and hedge portfolio value.
- ---------------------------------------------------------------------------------------------------
OTHER FINANCIAL INSTRUMENTS
These may include forward contracts, swaps, Counter- X X X
caps, floors and collars. They may be used party, Credit,
to try to manage the Fund's foreign currency Currency,
exposure and other investment risks, which Interest Rate,
can cause its net asset value to rise or Liquidity,
fall. The Fund may use these finan cial Market and
instruments, commonly known as Regulatory
"derivatives," to increase or decrease its Risks
exposure to changing securities prices,
interest rates, currency exchange rates or
other factors.
- ---------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A contract under which the seller of a Credit and X X X
security agrees to buy it back at an Counterparty
agreed-upon price and time in the future. Risks
- ---------------------------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not registered, but Liquidity Risk X X X
which are bought and sold solely by insti
tutional investors. The Fund considers many
Rule 144A securities to be "liquid,"
although the market for such securities
typically is less active than the public
secu rities markets.
- ---------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

[ARROW ICON] TEMPORARY DEFENSIVE POSITIONS

When securities markets or economic conditions are unfavorable or
unsettled, we might try to protect the assets of a Fund by investing in
securities that are highly liquid, such as high quality money market instruments
like short-term U.S. government obligations, commercial paper or repurchase
agreements, even though that is not the normal investment stategy of any Fund.
We have the right to invest up to 100% of a Fund's assets in these securities,
although we are unlikely to do so. Even though the securities purchased for
defensive purposes often are considered the equivalent of cash, they also have
their own risks. Investments that are highly liquid or comparatively safe tend
to offer lower returns. Therefore, a Fund's performance could be comparatively
lower if it concentrates in defensive holdings.

[INVESCO ICON] FUND MANAGEMENT

INVESTMENT ADVISER

INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $296 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.

INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Funds. INVESCO was founded in 1932 and manages over $24 billion
for more than 926,831 shareholders of 42 INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative and
transfer agency functions (the processing of purchases, sales and exchanges of
Fund shares).

INVESCO Capital Management, Inc. ("ICM"), located at 1315 Peachtree Street,
Atlanta, Georgia, is the sub-adviser to Total Return Fund.

A wholly owned subsidiary of INVESCO, INVESCO Distributors, Inc. ("IDI"), is the
Funds' distributor and is responsible for the sale of the Funds' shares.

INVESCO, ICM and IDI are subsidiaries of AMVESCAP PLC.

The following table shows the fees the Funds paid to INVESCO for its advisory
services in the period ended May 31, 1999:

- -------------------------------------------------------------------------------

ADVISORY FEE AS A PERCENTAGE OF AVERAGE
FUND ANNUAL NET ASSETS UNDER MANAGEMENT

- -------------------------------------------------------------------------------
INVESCO Equity Income Fund 0.48% (Annualized)
INVESCO Balanced Fund 0.60% (Annualized)
INVESCO Total Return Fund 0.56% (Annualized)
- -------------------------------------------------------------------------------

<PAGE>

[INVESCO ICON] PORTFOLIO MANAGERS

The following individuals are primarily responsible for the day-to-day
management of each Fund's portfolio holdings:

FUND PORTFOLIO MANAGER(S)

Equity Income Charles P. Mayer
Donovan J. (Jerry) Paul

Balanced Charles P. Mayer
Donovan J. (Jerry) Paul
Peter M. Lovell

Total Return Edward C. Mitchell. Jr.
David S. Griffin
Margaret Durkes Hoogs
James O. Baker

CHARLES P. MAYER is Director of Investments, a co-portfolio manager of Balanced
and Equity Income Funds and a director and senior vice president of INVESCO. He
began his investment career in 1969 and has been with INVESCO since 1993. Before
joining INVESCO, Charlie was a portfolio manager with Westinghouse Pension. He
received his M.B.A. from St. John's University and his B.A. from St. Peter's
College.

DONOVAN J. (JERRY) PAUL heads INVESCO's Fixed-Income Team. He is a co-portfolio
manager of Balanced and Equity Income Funds and a senior vice president of
INVESCO. Jerry manages several other fixed-income INVESCO Funds. He is a
Chartered Financial Analyst and a Certified Public Accountant. Before joining
INVESCO in 1994, he was with Stein, Roe & Farnham, Inc. and Quixote Investment
Management. Jerry received his M.B.A. from the University of Northern Iowa and
his B.B.A. from the University of Iowa.

JAMES O. BAKER, a Chartered Financial Analyst, a co-portfolio manager of Total
Return Fund since 1997 and a portfolio manager for INVESCO Capital Management,
Inc. since 1992. Prior to joining INVESCO Capital Management, Inc., he was with
Willis Investment Counsel, Morgan Keegan and Drexel Burnham Lambert. Jim
received his B.A. from Mercer University.

MARGARET DURKES HOOGS, a Chartered Financial Analyst, an assistant portfolio
manager of Total Return Fund since 1997 and a portfolio manager for INVESCO
Capital Management, Inc. since 1993. Before joining INVESCO Capital Management,
Inc., Peg was a vice president and portfolio manager for Sovran Capital
Management. She received her B.A. from The Colorado College.

DAVID S. GRIFFIN, a Chartered Financial Analyst, and an assistant portfolio
manager of Total Return Fund since 1993. He has been a portfolio manager for
INVESCO Capital Management, Inc. since 1991. Dave received his MBA from the
College of William and Mary and his B.A. from Ohio Wesleyan University.

PETER M. LOVELL has been a co-portfolio manager of Balanced Fund since 1998.
Before joining INVESCO in 1994, Pete was a financial consultant with Merrill
Lynch. He received his M.B.A in Finance and Accounting from Regis University and
his B.A. from Colorado State University.

EDWARD C. MITCHELL, a Chartered Financial Analyst, and a co-portfolio manager of
Total Return Fund since 1987. He joined INVESCO Capital Management, Inc. in
1979, and manages other INVESCO Capital Management, Inc. portfolios for
investors. Ed also is Chairman of INVESCO Capital Management, Inc. He
received his M.B.A. from the University of Colorado and his B.A. from the
University of Virginia.

<PAGE>

Charlie Mayer and Pete Lovell are each members of the INVESCO Equity Team, which
is led by Charlie Mayer.

[INVESCO ICON] POTENTIAL REWARDS

NO SINGLE FUND SHOULD REPRESENT YOUR COMPLETE INVESTMENT PROGRAM NOR SHOULD YOU
ATTEMPT TO USE THE FUNDS FOR SHORT-TERM TRADING PURPOSES.

The Funds offer shareholders the potential to increase the value of their
capital over time and also offer the opportunity for current income. Like most
mutual funds, each Fund seeks to provide higher returns than the market or its
competitors, but cannot guarantee that performance. Each Fund seeks to minimize
risk by investing in many different companies in a variety of industries.

SUITABILITY FOR INVESTORS

Only you can determine if an investment in a Fund is right for you based upon
your own economic situation, the risk level with which you are comfortable and
other factors. In general, the Funds are most suitable for investors who:
o are willing to grow their capital over the long-term (at least five years).
o understand that shares of a Fund can, and likely will, have daily price
fluctuations.
o are investing in tax-deferred retirement accounts, such as Traditional and
Roth Individual Retirement Accounts ("IRAs"), as well as employer-sponsored
qualified retirement plans, including 401(k)s and 403(b)s, all of which
have longer investment horizons.

You probably do not want to invest in the Funds if you are:
o primarily seeking current dividend income.
o unwilling to accept potentially daily changes in the price of Fund shares.
o speculating on short-term fluctuations in the stock markets.

[INVESCO ICON] SHARE PRICE

CURRENT MARKET VALUE OF FUND
ASSETS + ACCRUED INTEREST AND
DIVIDENDS - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- -----------------------------
/ NUMBER OF SHARES
= YOUR SHARE PRICE (NAV).

The value of your Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in each Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally
4:00 p.m. Eastern time). Therefore, shares of the Funds are not priced on days
when the NYSE is closed, which generally is on weekends and national holidays in
the U.S.

NAV is calculated by adding together the current market price of all of a Fund's
investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.

All purchases, sales and exchanges of Fund shares are made by INVESCO at the NAV
next calculated after INVESCO receives proper instructions from you to purchase,
redeem or exchange shares of a Fund. Your instructions must be received by
INVESCO no later than the close of the NYSE to effect transactions at that day's
NAV. If INVESCO hears from you after that time, your instructions will be
processed at the NAV calculated at the end of the next day that the NYSE is
open.

Foreign securities exchanges, which set the prices for foreign securities held
by the Funds, are not always open the same days as the NYSE, and may be open for
business on days the NYSE is not. For example, Thanksgiving Day is a holiday
observed by the NYSE and not by overseas exchanges. In this situation, the Funds
would not calculate NAV on Thanksgiving Day (and INVESCO would not buy, sell or

<PAGE>

exchange shares for you on that day), even though activity on foreign exchanges
could result in changes in the value of investments held by the Funds on that
day.

[INVESCO ICON] HOW TO BUY SHARES

TO BUY SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE THE CLOSE
OF THE NYSE, NORMALLY, 4:00 P.M. EASTERN TIME.

The following chart shows several convenient ways to invest in the Funds. There
is no charge to invest, exchange or redeem shares when you make transactions
directly through INVESCO. However, if you invest in a Fund through a securities
broker, you may be charged a commission or transaction fee for either purchases
or sales of Fund shares. For all new accounts, please send a completed
application form, and specify the fund or funds you wish to purchase.

INVESCO reserves the right to increase, reduce or waive each Fund's minimum
investment requirements in its sole discretion if it determines this action is
in the best interests of that Fund's shareholders. INVESCO also reserves the
right in its sole discretion to reject any order to buy Fund shares, including
purchases by exchange.

MINIMUM INITIAL INVESTMENT. $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans, including IRAs.

MINIMUM SUBSEQUENT INVESTMENT. $50 (Minimums are lower for certain retirement
plans.)

EXCHANGE POLICY. You may exchange your shares in any of the Funds for those in
another INVESCO mutual fund on the basis of their respective NAVs at the time of
the exchange.

FUND EXCHANGES CAN BE A CONVENIENT WAY FOR YOU TO DIVERSIFY YOUR INVESTMENTS, OR
TO REALLOCATE YOUR INVESTMENTS WHEN YOUR OBJECTIVES CHANGE.

Before making any exchange, be sure to review the prospectuses of the funds
involved and consider the differences between the funds. Also, be certain that
you qualify to purchase certain classes of shares in the new fund. An exchange
is the sale of shares from one fund immediately 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, you or your
account qualifies as tax-deferred under the Internal Revenue Code). If the
shares of the fund you are selling have gone up in value since you bought them,
the sale portion of an exchange may result in taxable income to you.

We have the following policies governing exchanges:

o Both fund accounts involved in the exchange must be registered in exactly
the same name(s) and Social Security or federal tax I.D. number(s).

o You may make up to four exchanges out of each Fund per 12-month period.
o Each Fund reserves the right to reject any exchange request, or to modify
or terminate the exchange policy, if it is in the best interests of the
Fund and its shareholders. Notice of all such modifications or termination
that affect all shareholders of the Fund will be given at least 60 days
prior to the effective date of the change, except in unusual instances,
including a suspension of redemption of the exchanged security under
Section 22(e) of the Investment Company Act of 1940.

<PAGE>

In addition, the ability to exchange may be temporarily suspended at any time
that sales of the fund into which you wish to exchange are temporarily stopped.

Please remember that if you pay by check or wire and your funds do not clear,
you will be responsible for any related loss to a Fund or INVESCO. If you are
already an INVESCO funds shareholder, the Fund may seek reimbursement for any
loss from your existing account(s).

INTERNET TRANSACTIONS. Investors may open new accounts, exchange and redeem
shares of any INVESCO Fund through the INVESCO Web site. To utilize this
service, you will need a web browser (presently Netscape version 1.2 or higher,
or Internet Explorer version 2.0 or higher) and utilize the INVESCO Web site.
INVESCO will accept Internet purchase instructions only for exchanges or if the
purchase price is paid to INVESCO through debiting your bank account, and any
Internet cash redemptions will be paid only to the same bank account from which
the payment to INVESCO originated. INVESCO imposes a limit of $25,000 on
Internet purchase and redemption transactions. You may also download an
application to open an account from the Web site, complete it by hand, and mail
it to INVESCO, along with a check.

INVESCO employs reasonable procedures to confirm that transactions entered
into over the Internet are genuine. These procedures include the use of
alphanumeric passwords, secure socket layering, encryption and other precautions
reasonably designed to protect the integrity, confidentiality and security of
shareholder information. In order to enter into a transaction on the INVESCO Web
site, you will need an account number, your Social Security Number and an
alphanumeric password. By entering into the user's agreement with INVESCO to
open an account through our Web site, you lose certain rights if someone gives
fraudulent or unauthorized instructions to INVESCO that result in a loss to you.
If INVESCO follows these procedures, neither INVESCO, its affiliates nor any
Fund will be liable for any loss, liability, cost or expense for following
instructions communicated via the Internet that are reasonably believed to be
genuine or that follow INVESCO's security procedures.

<PAGE>

<TABLE>
<CAPTION>
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY CHECK $1,000 for regular accounts;
Mail to: $250 for an IRA; $50 minimum for
INVESCO Funds Group, Inc., each subsequent invest ment.
P.O. Box 173706,
Denver, CO 80217-3706.
You may send your check
by overnight courier to:
7800 E. Union Ave.
Denver, CO 80237.
- -----------------------------------------------------------------------------------------------------------------------
BY TELEPHONE OR WIRE $1,000 Payment must be received within 3
Call 1-800-525-8085 to request business days, or the transaction may
your purchase. Then send your be cancelled.
check by overnight courier to our
street address: 7800 E. Union Ave.,
Denver, CO 80237. Or you may
send your payment by
bank wire (call INVESCO for
instructions).
- -----------------------------------------------------------------------------------------------------------------------

BY TELEPHONE WITH ACH $50 You must forward your bank account
Call 1-800-525-8085 to request your pur- information to INVESCO prior to using
chase. INVESCO will move money from your this option.
designated bank/credit union check ing or
savings account in order to purchase
shares, upon your telephone instructions,
whenever you wish.

- -----------------------------------------------------------------------------------------------------------------------
BY INTERNET $1,000 for regular accounts; You will need a web browser to utilize
Go to the INVESCO $250 for an IRA; $50 minimum this service. Internet transactions
Web site at for each subsequent investment are limited to $25,000.
www.invesco.com

- -----------------------------------------------------------------------------------------------------------------------
REGULAR INVESTING WITH EASIVEST $50 per month for EasiVest; $50 Like all regular investment plans, nei-
OR DIRECT PAYROLL PURCHASE per pay period for Direct Pay ther EasiVest nor Direct Payroll Pur
You may enroll on your fund roll Purchase. You may start or chase ensures a profit or protects
application, or call us for a separate stop your regular investment against loss in a falling market.
form and more details. Investing plan at any time, with two Because you'll invest continually,
the same amount on a monthly basis weeks' notice to INVESCO. regardless of varying price levels,
allows you to buy more shares when prices consider your financial ability to
are low and fewer shares when prices are keep buying through low price levels.
high. This "dollar cost averag ing" may And remember that you will lose money
help offset market fluctuations. Over a if you redeem your shares when the
period of time, your average cost per market value of all your shares is
share may be less than the actual average less than their cost.
value per share.
- -----------------------------------------------------------------------------------------------------------------------

BY PAL(R) $1,000 (The exchange mini- Be sure to write down the confirma-
Your "Personal Account Line" is mum is $250 for subsequent pur- tion number provided by PAL(R). Pay-
available for subsequent purchases chases requested by telephone.) ment must be received within 3 business
and exchanges 24 hours a day. days, or the transaction may be can-
Simply call 1-800-424-8085. celled.

<PAGE>

METHOD INVESTMENT MINIMUM PLEASE REMEMBER
- -----------------------------------------------------------------------------------------------------------------------

BY EXCHANGE $1,000 to open a new account; See "Exchange Policy."
Between two INVESCO funds. Call $50 for written requests to pur-
1-800-525-8085 for prospectuses of chase additional shares for an
other INVESCO funds. Exchanges existing account. (The exchange
may be made by phone or at our minimum is $250 for exchanges
Web site at www.invesco.com. You requested by telephone.)
may also establish an automatic
monthly exchange service between
two INVESCO funds; call us for further
details and the correct form.

</TABLE>

DISTRIBUTION EXPENSES. We have adopted a Plan and Agreement of Distribution
(commonly known as a "12b-1 Plan") for the Funds. The 12b-1 fees paid by each
Fund are used to defray all or part of the cost of preparing and distributing
prospectuses and promotional materials, as well as to pay for certain
distribution-related and other services. These services include compensation to
third party brokers, financial advisers and financial services companies that
sell Fund shares and/or service shareholder accounts.

Under the Plan, each Fund's payments are limited to an amount computed at an
annual rate of 0.25% of the Fund's average net assets. If distribution expenses
for a Fund exceed these computed amounts, INVESCO pays the difference.

[INVESCO ICON] YOUR ACCOUNT SERVICES

INVESCO PROVIDES YOU WITH SERVICES DESIGNED TO MAKE IT SIMPLE FOR YOU TO BUY,
SELL OR EXCHANGE YOUR SHARES OF ANY INVESCO MUTUAL FUND.

SHAREHOLDER ACCOUNTS. INVESCO maintains your share account, which contains your
current Fund holdings. The Funds do not issue share certificates. QUARTERLY
INVESTMENT SUMMARIES. Each calendar quarter, you receive a written statement
which consolidates and summarizes account activity and value at the beginning
and end of the period for each of your INVESCO funds.

TRANSACTION CONFIRMATIONS. You receive detailed confirmations of individual
purchases, exchanges and sales. If you choose certain recurring transaction
plans (for instance, EasiVest), your transactions are confirmed on your
quarterly Investment Summaries.

TELEPHONE TRANSACTIONS. You may buy, exchange and sell Fund shares by telephone,
unless you specifically decline these privileges when you fill out the INVESCO
new account application.

YOU CAN CONDUCT MOST TRANSACTIONS AND CHECK ON YOUR ACCOUNT THROUGH OUR
TOLL-FREE TELEPHONE NUMBER. YOU MAY ALSO ACCESS PERSONAL ACCOUNT INFORMATION AT
OUR WEB SITE, WWW.INVESCO.COM.

Unless you decline the telephone transaction privileges, when you fill out and
sign the new account Application, a Telephone Transaction Authorization Form, or
use your telephone transaction privileges, you lose certain rights if someone
gives fraudulent or unauthorized instructions to INVESCO that result in a loss
to you. In general, if INVESCO has followed reasonable procedures, such as

<PAGE>

recording telephone instructions and sending written transaction confirmations,
INVESCO is not liable for following telephone instructions that it believes to
be genuine. Therefore, you have the risk of loss due to unauthorized or
fraudulent instructions.

IRAS AND OTHER RETIREMENT PLANS. Shares of any INVESCO mutual fund may be
purchased for IRAs and many other types of tax-deferred retirement plans. Please
call INVESCO for information and forms to establish or transfer your existing
retirement plan or account.

[INVESCO ICON] HOW TO SELL SHARES

The following chart shows several convenient ways to sell your Fund shares.
Shares of the Funds may be sold at any time at the next NAV calculated after
your request to sell in proper form is received by INVESCO. Depending on Fund
performance, the NAV at the time you sell your shares may be more or less than
the price you paid to purchase your shares.

TO SELL SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE 4:00 P.M.
EASTERN TIME.

If you own shares in more than one INVESCO fund, please specify the Fund whose
shares you wish to sell. Remember that any sale or exchange of shares in a
non-retirement account will likely result in a taxable gain or loss.

While INVESCO attempts 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.

INVESCO usually mails you the proceeds from the sale of Fund shares within seven
days after we receive your request to sell in proper form. However, payment may
be postponed under unusual circumstances -- for instance, if normal trading is
not taking place on the NYSE, or during an emergency as defined by the
Securities and Exchange Commission. If your INVESCO fund shares were purchased
by a check which has not yet cleared, payment will be made promptly when your
purchase check does clear; that can take up to 15 days.

If you participate in EasiVest, the Funds' automatic monthly investment program,
and sell all of the shares in your account, we will not make any additional
EasiVest purchases unless you give us other instructions.

Because of the Funds' expense structure, it costs as much to handle a small
account as it does to handle a large one. If the value of your account in a Fund
falls below $250 as a result of your actions (for example, sale of your Fund
shares), each Fund reserves the right to sell all of your shares, send the
proceeds of the sale to you and close your account. Before this is done, you
will be notified and given 60 days to increase the value of your account to $250
or more.

<PAGE>

METHOD REDEMPTION MINIMUM PLEASE REMEMBER
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY TELEPHONE $250 (or, if less, full liquidation INVESCO's telephone redemption
Call us toll-free at: of the account) for a redemption privileges may be modified or
1-800-525-8085. check; $1,000 for a wire to your bank terminated in the future at
of record. The maximum amount which INVESCO's discretion.
may be redeemed by telephone is
generally $25,000.
- ---------------------------------------------------------------------------------------------------------------------

IN WRITING Any amount. The redemption request must be
Mail your request to INVESCO signed by all registered account
Funds Group, Inc., P.O. Box 173706, owners. Payment will be mailed to
Denver, CO 80217-3706. You may your address as it appears on
also send your request by overnight INVESCO's records, or to a bank
courier to 7800 E. Union Ave., designated by you in writing.
Denver, CO 80237.
- ---------------------------------------------------------------------------------------------------------------------
BY TELEPHONE WITH ACH $250 You must forward your bank account
Call 1-800-525-8085 to request your information to INVESCO prior to
redemption. INVESCO will using this option.
automatically pay the proceeds into
your designated bank account.
- --------------------------------------------------------------------------------------------------------------------
BY INTERNET None You will need a web browser to
Go to the INVESCO Web site at utilize this service. Internet
www.invesco.com transactions are limited to $25,000.

- ---------------------------------------------------------------------------------------------------------------------
BY EXCHANGE $250 for exchanges requested by See "Exchange Policy."
Between two INVESCO funds. Call telephone. When opening a new account,
1-800-525-8085 for prospectuses investment minimums apply.
of other INVESCO funds. Exchanges
may be made by phone or at our
Web site at www.invesco.com. You
may also establish an automatic
monthly exchange service between
two INVESCO funds; call us for
further details and the correct
form.
- ---------------------------------------------------------------------------------------------------------------------
PERIODIC WITHDRAWAL PLAN $100 per payment on a monthly or You must have at least $10,000 total
You may call us to request the quarterly basis. The redemption check invested with the INVESCO funds with
appropriate form and more may be made payable to any party you at least $5,000 of that total
information at 1-800-525-8085. designate. invested in the fund from which
withdrawals will be made.
- ---------------------------------------------------------------------------------------------------------------------
PAYMENT TO THIRD PARTY Any amount. All registered account owners must
Mail your request to INVESCO sign the request, with signature
Funds Group, Inc., P.O. Box guarantees from an eligible
173706, Denver, CO 80217-3706. guarantor financial institution,
such as a
commercial bank or a recognized
national or regional securities firm.

</TABLE>

<PAGE>

[GRAPH ICON] TAXES

Everyone's tax status is unique. We encourage you to consult your own tax
adviser on the tax impact to you of investing in the Funds.

TO AVOID BACKUP WITHHOLDING, BE SURE WE HAVE YOUR CORRECT SOCIAL SECURITY OR
TAXPAYER IDENTIFICATION NUMBER.

Each Fund customarily distributes to its shareholders substantially all of its
net investment income, net capital gains and net gains from foreign currency
transactions, if any. You receive a proportionate part of these distributions,
depending on the percentage of each Fund's shares that you own. These
distributions are required under federal tax laws governing mutual funds. It is
the policy of each Fund to distribute all investment company taxable income and
net capital gains. As a result of this policy and the Fund's qualification as a
regulated investment company, it is anticipated that none of the Funds will pay
any federal income or excise taxes. Instead, each Fund will be accorded conduit
or "pass through" treatment for federal income tax purposes.

However, unless you are (or your account is) exempt from income taxes, you must
include all dividends and capital gain distributions paid to you by a Fund in
your taxable income for federal, state and local income tax purposes. You also
may realize capital gains or losses when you sell shares of a Fund at more or
less than the price you originally paid. An exchange is treated as a sale, and
is a taxable event. Dividends and other distributions usually are taxable
whether you receive them in cash or automatically reinvest them in shares of the
distributing Fund(s) or other INVESCO funds.

If you have not provided INVESCO with complete, correct tax information, the
Funds are required by law to withhold 31% of your distributions and any money
that you receive from the sale of shares of the Funds as a backup withholding
tax.

We will provide you with detailed information every year about your dividends
and capital gain distributions. Depending on the activity in your individual
account, we may also be able to assist with cost basis figures for shares you
sell.

<PAGE>

[GRAPH ICON] DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS

The Funds earn ordinary or investment income from dividends and interest on
their investments. The Funds expect to distribute substantially all of this
investment income, less Fund expenses, to shareholders quarterly or at such
other times as the Funds may elect.

NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS ARE DISTRIBUTED TO
SHAREHOLDERS AT LEAST ANNUALLY. DISTRIBUTIONS ARE TAXABLE WHETHER REINVESTED IN
ADDITIONAL SHARES OR PAID TO YOU IN CASH (EXCEPT FOR TAX-EXEMPT ACCOUNTS).
TAX-EXEMPT ACCOUNTS)

A Fund also realizes capital gains and losses when it sells securities in its
portfolio for more or less than it had paid for them. If total gains on sales
exceed total losses (including losses carried forward from previous years), a
Fund has a net realized capital gain. Net realized capital gains, if any, are
distributed to shareholders at least annually, usually in December.

Under present federal income tax laws, capital gains may be taxable at different
rates, depending on how long a Fund has held the underlying investment.
Short-term capital gains which are derived from the sale of assets held one year
or less are taxed as ordinary income. Long-term capital gains which are derived
from the sale of assets held for more than one year are taxed at the maximum
capital gains rate, currently 20% for individuals.

Dividends and capital gain distributions are paid to you if you hold shares on
the record date of the distribution regardless of how long you have held your
shares. A Fund's NAV will drop by the amount of the distribution on the day the
distribution is made. If you buy shares of a Fund just before a distribution,
you may wind up "buying a dividend." This means that if the Fund makes a
dividend or capital gain distribution shortly after you buy, you will receive
some of your investment back as a taxable distribution. Most shareholders want
to avoid this. And, if you sell your shares at a loss for tax purposes and
purchase a substantially identical investment within 30 days before or after
that sale, the transaction is usually considered a "wash sale" and you will not
be able to claim a tax loss.

Dividends and capital gain distributions paid by each Fund are automatically
reinvested in additional Fund shares at the NAV on the ex-dividend date, unless
you choose to have them automatically reinvested in another INVESCO fund or paid
to you by check or electronic funds transfer. If you choose to be paid by check,
the minimum amount of the check must be at least $10; amounts less than that
will be automatically reinvested. Dividends and other distributions, whether
received in cash or reinvested in additional Fund shares, may be subject to
federal income tax.

<PAGE>

Financial Highlights

The financial highlights table is intended to help you understand a Fund's
financial performance for the past five years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in a Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the financial statements, is included in INVESCO Combination Stock & Bond Funds,
Inc.'s 1999 Annual Report to Shareholders, which is incorporated by reference
into the Statement of Additional Information. This Report is available without
charge by contacting IDI at the address or telephone number on the back cover of
this Prospectus.

<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31 YEAR ENDED JUNE 30
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY INCOME FUND 1999(a) 1998 1997 1996 1995 1994
PER SHARE DATA
Net Asset Value-Beginning of Period $16.18 $15.31 $13.21 $11.92 $11.32 $11.53
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.30 0.38 0.35 0.41 0.42 0.36
Net Gains on Securities
(Both Realized and Unrealized) 1.19 2.54 3.05 1.53 1.14 0.02
- --------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.49 2.92 3.40 1.94 1.56 0.38
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment 0.31 0.38 0.35 0.41 0.42 0.36
Income(b)
In Excess of Net Investment 0.00 0.00 0.00 0.00 0.00 0.11
Income(b)
Distributions from Capital Gains 1.51 1.67 0.95 0.24 0.54 0.12
- --------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 1.82 2.05 1.30 0.65 0.96 0.59
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $15.85 $16.18 $15.31 $13.21 $11.92 $11.32
====================================================================================================================
TOTAL RETURN 10.31%(d) 20.55% 27.33% 16.54% 14.79% 3.24%

RATIOS
Net Assets-End of Period $4,845,036 $5,080,735 $4,574,675 $4,170,536 $4,009,609 $3,913,322
($000 Omitted)
Ratio of Expenses to Average Net 0.90%(e)(f) 0.90%(e) 0.95%(e) 0.93%(e) 0.94% 0.92%
Assets(c)
Ratio of Net Investment Income to 2.10%(f) 2.35% 2.54% 3.17% 3.61% 3.11%
Average Net Assets(c)
Portfolio Turnover Rate 47%(d) 58% 47% 63% 54% 56%

(a) From July 1, 1998 to May 31, 1999, the Fund's current fiscal year end.
(b) Distributions in excess of net investment income for the year ended June 30, 1998 aggregated less than $0.01
on a per share basis.
(c) Various expenses of the Fund were voluntarily absorbed by INVESCO for the period ended May 31, 1999 and for
the years ended June 30, 1998, 1997, 1996, 1995 and 1994. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 0.91% (annualized), 0.90%, 0.98%, 0.96%, 0.97% and
0.95%, respectively, and ratio of net investment income to average net assets would have been 2.09%,
(annualized) 2.35%, 2.51%, 3.14%, 3.58% and 3.08%, respectively.

(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by INVESCO, which is before any expense
offset arrangements.

(f) Annualized.
</TABLE>

<PAGE>

Financial Highlights (continued)

<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
MAY 31 YEAR ENDED JULY 31 JULY 31
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCED FUND 1999(a) 1998 1997 1996 1995 1994(b)
PER SHARE DATA
Net Asset Value-Beginning
of Period $15.71 $15.86 $13.36 $12.08 $10.30 $10.00
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.24 0.33 0.34 0.37 0.29 0.12
Net Gains on Securities
(Both Realized and Unrealized) 1.73 1.50 3.37 2.12 2.03 0.30
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 1.97 1.83 3.71 2.49 2.32 0.42
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment 0.24 0.35 0.34 0.37 0.29 0.12
Income
Distributions from Capital Gains 0.66 1.63 0.87 0.84 0.25 0.00
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.90 1.98 1.21 1.21 0.54 0.12
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $16.78 $15.71 $15.86 $13.36 $12.08 $10.30
=========================================================================================================================
TOTAL RETURN 13.12%(c) 12.90% 29.27% 20.93% 23.18% 4.16%(c)

RATIOS
Net Assets-End of Period $324,838 $216,624 $161,921 $115,066 $37,224 $4,252
($000 Omitted)
Ratio of Expenses to
Average Net Assets(d) 1.21%(e)(f) 1.22%(f) 1.29%(f) 1.29%(f) 1.25% 1.25%(e)
Ratio of Net Investment Income 1.94%(e) 2.18% 2.46% 3.03% 3.12% 2.87%(e)
to Average Net Assets(d)
Portfolio Turnover Rate 100%(c) 108% 155% 259% 255% 61%(c)

(a) From August 1, 1998 to May 31, 1999, the Fund's current fiscal year end.
(b) From December 1, 1993, commencement of investment operations, to July 31, 1994.

(d) Various expenses of the Fund were voluntarily absorbed by INVESCO for the years ended July 31, 1997, 1996 and
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 to average net assets would have been 2.41%, 3.03%, 2.77%, and (0.25%) (annualized),
respectively.
(e) Annualized.

(f) Ratio is based on Total Expenses of the fund, less Expenses Absorbed by INVESCO, which is before any expense
offset arrangements.

</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31 YEAR ENDED AUGUST 31
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL RETURN FUND 1999(a) 1998 1997 1996 1995 1994
PER SHARE DATA
Net Asset Value-Beginning of $28.16 $27.77 $22.60 $20.95 $18.54 $18.27
Period
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.60 0.83 0.77 0.73 0.72 0.69
Net Gains on Securities
(Both Realized and Unrealized) 5.03 0.87 5.26 1.78 2.46 0.60
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 5.63 1.70 6.03 2.51 3.18 1.29
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.60 0.83 0.77 0.73 0.72 0.60
In Excess of Net Investment Income(b) 0.00 0.00 0.00 0.00 0.00 0.09
Distributions from Capital Gains 0.82 0.48 0.09 0.13 0.05 0.17
In Excess of Capital Gains 0.00 0.00 0.00 0.00 0.00 0.16
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 1.42 1.31 0.86 0.86 0.77 1.02
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $32.37 $28.16 $27.77 $22.60 $20.95 $18.54
=============================================================================================================================
TOTAL RETURN 20.27%(c) 6.02% 27.01% 12.06% 17.54% 7.22%

RATIOS
Net Assets - End of Period
($000 Omitted) $3,418,746 $2,561,016 $1,845,594 $1,032,151 $563,468 $292,765
Ratio of Expenses to
Average Net Assets(d) 0.83%(e)(f) 0.79%(e) 0.86%(e) 0.89%(e) 0.95% 0.96%
Ratio of Net Investment Income to
Average Net Assets(d) 2.61%(f) 2.82% 3.11% 3.44% 3.97% 3.31%
Portfolio Turnover Rate 7%(c) 17% 4% 10% 30% 12%

(a) From September 1, 1998 to July 31, 1999, the Fund's current fiscal year end.
(b) Distributions in excess of net investment income for the period ended May 31, 1999 and the year ended August
31, 1995, aggregated less than $0.01 on a per share basis.

(d) Various expenses of the Fund were voluntarily absorbed by INVESCO from September 1, 1998 to May 12, 1999, and
for the year ended August 31, 1998. If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 0.84% (annualized) and 0.80%, respectively, and ratio of net investment
income to average net assets would have been 2.60% (annualized) and 2.81%, respectively.

(e) Ratio is based on total expenses of the Fund, less expenses absorbed by INVESCO, if applicable, which is
before any expense offset arrangements.

(f) Annualized.
</TABLE>

<PAGE>

September 30, 1999

INVESCO COMBINATION STOCK & BOND Funds, Inc.
INVESCO BALANCED Fund
INVESCO EQUITY INCOME Fund
INVESCO TOTAL RETURN Fund

You may obtain additional information about the Funds from several sources:

FINANCIAL REPORTS. Although this Prospectus describes the Funds' anticipated
investments and operations, the Funds also prepare annual and semiannual reports
that detail the Funds' actual investments at the report date. These reports
include discussion of each Fund's recent performance, as well as market and
general economic trends affecting each Fund's performance. The annual report
also includes the report of the Funds' independent accountants.

STATEMENT OF ADDITIONAL INFORMATION. The SAI, dated September 30, 1999, is a
supplement to this Prospectus and has detailed information about the Funds and
their investment policies and practices. A current SAI for the Funds is on file
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.

INTERNET. The current Prospectus of the Funds may be accessed through the
INVESCO Web site at www.invesco.com. In addition, the Prospectus, SAI, annual
report and semiannual report of the Funds are available on the SEC Web site at
www.sec.gov.

To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; or call 1-800-525-8085. Copies of these materials are also
available (with a copying charge) from the SEC's Public Reference Section at 450
Fifth Street, N.W., Washington, D.C. Information on the Public Reference Section
can be obtained by calling 1-800-SEC-0330. The SEC file numbers for the Funds
are 811-8066 and 033-69904.

811-8066

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

INVESCO COMBINATION STOCK & BOND FUNDS, INC.

INVESCO Equity Income Fund
INVESCO Balanced Fund
INVESCO Total Return Fund

Address: Mailing Address:

7800 E. Union Ave., Denver, CO 80237 P.O. Box 173706, Denver, CO 80217-3706

Telephone:

In continental U.S., 1-800-525-8085

September 30, 1999

- --------------------------------------------------------------------------------

A Prospectus for INVESCO Equity Income (formerly, INVESCO Industrial Income),
INVESCO Balanced, and INVESCO Total Return Funds dated September 30, 1999
provides the basic information you should know before investing in a Fund. This
Statement of Additional Information ("SAI") is incorporated by reference into
the Funds' Prospectus; in other words, this SAI is legally part of the Funds'
Prospectus. Although this SAI is not a prospectus, it contains information in
addition to that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Funds and
should be read in conjunction with the Prospectus.

You may obtain, without charge, copies of the current Prospectus of the Funds,
SAI and current annual and semiannual reports by writing to INVESCO
Distributors, Inc., P.O. Box 173706, Denver, CO 80217-3706 , or by calling
1-800-525-8085. Copies of the current Prospectus also are available through the
INVESCO Web site at www.invesco.com.

<PAGE>

TABLE OF CONTENTS

The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Investments, Policies and Risks. . . . . . . . . . . . . . . . . . . 31

Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . 49

Management of the Funds. . . . . . . . . . . . . . . . . . . . . . . 52

Other Service Providers. . . . . . . . . . . . . . . . . . . . . . . 75

Brokerage Allocation and Other Practices . . . . . . . . . . . . . . 76

Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Tax Consequences of Owning Shares of a Fund. . . . . . . . . . . . . 79

Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 84

Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

<PAGE>

THE COMPANY

The Company was incorporated under the laws of Maryland as INVESCO Multiple
Asset Funds, Inc. on August 19, 1993. On September 10, 1998, the Company changed
its name to INVESCO Flexible Funds, Inc. and on October 29, 1998 to INVESCO
Combination Stock & Bond Funds, Inc. On May 28, 1999, the Company assumed all of
the assets and liabilities of INVESCO Equity Income Fund (formerly, INVESCO
Industrial Income Fund, Inc.) and INVESCO Total Return Fund, a series of INVESCO
Value Trust.

The Company is an open-end, diversified, no-load management investment company
currently consisting of three portfolios of investments: INVESCO Balanced Fund,
INVESCO Equity Income Fund and INVESCO Total Return Fund (the "Funds").
Additional funds may be offered in the future.

"Open-end" means that each Fund issues an indefinite number of shares which it
continuously offers to redeem at net asset value per share ("NAV"). A
"management" investment company actively buys and sells securities for the
portfolio of each Fund at the direction of a professional manager. Open-end
management investment companies (or one or more series of such companies, such
as the Funds) are commonly referred to as mutual funds. The Funds do not charge
sales fees to purchase their shares. However, the Funds do pay a 12b-1
distribution fee which is computed and paid monthly at an annual rate of 0.25%
of each Fund's average net assets.

INVESTMENTS, POLICIES AND RISKS

The principal investments and policies of the Funds are discussed in the
Prospectus of the Funds. The Funds also may invest in the following securities
and engage in the following practices.

ADRS -- American Depository Receipts, or ADRs, are securities issued by American
banks. ADRs are receipts for the shares of foreign corporations that are held by
the bank issuing the receipt. An ADR entitles its holder to all dividends and
capital gains on the underlying foreign securities, less any fees paid to the
bank. Purchasing ADRs gives a Fund the ability to purchase the functional
equivalent of foreign securities without going to the foreign securities markets
to do so. ADRs are bought and sold in U.S. dollars, not foreign currencies. An
ADR that is "sponsored" means that the foreign corporation whose shares are
represented by the ADR is actively involved in the issuance of the ADR, and
generally provides material information about the corporation to the U.S.
market. An "unsponsored" ADR program means that the foreign corporation whose
shares are held by the bank is not obligated to disclose material information in
the United States, and, therefore, the market value of the ADR may not reflect
important facts known only to the foreign company. Since they mirror their
underlying foreign securities, ADRs generally have the same risks as investing
directly in the underlying foreign securities.

CERTIFICATES OF DEPOSIT IN FOREIGN BANKS AND U.S. BRANCHES OF FOREIGN BANKS --
The Funds may maintain time deposits in and invest in U.S. dollar denominated
CDs issued by foreign banks and U.S. branches of foreign banks. The Funds limit
investments in foreign bank obligations to U.S. dollar denominated obligations
of foreign banks which have more than $10 billion in assets, have branches or
agencies in the U.S., and meet other criteria established by the board of
directors. Investments in foreign securities involve special considerations.

<PAGE>

There is generally less publicly available information about foreign issuers
since many foreign countries do not have the same disclosure and reporting
requirements as are imposed by the U.S. securities laws. Moreover, foreign
issuers are generally not bound by uniform accounting and auditing and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Such investments may also entail the risks of possible
imposition of dividend withholding or confiscatory taxes, possible currency
blockage or transfer restrictions, expropriation, nationalization or other
adverse political or economic developments, and the difficulty of enforcing
obligations in other countries.

COMMERCIAL PAPER -- Commercial paper is the term for short-term promissory notes
issued by domestic corporations to meet current working capital needs.
Commercial paper may be unsecured by the corporation's assets but may be backed
by a letter of credit from a bank or other financial institution. The letter of
credit enhances the paper's creditworthiness. The issuer is directly responsible
for payment but the bank "guarantees" that if the note is not paid at maturity
by the issuer, the bank will pay the principal and interest to the buyer.
INVESCO Funds Group, Inc. ("INVESCO"), the Funds' adviser, will consider the
creditworthiness of the institution issuing the letter of credit, as well as the
creditworthiness of the issuer of the commercial paper, when purchasing paper
enhanced by a letter of credit. Commercial paper is sold either as
interest-bearing or on a discounted basis, with maturities not exceeding 270
days.

DEBT SECURITIES -- Debt securities include bonds, notes and other securities
that give the holder the right to receive fixed amounts of principal, interest,
or both on a date in the future or on demand. Debt securities also are often
referred to as fixed-income securities, even if the rate of interest varies over
the life of the security.

Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that the
market value of the security may decline for a variety of reasons, including
changes in interest rates. An increase in interest rates tends to reduce the
market values of debt securities in which a Fund has invested. A decline in
interest rates tends to increase the market values of debt securities in which a
Fund has invested.

Moody's Investor Services, Inc. ("Moody's") and Standard & Poor's ("S&P")
ratings provide a useful guide to the credit risk of many debt securities. The
lower the rating of a debt security, the greater the credit risk the rating
service assigns to the security. To compensate investors for accepting that
greater risk, lower-rated debt securities tend to offer higher interest rates.
Equity Income Fund may invest up to 15% of its portfolio in lower-rated debt
securities, which are often referred to as "junk bonds." Increasing the amount
of Fund assets invested in unrated or lower-grade straight debt securities may
increase the yield produced by the Fund's debt securities but will also increase
the credit risk of those securities. A debt security is considered lower grade
if it is rated Ba or less by Moody's or BB or less by S&P. Never, under any
circumstances, does Equity Income Fund invest in bonds rated below Caa by
Moody's or CCC by S&P.

<PAGE>

debt securities assigned lower grade ratings by S&P or Moody's, at the time of
purchase, the Fund's investments are generally limited to debt securities rated
B or higher by S&P or Moody's. Balanced Fund and Total Return Fund may invest
only in investment grade debt securities, which are those rated BBB or higher by
S&P or Baa or higher by Moody's, or if unrated, are judged by INVESCO to be of
equivalent quality. At the time of purchase, INVESCO will limit Fund investments
to debt securities which INVESCO believes are not highly speculative.

A significant economic downturn or increase in interest rates may cause issuers
of debt securities to experience increased financial problems which could
adversely affect their ability to pay principal and interest obligations, to
meet projected business goals, and to obtain additional financing. These
conditions more severely impact issuers of lower-rated debt securities. The
market for lower-rated straight debt securities may not be as liquid as the
market for higher-rated straight debt securities. Therefore, INVESCO attempts to
limit Equity Income Fund's purchases of lower-rated securities to securities
having an established secondary market.

Lower-rated securities by S&P (categories BB, B, CCC) include those which are
predominantly speculative because of the issuer's perceived capacity to pay
interest and repay principal in accordance with their terms; BB indicates the
lowest degree of speculation and CCC a high degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
usually outweighed by large uncertainties or major risk exposures to adverse
conditions.

Although bonds in the lowest investment grade debt category (those rated BBB by
S&P, Baa by Moody's or the equivalent) are regarded as having adequate
capability to pay principal and interest, they have speculative characteristics.
Adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case for
higher-rated bonds. Lower-rated bonds by Moody's (categories Ba, B or Caa) are
of poorer quality and also have speculative characteristics. Bonds having
equivalent ratings from other ratings services will have characteristics similar
to those of the corresponding S&P and Moody's ratings. For a specific
description of S&P and Moody's corporate bond rating categories, please refer to
Appendix A.

The Funds may invest in zero coupon bonds, step-up bonds, mortgage-backed
securities and asset-backed securities. Zero coupon bonds do not make regular
interest payments. Zero coupon bonds are sold at a discount from face value.
Principal and accrued discount (representing interest earned but not paid) are
paid at maturity in the amount of the face value. 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. The market values of
zero coupon and step-up bonds generally fluctuate more in response to changes in
interest rates than interest-paying securities of comparable term and quality. A
Fund may be required to distribute income recognized on these bonds, even though
no cash may be paid to a Fund until the maturity or call date of a bond, in
order for a Fund to maintain its qualification as a regulated investment
company. These required distributions could reduce the amount of cash available
for investment by a Fund. Mortgage-backed securities represent interests in
pools of mortgages while asset-backed securities generally represent interests
in pools of consumer loans. Both of these are usually set up 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

<PAGE>

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.

DOMESTIC BANK OBLIGATIONS -- U.S. banks (including their foreign branches) issue
certificates of deposit ("CDs") and bankers' acceptances which may be purchased
by the Funds if an issuing bank has total assets in excess of $5 billion and the
bank otherwise meets the Funds' credit 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"). Bankers' acceptances 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. Both types of securities are subject
to the ability of the issuing bank to meet its obligations, and are subject to
risks common to all debt securities. In addition, banker's acceptances may be
subject to foreign currency risk and certain other risks of investment in
foreign securities.

EQUITY SECURITIES -- The Funds may invest in common, preferred and convertible
preferred stocks, and securities whose values are tied to the price of stocks,
such as rights, warrants and convertible debt securities. Common stocks and
preferred stocks represent equity ownership in a corporation. Owners of stock,
such as the Funds, share in a corporation's earnings through dividends which may
be declared by the corporation, although the receipt of dividends is not the
principal benefit that the Funds seek when they invest in stocks and similar
instruments.

Instead, the Funds seek to invest in stocks that will increase in market value
and may be sold for more than a Fund paid to buy them. Market value is based
upon constantly changing investor perceptions of what the company is worth
compared to other companies. Although dividends are a factor in the changing
market value of stocks, many companies do not pay dividends, or pay
comparatively small dividends. The principal risk of investing in equity
securities is that their market values fluctuate constantly, often due to
factors entirely outside the control of the Funds or the company issuing the
stock. At any given time, the market value of an equity security may be
significantly higher or lower than the amount paid by a Fund to acquire it.

Owners of preferred stocks are entitled to dividends payable from the
corporation's earnings, which in some cases may be "cumulative" if prior
dividends on the preferred stock have not been paid. Dividends payable on
preferred stock have priority over distributions to holders of common stock, and
preferred stocks generally have a priority 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 holders of a company's debt securities generally
are entitled to be paid by the company before it pays anything to its
stockholders.

Rights and warrants are securities which entitle the holder to purchase the
securities of a company (usually, its common stock) at a specified price during
a specified time period. The value of a right or warrant is affected by many of

<PAGE>

the same factors that determine the prices of common stocks. Rights and warrants
may be purchased directly or acquired in connection with a corporate
reorganization or exchange offer.

The Funds also may purchase convertible securities including 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 owner of convertible securities usually receives the
interest paid on a convertible bond or the dividend preference of a preferred
stock.

A convertible security has an "investment value" which is a theoretical value
determined by the yield it provides in comparison with similar securities
without the conversion feature. Investment value changes are based upon
prevailing interest rates and other factors. It also has a "conversion value,"
which is the market value the convertible security would have if it were
exchanged for the underlying equity security. Convertible securities may be
purchased at varying price levels above or below their investment values or
conversion values.

Conversion value is a simple mathematical calculation that fluctuates directly
with the price of the underlying security. However, if the conversion value is
substantially below investment value, the market value of the convertible
security is governed principally by its investment value. If the conversion
value is near or above investment value, the market value of the convertible
security generally will rise above investment value. In such cases, the market
value of the convertible security may be higher than its 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. 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.

EUROBONDS AND YANKEE BONDS -- The Funds may invest in bonds issued by foreign
branches of U.S. banks ("Eurobonds") and bonds issued by a U.S. branch of a
foreign bank and sold in the United States ("Yankee bonds"). These bonds are
bought and sold in U.S. dollars, but generally carry with them the same risks as
investing in foreign securities.

FOREIGN SECURITIES -- Investments in the securities of foreign companies, or
companies that have their principal business activities outside the United
States, involve certain risks not associated with investments in U.S. companies.
Non-U.S. companies generally are not subject to the same uniform accounting,
auditing and financial reporting standards that apply to U.S. companies.
Therefore, financial information about foreign companies may be incomplete, or
may not be comparable to the information available on U.S. companies. There may
also be less publicly available information about a foreign company.

Although the volume of trading in foreign securities markets is growing,
securities of many non-U.S. companies may be less liquid and have greater swings
in price than securities of comparable U.S. companies. The costs of buying and
selling securities on foreign securities exchanges is generally significantly
higher than similar costs in the United States. There is generally less
government supervision and regulation of exchanges, brokers and issuers in

<PAGE>

foreign countries than there is in the United States. Investments in non-U.S.
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, confiscatory taxation, and
imposition of withholding taxes on dividends or interest payments. If it becomes
necessary, it may be more difficult for a Fund to obtain or to enforce a
judgment against a foreign issuer than against a domestic issuer.

Securities traded on foreign markets are usually bought and sold in local
currencies, not in U.S. dollars. Therefore, the market value of foreign
securities acquired by a Fund can be affected -- favorably or unfavorably -- by
changes in currency rates and exchange control regulations. Costs are incurred
in converting money from one currency to another. Foreign currency exchange
rates are determined by supply and demand on the foreign exchange markets.
Foreign exchange markets are affected by the international balance of payments
and other economic and financial conditions, government intervention,
speculation and other factors, all of which are outside the control of each
Fund. Generally, the Funds' foreign currency exchange transactions will be
conducted on a cash or "spot" basis at the spot rate for purchasing or selling
currency in the foreign currency exchange markets.

FUTURES, OPTIONS AND OTHER FINANCIAL INSTRUMENTS

GENERAL. As discussed in the Prospectus, the adviser and/or sub-adviser may use
various types of financial instruments, some of which are derivatives, to
attempt to manage the risk of the Funds' investments or, in certain
circumstances, for investment (E.G., as a substitute for investing in
securities). These financial instruments include options, futures contracts
(sometimes referred to as "futures"), forward contracts, swaps, caps, floors and
collars (collectively, "Financial Instruments"). The policies in this section do
not apply to other types of instruments sometimes referred to as derivatives,
such as indexed securities, mortgage-backed and other asset-backed securities,
and stripped interest and principal of debt.

Hedging strategies can be broadly categorized as "short" hedges and "long" or
"anticipatory" hedges. A short hedge involves the use of a Financial Instrument
in order to partially or fully offset potential variations in the value of one
or more investments held in a Fund's portfolio. A long or anticipatory hedge
involves the use of a Financial Instrument in order to partially or fully offset
potential increases in the acquisition cost of one or more investments that the
Fund intends to acquire. In an anticipatory hedge transaction, the Fund does not
already own a corresponding security. Rather, it relates to a security or type
of security that the Fund intends to acquire. If the Fund does not eliminate the
hedge by purchasing the security as anticipated, the effect on the Fund's
portfolio is the same as if a long position were entered into. Financial
Instruments may also be used, in certain circumstances, for investment (E.G., as
a substitute for investing in securities).

Financial Instruments on individual securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that a Fund already owns or intends to acquire. Financial Instruments on
indexes, in contrast, generally are used to attempt to hedge all or a portion of
a portfolio against price movements of the securities within a market sector in
which the Fund has invested or expects to invest.

<PAGE>

The use of Financial Instruments is subject to applicable regulations of the
Securities and Exchange Commission ("SEC"), the several exchanges upon which
they are traded, and the Commodity Futures Trading Commission ("CFTC"). In
addition, the Funds' ability to use Financial Instruments will be limited by tax
considerations. See "Tax Consequences of Owning Shares of a Fund."

In addition to the instruments and strategies described below, the adviser
and/or sub-adviser may use other similar or related techniques to the extent
that they are consistent with a Fund's investment objective and permitted by its
investment limitations and applicable regulatory authorities. The Funds'
Prospectus or Statement of Additional Information ("SAI") will be supplemented
to the extent that new products or techniques become employed involving
materially different risks than those described below or in the Prospectus.

Special Risks. Financial Instruments and their use involve special
considerations and risks, certain of which are described below.

(1) Financial Instruments may increase the volatility of the Funds. If the
adviser and/or sub-adviser employs a Financial Instrument that correlates
imperfectly with a Fund's investments, a loss could result, regardless of
whether or not the intent was to manage risk. In addition, these techniques
could result in a loss if there is not a liquid market to close out a position
that a Fund has entered.

(2) There might be imperfect correlation between price movements of a Financial
Instrument and price movement of the investment(s) being hedged. For example, if
the value of a Financial Instrument used in a short hedge increased by less than
the decline in value of the hedged investment(s), the hedge would not be fully
successful. This might be caused by certain kinds of trading activity that
distorts the normal price relationship between the security being hedged and the
Financial Instrument. Similarly, the effectiveness of hedges using Financial
Instruments on indexes will depend on the degree of correlation between price
movements in the index and price movements in the securities being hedged.

The Funds are authorized to use options and futures contracts related to
securities with issuers, maturities or other characteristics different from the
securities in which it typically invests. This involves a risk that the options
or futures position will not track the performance of a Fund's portfolio
investments.

The direction of options and futures price movements can also diverge from the
direction of the movements of the prices of their underlying instruments, even
if the underlying instruments match a Fund's investments well. Options and
futures prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options and futures markets and the securities
markets, from structural differences in how options and futures and securities
are traded, or from imposition of daily price fluctuation limits or trading
halts. The Funds may take positions in options and futures contracts with a
greater or lesser face value than the securities it wishes to hedge or intends
to purchase in order to attempt to compensate for differences in volatility

<PAGE>

between the contract and the securities, although this may not be successful in
all cases.

(3) If successful, the above-discussed hedging strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements of portfolio securities. However, such strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements. For example, if a Fund entered into a short hedge because the adviser
and/or sub-adviser projected a decline in the price of a security in the Fund's
portfolio, and the price of that security increased instead, the gain from that
increase would likely be wholly or partially offset by a decline in the value of
the short position in the Financial Instrument. Moreover, if the price of the
Financial Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss.

(4) A Fund's ability to close out a position in a Financial Instrument prior to
expiration or maturity depends on the degree of liquidity of the market or, in
the absence of such a market, the ability and willingness of the other party to
the transaction (the "counterparty") to enter into a transaction closing out the
position. Therefore, there is no assurance that any position can be closed out
at a time and price that is favorable to a Fund.

(5) As described below, the Funds are required to maintain assets as "cover,"
maintain segregated accounts or make margin payments when they take positions in
Financial Instruments involving obligations to third parties (I.E., Financial
Instruments other than purchased options). If a Fund is unable to close out its
positions in such Financial Instruments, it might be required to continue to
maintain such assets or segregated accounts or make such payments until the
position expired. These requirements might impair a Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time.

Cover. Positions in Financial Instruments, other than purchased options, expose
the Funds to an obligation to another party. A Fund will not enter into any such
transaction unless it owns (1) an offsetting ("covered") position in securities,
currencies or other options, futures contracts or forward contracts, or (2) cash
and liquid assets with a value, marked-to-market daily, sufficient to cover its
obligations to the extent not covered as provided in (1) above. The Funds will
comply with SEC guidelines regarding cover for these instruments and will, if
the guidelines so require, designate cash or liquid assets as segregated in the
prescribed amount as determined daily.

Assets used as cover or held as segregated cannot be sold while the position in
the corresponding Financial Instrument is open unless they are replaced with
other appropriate assets. As a result, the commitment of a large portion of a
Fund's assets to cover or to hold as segregated could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.

Options. Each Fund may engage in certain strategies involving options to attempt
to manage the risk of its investments or, in certain circumstances, for
investment (E.G., as a substitute for investing in securities). A call option
gives the purchaser the right to buy, and obligates the writer to sell the
underlying investment at the agreed-upon exercise price during the option
period. A put option gives the purchaser the right to sell, and obligates the
writer to buy the underlying investment at the agreed-upon exercise price during

<PAGE>

the option period. Purchasers of options pay an amount, known as a premium, to
the option writer in exchange for the right under the option contract. See
"Options on Indexes" below with regard to cash settlement of option contracts on
index values.

The purchase of call options can serve as a hedge against a price rise of the
underlier and the purchase of put options can serve as a hedge against a price
decline of the underlier. Writing call options can serve as a limited short
hedge because declines in the value of the hedged investment would be offset to
the extent of the premium received for writing the option. However, if the
security or currency appreciates to a price higher than the exercise price of
the call option, it can be expected that the option will be exercised and a Fund
will be obligated to sell the security or currency at less than its market
value.

Writing put options can serve as a limited long or anticipatory hedge because
increases in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency depreciates to a price lower than the exercise price of the put option,
it can be expected that the put option will be exercised and a Fund will be
obligated to purchase the security or currency at more than its market value.

The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the price volatility of the underlying investment and general market
and interest rate conditions. Options that expire unexercised have no value.

A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; which is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option, which is known as a
closing sale transaction. Closing transactions permit a Fund to realize profits
or limit losses on an option position prior to its exercise or expiration.

Risks of Options on Securities. Options embody the possibility of large amounts
of exposure, which will result in a Fund's net asset value being more sensitive
to changes in the value of the related investment. A Fund may purchase or write
both exchange-traded and OTC options. Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization guarantee. Thus, when a Fund purchases an OTC option,
it relies on the counterparty from whom it purchased the option to make or take
delivery of the underlying investment upon exercise of the option. Failure by
the counterparty to do so would result in the loss of any premium paid by a Fund
as well as the loss of any expected benefit of the transaction.

<PAGE>

The Funds' ability to establish and close out positions in options depends on
the existence of a liquid market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. There can be no
assurance that a Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
counterparty, a Fund might be unable to close out an OTC option position at any
time prior to the option's expiration. If a Fund is not able to enter into an
offsetting closing transaction on an option it has written, it will be required
to maintain the securities subject to the call or the liquid assets underlying
the put until a closing purchase transaction can be entered into or the option
expires. However, there can be no assurance that such a market will exist at any
particular time.

If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.

Options on Indexes. Puts and calls on indexes are similar to puts and calls on
securities or futures contracts except that all settlements are in cash and
changes in value depend on changes in the index in question. When a Fund writes
a call on an index, it receives a premium and agrees that, prior to the
expiration date, upon exercise of the call, the purchaser will receive from the
Fund an amount of cash equal to the positive difference between the closing
price of the index and the exercise price of the call times a specified multiple
("multiplier"), which determines the total dollar value for each point of such
difference. When a Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When a Fund buys a put on an
index, it pays a premium and has the right, prior to the expiration date, to
require the seller of the put to deliver to the Fund an amount of cash equal to
the positive difference between the exercise price of the put and the closing
price of the index times the multiplier. When a Fund writes a put on an index,
it receives a premium and the purchaser of the put has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash equal to
the positive difference between the exercise price of the put and the closing
level of the index times the multiplier.

The risks of purchasing and selling options on indexes may be greater than
options on securities. Because index options are settled in cash, when a Fund
writes a call on an index it cannot fulfill its potential settlement obligations
by delivering the underlying securities. A Fund can offset some of the risk of
writing a call index option by holding a diversified portfolio of securities
similar to those on which the underlying index is based. However, a Fund cannot,
as a practical matter, acquire and hold a portfolio containing exactly the same
securities as underlie the index and, as a result, bears a risk that the value
of the securities held will vary from the value of the index.

Even if a Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level. As with other kinds of options, a Fund as the call
writer will not learn what it has been assigned until the next business day. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as common stock,

<PAGE>

because in that case the writer's obligation is to deliver the underlying
security, not to pay its value as of a moment in the past. In contrast, the
writer of an index call will be required to pay cash in an amount based on the
difference between the closing index value on the exercise date and the exercise
price. By the time a Fund learns what it has been assigned, the index may have
declined. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure.

If a Fund has purchased an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund nevertheless will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer.

OTC Options. Unlike exchange-traded options, which are standardized with respect
to the underlying instrument, expiration date, contract size, and strike price,
the terms of OTC options (options not traded on exchanges) generally are
established through negotiation with the other party to the option contract.
While this type of arrangement allows a Fund great flexibility to tailor the
option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchange where they are traded.

Generally, OTC foreign currency options used by a Fund are European-style
options. This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.

Futures Contracts and Options on Futures Contracts. When a Fund purchases or
sells a futures contract, it incurs an obligation respectively to take or make
delivery of a specified amount of the obligation underlying the contract at a
specified time and price. When a Fund writes an option on a futures contract, it
becomes obligated to assume a position in the futures contract at a specified
exercise price at any time during the term of the option. If a Fund writes a
call, on exercise it assumes a short futures position. If it writes a put, on
exercise it assumes a long futures position.

The purchase of futures or call options on futures can serve as a long or an
anticipatory hedge, and the sale of futures or the purchase of put options on
futures can serve as a short hedge. Writing call options on futures contracts
can serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indexes. Similarly, writing put options on
futures contracts can serve as a limited long or anticipatory hedge.

In addition, futures strategies can be used to manage the "duration" (a measure
of anticipated sensitivity to changes in interest rates, which is sometimes
related to the weighted average maturity of a portfolio) and associated interest
rate risk of a Fund's fixed-income portfolio. If the adviser and/or sub-adviser
wishes to shorten the duration of a Fund's fixed-income portfolio (i.e., reduce
anticipated sensitivity), the Fund may sell an appropriate debt futures contract
or a call option thereon, or purchase a put option on that futures contract. If
the adviser and/or sub-adviser wishes to lengthen the duration of a Fund's
fixed-income portfolio (i.e., increase anticipated sensitivity), the Fund may
buy an appropriate debt futures contract or a call option thereon, or sell a put
option thereon.

<PAGE>

At the inception of a futures contract, a Fund is required to deposit "initial
margin" in an amount generally equal to 10% or less of the contract value.
Initial margin must also be deposited when writing a call or put option on a
futures contract, in accordance with applicable exchange rules. Subsequent
"variation margin" payments are made to and from the futures broker daily as the
value of the futures or written option position varies, a process known as
"marking-to-market." Unlike margin in securities transactions, initial margin on
futures contracts and written options on futures contracts does not represent a
borrowing on margin, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, a Fund may be required to
increase the level of initial margin deposits. If the Fund has insufficient cash
to meet daily variation margin requirements, it might need to sell securities in
order to do so at a time when such sales are disadvantageous.

Purchasers and sellers of futures contracts and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. However, there can be no assurance that a liquid
market will exist for a particular contract at a particular time. In such event,
it may not be possible to close a futures contract or options position.

Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a futures contract or an option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.

If a Fund were unable to liquidate a futures contract or an option on a futures
contract position due to the absence of a liquid market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to continue to maintain the
position being hedged by the futures contract or option or to continue to
maintain cash or securities in a segregated account.

To the extent that a Fund enters into futures contracts, options on futures
contracts and options on foreign currencies traded on a CFTC-regulated exchange,
in each case that is not for BONA FIDE hedging purposes (as defined by the
CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.

<PAGE>

Risks of Futures Contracts and Options Thereon. The ordinary spreads at a given
time between prices in the cash and futures markets (including the options on
futures markets), due to differences in the natures of those markets, are
subject to the following factors. First, 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 cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Due to the possibility of distortion, a hedge may not be successful.
Although stock index futures contracts do not require physical delivery, under
extraordinary market conditions liquidity of such futures contracts also could
be reduced. Additionally, the adviser and/or sub-adviser may be incorrect in its
expectations as to the extent of various interest rates, currency exchange rates
or stock market movements or the time span within which the movements take
place.

Index Futures. The risk of imperfect correlation between movements in the price
of index futures and movements in the price of the securities that are the
subject of a hedge increases as the composition of a Fund's portfolio diverges
from the index. The price of the index futures may move proportionately more
than or less than the price of the securities being hedged. If the price of the
index futures moves proportionately less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective. Assuming
the price of the securities being hedged has moved in an unfavorable direction,
as anticipated when the hedge was put into place, the Fund would be in a better
position than if it had not hedged at all, but not as good as if the price of
the index futures moved in full proportion to that of the hedged securities.
However, if the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially offset by movement of the price of
the futures contract. If the price of the futures contract moves more than the
price of the securities, the Fund will experience either a loss or a gain on the
futures contract that will not be completely offset by movements in the price of
the securities that are the subject of the hedge.

Where index futures are purchased in an anticipatory hedge, it is possible that
the market may decline instead. If a Fund then decides not to invest in the
securities at that time because of concern as to possible further market decline
or for other reasons, it will realize a loss on the futures contract that is not
offset by a reduction in the price of the securities it had anticipated
purchasing.

Foreign Currency Hedging Strategies--Special Considerations. A Fund may use
options and futures contracts on foreign currencies, as mentioned previously,
and forward currency contracts, as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated or, in certain circumstances, for investment (E.G., as a
substitute for investing in securities denominated in foreign currency).
Currency hedges can protect against price movements in a security that a Fund
owns or intends to acquire that are attributable to changes in the value of the
currency in which it is denominated.

A Fund might seek to hedge against changes in the value of a particular currency
when no Financial Instruments on that currency are available or such Financial
Instruments are more expensive than certain other Financial Instruments. In such
cases, a Fund may seek to hedge against price movements in that currency by
entering into transactions using Financial Instruments on another currency or a

<PAGE>

basket of currencies, the value of which the adviser and/or sub-adviser believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Financial Instrument
will not correlate perfectly with movements in the price of the currency subject
to the hedging transaction may be increased when this strategy is used.

The value of Financial Instruments on foreign currencies depends on the value of
the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such Financial Instruments, a
Fund could be disadvantaged by having to deal in the odd-lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
generally is representative of very large transactions in the interbank market
and thus might not reflect odd-lot transactions where rates might be less
favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.

Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
a Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.

Forward Currency Contracts and Foreign Currency Deposits. The Funds may enter
into forward currency contracts to purchase or sell foreign currencies for a
fixed amount of U.S. dollars or another foreign currency. A forward currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days (term) from the date of the
forward currency contract agreed upon by the parties, at a price set at the time
the forward currency contract is entered. Forward currency contracts are
negotiated directly between currency traders (usually large commercial banks)
and their customers.

Such transactions may serve as long or anticipatory hedges. For example, a Fund
may purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Fund intends to acquire.
Forward currency contracts may also serve as short hedges. For example, a Fund
may sell a forward currency contract to lock in the U.S. dollar equivalent of
the proceeds from the anticipated sale of a security or a dividend or interest
payment denominated in a foreign currency.

The Funds may also use forward currency contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. Such a hedge
would tend to offset both positive and negative currency fluctuations, but would

<PAGE>

not offset changes in security values caused by other factors. A Fund could also
hedge the position by entering into a forward currency contract to sell another
currency expected to perform similarly to the currency in which the Fund's
existing investments are denominated. This type of hedge could offer advantages
in terms of cost, yield or efficiency, but may not hedge currency exposure as
effectively as a simple hedge against U.S. dollars. This type of hedge may
result in losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.

The Funds may also use forward currency contracts in one currency or a basket of
currencies to attempt to hedge against fluctuations in the value of securities
denominated in a different currency if the adviser anticipates that there will
be a positive correlation between the two currencies.

The cost to a Fund of engaging in forward currency contracts varies with factors
such as the currency involved, the length of the contract period and the market
conditions then prevailing. Because forward currency contracts are usually
entered into on a principal basis, no fees or commissions are involved. When a
Fund enters into a forward currency contract, it relies on the counterparty to
make or take delivery of the underlying currency at the maturity of the
contract. Failure by the counterparty to do so would result in the loss of some
or all of any expected benefit of the transaction.

As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that a Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, the Fund might be unable to close out a forward
currency contract. In either event, the Fund would continue to be subject to
market risk with respect to the position, and would continue to be required to
maintain a position in securities denominated in the foreign currency or to
segregate cash or liquid assets.

The precise matching of forward currency contract amounts and the value of the
securities, dividends or interest payments involved generally will not be
possible because the value of such securities, dividends or interest payments,
measured in the foreign currency, will change after the forward currency
contract has been established. Thus, a Fund might need to purchase or sell
foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.

Forward currency contracts may substantially change a Fund's investment exposure
to changes in currency exchange rates and could result in losses to the Fund if
currencies do not perform as the adviser anticipates. There is no assurance that
the adviser's and/or sub-adviser's use of forward currency contracts will be
advantageous to a Fund or that it will hedge at an appropriate time.

<PAGE>

The Funds may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.

Combined Positions. A Fund may purchase and write options or futures in
combination with each other, or in combination with futures or forward currency
contracts, to manage the risk and return characteristics of its overall
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs.

Turnover. The Funds' options and futures activities may affect their turnover
rates and brokerage commission payments. The exercise of calls or puts written
by a Fund, and the sale or purchase of futures contracts, may cause it to sell
or purchase related investments, thus increasing its turnover rate. Once a Fund
has received an exercise notice on an option it has written, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price. The
exercise of puts purchased by a Fund may also cause the sale of related
investments, increasing turnover. Although such exercise is within the Fund's
control, holding a protective put might cause it to sell the related investments
for reasons that would not exist in the absence of the put. A Fund will pay a
brokerage commission each time it buys or sells a put or call or purchases or
sells a futures contract. Such commissions may be higher than those that would
apply to direct purchases or sales.

Swaps, Caps, Floors and Collars. The Funds are authorized to enter into swaps,
caps, floors and collars. Swaps involve the exchange by one party with another
party of their respective commitments to pay or receive cash flows, E.G., an
exchange of floating rate payments for fixed rate payments. The purchase of a
cap or a floor entitles the purchaser, to the extent that a specified index
exceeds in the case of a cap, or falls below in the case of a floor, a
predetermined value, to receive payments on a notional principal amount from the
party selling such instrument. A collar combines elements of buying a cap and
selling a floor.

ILLIQUID SECURITIES -- Securities which do not trade on stock exchanges or in
the over the counter market, or have restrictions on when and how they may be
sold, are generally considered to be "illiquid." An illiquid security is one
that a Fund may have difficulty -- or may even be legally precluded from --
selling at any particular time. The Funds may invest in illiquid securities,
including restricted securities and other investments which are not readily
marketable. 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 are considered illiquid for purposes of this restriction.

The principal risk of investing in illiquid securities is that a Fund may be
unable to dispose of them 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 registering the security with

<PAGE>

the SEC, and otherwise obtaining listing on a securities exchange or in the over
the counter market.

INVESTMENT COMPANY SECURITIES -- To manage their daily cash positions, the Funds
may invest in securities issued by other investment companies that invest in
short-term debt securities and seek to maintain a net asset value of $1.00 per
share ("money market funds"). The Funds also may invest in Standard & Poor's
Depository Receipt's ("SPDRs") and shares of other investment companies. SPDRs
are investment companies whose portfolios mirror the compositions of specific
S&P indices, such as the S&P 500 and the S&P 400. SPDRs are traded on the
American Stock Exchange. SPDR holders such as a Fund are paid a "Dividend
Equivalent Amount" that corresponds to the amount of cash dividends accruing to
the securities held by the SPDR Trust, net of certain fees and expenses. The
Investment Company Act of 1940 limits investments in securities of other
investment companies, such as the SPDR Trust. These limitations include, among
others, that, subject to certain exceptions, no more than 10% of a Fund's total
assets may be invested in securities of other investment companies and no more
than 5% of its total assets may be invested in the securities of any one
investment company. As a shareholder of another investment company, a Fund would
bear its pro rata portion of the other investment company's expenses, including
advisory fees, in addition to the expenses the Fund bears directly in connection
with its own operations.

REPURCHASE AGREEMENTS -- A Fund may enter into repurchase agreements, or REPOs,
on debt securities that the Fund is allowed to hold in its portfolio. This is a
way to invest money for short periods. A REPO is an agreement under which the
Fund acquires a debt security and then resells it to the seller at an agreed
upon price and date (normally, the next business day). The repurchase price
represents an interest rate effective for the short period the debt security is
held by the Fund, and is unrelated to the interest rate on the underlying debt
security. A repurchase agreement is often considered as a loan collateralized by
securities. The collateral securities acquired by the Fund (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement. The collateral securities are held by the Fund's custodian
bank until the repurchase agreement is completed.

The Funds may enter into repurchase agreements with commercial banks, registered
broker-dealers or registered government securities dealers that are creditworthy
under standards established by the Company's board of directors. The Company's
board of directors has established standards that the investment adviser and
sub-adviser must use to review the creditworthiness of any bank, broker or
dealer that is a party to a REPO. REPOs maturing in more than seven days are
considered illiquid securities. A Fund will not enter into repurchase agreements
maturing in more than seven days if as a result more than 15% of the Fund's net
assets would be invested in these repurchase agreements and other illiquid
securities.

As noted above, the Funds use REPOs as a means of investing cash for short
periods of time. Although REPOs are considered to be highly liquid and
comparatively low-risk, the use of REPOs does involve some risks. For example,
if the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss on the sale of the collateral security. If the other party
to the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within the control

<PAGE>

of the Fund and therefore the realization by the Fund on such collateral may
automatically be stayed. Finally, it is possible that the Fund may not be able
to substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement.

RULE 144A SECURITIES -- A Fund also may invest in securities that can be resold
to institutional investors pursuant to Rule 144A under the Securities Act of
1933, as amended (the "1933 Act"). In recent years, a large institutional market
has developed for many Rule 144A Securities. Institutional investors generally
cannot sell these securities to the general public but instead will often depend
on an efficient institutional market in which Rule 144A Securities can readily
be resold to other institutional investors, 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 does not
necessarily mean that a Rule 144A Security is illiquid. Institutional markets
for Rule 144A Securities may provide both reliable market values for Rule 144A
Securities and enable a Fund to sell a Rule 144A investment when appropriate.
For this reason, the Company's board of directors has concluded that if a
sufficient institutional trading market exists for a given Rule 144A security,
it may be considered "liquid," and not subject to a Fund's limitations on
investment in restricted securities. The Company's board of directors has given
INVESCO the day-to-day authority to determine the liquidity of Rule 144A
Securities, according to guidelines approved by the board. The principal risk of
investing in Rule 144A Securities is that there may be an insufficient number of
qualified institutional buyers interested in purchasing a Rule 144A Security
held by a Fund, and the Fund might be unable to dispose of such security
promptly or at reasonable prices.

SECURITIES LENDING -- Each Fund may lend its portfolio securities. The advantage
of lending portfolio securities is that a Fund continues to have the benefits
(and risks) of ownership of the loaned securities, while at the same time
receiving interest from the borrower of the securities. The primary risk in
lending portfolio securities is that a borrower may fail to return a portfolio
security.

REITS -- Real Estate Investment Trusts are investment trusts that invest
primarily in real estate and securities of businesses connected to the real
estate industry.

U.S. GOVERNMENT SECURITIES -- Each Fund may, from time to time, purchase debt
securities issued by the U.S. government. These securities include Treasury
bills, notes and bonds. Treasury bills have a maturity of one year or less,
Treasury notes generally have a maturity of one to ten years and Treasury bonds
generally have maturities of more than ten years.

U.S. government debt securities also include securities issued or guaranteed by
agencies or instrumentalities of the U.S. government. Some obligations of U.S.
government agencies, which are established under the authority of an act of
Congress, such as Government National Mortgage Association ("GNMA")
participation certificates, are supported by the full faith and credit of the
U.S. Treasury. GNMA Certificates are mortgage-backed securities representing
part ownership of a pool of mortgage loans. These loans -- issued by lenders
such as mortgage bankers, commercial banks and savings and loan associations --
are either insured by the Federal Housing Administration or guaranteed by the

<PAGE>

Veterans Administration. A "pool" or group of such mortgages is assembled and,
after being approved by GNMA, is offered to investors through securities
dealers. Once approved by GNMA, the timely payment of interest and principal on
each mortgage is guaranteed by GNMA and backed by the full faith and credit of
the U.S. government. The market value of GNMA Certificates is not guaranteed.
GNMA Certificates are different from bonds because principal is paid back
monthly by the borrower over the term of the loan rather than returned in a lump
sum at maturity, as is the case with a bond. GNMA Certificates are called
"pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the GNMA
Certificate.

Other United States government debt securities, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury. Others, such as bonds issued by Fannie Mae, a federally chartered
private corporation, are supported only by the credit of the corporation. In the
case of securities not backed by the full faith and credit of the United States,
a Fund must look principally to the agency issuing or guaranteeing the
obligation in the event the agency or instrumentality does not meet its
commitments. A Fund will invest in securities of such instrumentalities only
when its investment adviser and sub-advisers are satisfied that the credit risk
with respect to any such instrumentality is comparatively minimal.

WHEN-ISSUED/DELAYED DELIVERY -- Ordinarily, the Funds buy and sell securities on
an ordinary settlement basis. That means that the buy or sell order is sent, and
a Fund actually takes delivery or gives up physical possession of the security
on the "settlement date," which is three business days later. However, the Funds
also may purchase and sell securities on a when-issued or delayed delivery
basis.

When-issued or delayed delivery transactions occur when securities are purchased
or sold by a Fund and payment and delivery take place at an agreed-upon time in
the future. The Funds may engage in this practice in an effort to secure an
advantageous price and yield. However, the yield on a comparable security
available when delivery actually takes place may vary from the yield on the
security at the time the when-issued or delayed delivery transaction was entered
into. When a Fund engages in when-issued and delayed delivery transactions, it
relies on the seller or buyer to consummate the sale at the future date. If the
seller or buyer fails to act as promised, that failure may result in the Fund
missing the opportunity of obtaining a price or yield considered to be
advantageous. No payment or delivery is made by a Fund until it receives
delivery or payment from the other party to the transaction. However,
fluctuation in the value of the security from the time of commitment until
delivery could adversely affect a Fund.

INVESTMENT RESTRICTIONS

The Funds operate under certain investment restrictions. For purposes of the
following restrictions, all percentage limitations apply immediately after a
purchase or initial investment. Any subsequent change in a particular percentage
resulting from fluctuations in value does not require elimination of any
security from a Fund.

The following restrictions are fundamental and may not be changed without prior
approval of a majority of the outstanding voting securities of a Fund, as

<PAGE>

defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Each
Fund may not:

1. purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities or municipal securities) if, as a result, more than 25%
of the Fund's total assets would be invested in the securities of companies
whose principal business activities are in the same industry;

2. with respect to 75% of the Fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities, or securities of
other investment companies) if, as a result, (i) more than 5% of a Fund's
total assets would be invested in the securities of that issuer, or (ii) a
Fund would hold more than 10% of the outstanding voting securities of that
issuer;

3. underwrite securities of other issuers, except insofar as it may be
deemed to be an underwriter under the Securities Act of 1933, as amended,
in connection with the disposition of the Fund's portfolio securities;

4. borrow money, except that the Fund may borrow money in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings);

5. issue senior securities, except as permitted under the 1940 Act;

6. lend any security or make any 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 the purchase of debt securities or to repurchase agreements;

7. purchase or sell physical commodities; however, this policy shall not
prevent the Fund from purchasing and selling foreign currency, futures
contracts, options, forward contracts, swaps, caps, floors, collars and
other financial instruments; or

8. purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).

9. Each Fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company managed by INVESCO or an affiliate
or a successor thereof, with substantially the same fundamental investment
objective, policies and limitations as the Fund.

In addition, each Fund has the following non-fundamental policies, which may be
changed without shareholder approval:

A. The Fund may not sell securities short (unless it owns or has the right
to obtain securities equivalent in kind and amount to the securities sold

<PAGE>

short) or purchase securities on margin, except that (i) this policy does
not prevent the Fund from entering into short positions in foreign
currency, futures contracts, options, forward contracts, swaps, caps,
floors, collars and other financial instruments, (ii) the Fund may obtain
such short-term credits as are necessary for the clearance of transactions,
and (iii) the Fund may make margin payments in connection with futures
contracts, options, forward contracts, swaps, caps, floors, collars and
other financial instruments.

B. The Fund may borrow money only from a bank or from an open-end
management investment company managed by INVESCO or an affiliate or a
successor thereof for temporary or emergency purposes (not for leveraging
or investing) or by engaging in reverse repurchase agreements with any
party (reverse repurchase agreements will be treated as borrowings for
purposes of fundamental limitation (4)).

C. The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.

D. The Fund may invest in securities issued by other investment companies
to the extent that such investments are consistent with the Fund's
investment objective and policies and permissible under the 1940 Act.

E. With respect to fundamental limitation (1), domestic and foreign banking
will be considered to be different industries.

In addition, with respect to a Fund that may invest in municipal obligations,
the following non-fundamental policy applies, which may be changed without
shareholder approval:

Each state (including the District of Columbia and Puerto Rico), territory
and possession of the United States, each political subdivision, agency,
instrumentality and authority thereof, and each multi-state agency of which
a state is a member is a separate "issuer." When the assets and revenues of
an agency, authority, instrumentality or other political subdivision are
separate from the government creating the subdivision and the security is
backed only by assets and revenues of the subdivision, such subdivision
would be deemed to be the sole issuer. Similarly, in the case of an
Industrial Development Bond or Private Activity bond, if that bond is
backed only by the assets and revenues of the non-governmental user, then
that non-governmental user would be deemed to be the sole issuer. However,
if the creating government or another entity guarantees a security, then to
the extent that the value of all securities issued or guaranteed by that
government or entity and owned by a Fund exceeds 10% of the Fund's total
assets, the guarantee would be considered a separate security and would be
treated as issued by that government or entity.

Following is a chart outlining some of the limitations pursuant to
non-fundamental investment policies set by the board of directors. These

<PAGE>

non-fundamental policies may be changed by the board of directors without
shareholder approval:

- ---------------------------------------------------------------------------------------------------------------

INVESTMENT BALANCED EQUITY INCOME TOTAL RETURN
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT SECURITIES Normally, at least Normally, up to Normally, a minimum
25% (investment 35% of 30% (investment
grade only) grade only)
- ---------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES Normally, 50%-70% Normally, 65% in Normally, a minimum
common stock dividend-paying of 30%; the remainder
common stock; will vary with market
Up to 10% in condi tions
non-dividend paying
- ---------------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES Up to 25% Up to 25% (must be Up to 25%
(Percentages exclude ADRs and Canadian denominated and pay
issuers.) interest in U.S.
dollars)
- ---------------------------------------------------------------------------------------------------------------

</TABLE>

MANAGEMENT OF THE FUNDS

THE INVESTMENT ADVISER

INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the
Company's investment adviser. INVESCO was founded in 1932 and serves as an
investment adviser to:

INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO
Flexible Funds, 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 Treasurer's Series Funds, Inc. (formerly, INVESCO Treasurer's
Series Trust)
INVESCO Variable Investment Funds, Inc.

As of August 31, 1999, INVESCO managed 42 mutual funds having combined assets of
$24 billion, on behalf of more than 926,831 shareholders.

INVESCO is an indirect wholly owned subsidiary of AMVESCAP PLC, a publicly
traded holding company. Through its subsidiaries, AMVESCAP PLC engages in the
business of investment management on an international basis. AMVESCAP PLC is one
of the largest independent investment management businesses in the world, with
approximately $296 billion in assets under management on June 30, 1999.

<PAGE>

AMVESCAP PLC's North American subsidiaries include:

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 million and
$200 million in assets. Additionally, IRPS provides investment consulting
services to institutions seeking to provide retirement plan products and
services.

Institutional Trust Company, doing business as INVESCO Trust Company
("ITC"), 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 complete
transfer agency functions: correspondence, sub-accounting, telephone
communications and processing of distributions.

INVESCO Capital Management, Inc., Atlanta, Georgia, manages
institutional investment portfolios, consisting primarily of discretionary
employee benefit plans for corporations and state and local governments,
and endowment funds.

INVESCO Management & Research, Inc., Boston, Massachusetts, primarily
manages pension and endowment accounts.

PRIMCO Capital Management, Inc., Louisville, Kentucky, specializes in
managing stable return investments, principally on behalf of Section
401(k) retirement plans.

INVESCO Realty Advisors, Inc., Dallas, Texas, is responsible for
providing advisory services in the U.S. real estate markets for AMVESCAP
PLC's clients worldwide. Clients include corporate pension 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 further serves as investment adviser to
several closed-end investment companies, and as sub-adviser with respect
to certain commingled employee benefit trusts.

A I M Advisors, Inc., Houston, Texas, provides investment advisory and
administrative services for retail and institutional mutual funds.

<PAGE>

A I M Capital Management, Inc., 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 and institutional mutual funds, one Canadian mutual fund
and one portfolio of an open-end registered investment company that is
offered to separate accounts of variable insurance companies.

A I M Distributors, Inc. and Fund Management Company, 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, EC2M4YR, England.

THE INVESTMENT ADVISORY AGREEMENT

INVESCO serves as investment adviser to the Funds under an investment advisory
agreement dated February 28, 1997 (the "Agreement") with the Company.

The Agreement requires that INVESCO manage the investment portfolio of each Fund
in a way that conforms with the Fund's investment policies. INVESCO may directly
manage a Fund itself, or may hire a sub-adviser, which may be an affiliate of
INVESCO, to do so. Specifically, INVESCO is responsible for:

o managing the investment and reinvestment of all the assets of the Funds,
and executing all purchases and sales of portfolio securities;

o maintaining a continuous investment program for the Funds, consistent
with (i) each 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, and in any prospectus and/or
statement of additional information of the Funds, as from time to time
amended and in use under the 1933 Act, and (ii) the Company's status as a
regulated investment company under the Internal Revenue Code of 1986, as
amended;

o determining what securities are to be purchased or sold for the Funds,
unless otherwise directed by the directors of the Company, and executing
transactions accordingly;

o providing the Funds the benefit of all of the investment analysis and
research, the reviews of current economic conditions and trends, and the
consideration of a long-range investment policy now or hereafter
generally available to the investment advisory customers of the Adviser
or any Sub-Adviser;

o determining what portion of each Fund's assets should be invested in the
various types of securities authorized for purchase by the Fund; and

o making recommendations as to the manner in which voting rights, rights to
consent to Fund action and any other rights pertaining to a Fund's
portfolio securities shall be exercised.

<PAGE>

INVESCO also performs all of the following services for the Funds:

o administrative

o internal accounting (including computation of net asset value)

o clerical and statistical

o secretarial

o all other services necessary or incidental to the
administration of the affairs of the Funds

o supplying the Company with officers, clerical staff and other
employees

o furnishing office space, facilities, equipment, and supplies; providing
personnel and facilities required to respond to inquiries related to
shareholder accounts

o 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 or in conjunction with
independent attorneys and accountants (including the prospectus,
statement of additional information, proxy statements, shareholder
reports, tax returns, reports to the SEC, and other corporate documents
of the Funds)

o supplying basic telephone service and other utilities

o 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
its advisory services to the Company, INVESCO receives a monthly fee from each
Fund. The fee is calculated at the annual rate of:

Equity Income and Balanced Funds

o 0.60% on the first $350 million of each Fund's average net assets;

o 0.55% on the next $350 million of each Fund's average net assets;

o 0.50% on each Fund's average net assets from $700 million;

o 0.45% on each Fund's average net assets from $2 billion;

o 0.40% on each Fund's average net assets from $4 billion;

o 0.375% on each Fund's average net assets from $6 billion; and

<PAGE>

o 0.35% on each Fund's average net assets from $8 billion.

Total Return Fund

o 0.75% on the first $500 million of the Fund's average net assets;

o 0.65% on the next $500 million of the Fund's average net assets;

o 0.50% on the Fund's average net assets from $1 billion;

o 0.45% on the Fund's average net assets from $2 billion;

o 0.40% on the Fund's average net assets from $4 billion;

o 0.375% on the Fund's average net assets from $6 billion; and

o 0.35% on the Fund's average net assets from $8 billion.

During the periods outlined in the table below, the Funds paid INVESCO advisory
fees in the dollar amounts shown below. If applicable, the advisory fees were
offset by credits in the amounts shown below, so that INVESCO's fees were not in
excess of the expense limitations shown below, which have been voluntarily
agreed to by the Company and INVESCO.

Advisory Total Expense Total Expense
Fee Dollars Reimbursements Limitations

Equity Income Fund
May 31, 1999(a) $20,935,050 $ 2,813 N/A
June 30, 1998 23,205,917 10,930 N/A
June 30, 1997 21,791,002 1,257,873 N/A
June 30, 1996 21,541,300 1,198,984 N/A

Balanced Fund
May 31, 1999(b) $ 1,282,647 $ 0 1.25%
July 31, 1998 1,115,082 0 1.25%
July 31, 1997 797,409 69,052 1.25%
July 31, 1996 561,473 1,211,381 1.25%

Total Return Fund
May 31, 1999(c) $13,059,957 $ 374,435 N/A
August 31, 1998 13,926,522 197,490 N/A
August 31, 1997 9,140,227 0 N/A
August 31, 1996 6,025,905 0 N/A

(a) For the period July 1, 1998 through May 31, 1999.
(b) For the period August 1, 1998 through May 31, 1999.
(c) For the period September 1, 1998 through May 31, 1999.

<PAGE>

THE SUB-ADVISORY AGREEMENT

INVESCO Capital Management, Inc. ("ICM") serves as sub-adviser to the Total
Return Fund pursuant to a sub-advisory agreement dated February 28, 1997 (the
"Sub-Agreement") with INVESCO.

The Sub-Agreement provides that ICM, 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 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 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 ICM; (e) determining what portion
of the Fund's assets 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, ICM shall
receive from INVESCO, at the end of each month, a fee based upon the average
daily value of the Fund's net assets. The fee is calculated at the following
annual rates: 0.30% on the first $500 million of the Fund's average net assets;
0.26% on the next $500 million of the Fund's average net assets; 0.20% on the
Fund's average net assets from $1 billion; 0.18% on the Fund's average net
assets from $2 billion; 0.16% of the Fund's average net assets from $4 billion;
0.15% of the Fund's average net assets from $6 billion; and 0.14% of the Fund's
average net assets from $8 billion. The sub-advisory fees are paid by INVESCO,
NOT the Funds.

ADMINISTRATIVE SERVICES AGREEMENT

INVESCO, either directly or through affiliated companies, provides certain
administrative, sub-accounting, and recordkeeping services to the Funds pursuant
to an Administrative Services Agreement.

The Administrative Services Agreement requires INVESCO to provide the following
services to the Funds:

o such sub-accounting and recordkeeping services and functions as are
reasonably necessary for the operation of the Funds; and

<PAGE>

o 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 Services
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% of the average net assets of the Equity
Income and Total Return Funds, and prior to May 13, 1999, the Balanced Fund, and
0.045% per year of the average net assets of the Balanced Fund, effective May
13, 1999.

TRANSFER AGENCY AGREEMENT

INVESCO also performs transfer agent, dividend disbursing agent and registrar
services for the Funds pursuant to a Transfer Agency Agreement.

The Transfer Agency Agreement provides that each Fund pays 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 the rate of 1/12 of the annual fee
and is based upon the actual number of shareholder accounts and omnibus account
participants in each Fund at any time during each month.

FEES PAID TO INVESCO

For the periods outlined in the table below for each Fund, the Funds paid the
following fees to INVESCO (prior to the absorption of certain Fund expenses by
INVESCO):

<TABLE>
Equity Income Fund

Period Ended Year Ended
May 31 June 30,
Type of Fee 1999(a) 1998 1997 1996
- ----------- ------- ---- ---- ----
<S> <C> <C> <C> <C>
Advisory $20,935,050 $23,205,917 $21,791,002 $21,541,300
Administrative Services 672,908 748,034 648,015 640,468
Transfer Agency 5,936,040 6,122,313 6,785,271 5,698,274

Balanced Fund

Period Ended Year Ended
May 31 July 31,
Type of Fee 1999(b) 1998 1997 1996
- ----------- ------- ---- ---- ----
Advisory $ 1,282,647 $ 1,115,082 $ 797,409 $ 561,473
Administrative Services 45,489 37,877 29,935 24,037
Transfer Agency 474,150 447,515 397,860 203,967

<PAGE>

Total Return Fund

Period Ended Year Ended
May 31 August 31,
Type of Fee 1999(c) 1998 1997 1996
- ----------- ------- ---- ---- ----
Advisory $13,059,957 $13,926,522 $ 9,140,227 $ 6,025,905
Administrative Services 355,556 367,796 224,249 137,623
Transfer Agency 3,425,993 3,767,444 2,332,422 953,383

(a) For the period July 1, 1998 through May 31, 1999.
(b) For the period August 1, 1998 through May 31, 1999.
(c) For the period September 1, 1998 through May 31, 1999.
</TABLE>

DIRECTORS AND OFFICERS OF THE COMPANY

The overall direction and supervision of the Company come from the board of
directors. The board of directors is responsible for making sure that the Funds'
general investment policies and programs are carried out and that the Funds are
properly administered.

The board of directors has an audit committee comprised of four of the directors
who are not affiliated with INVESCO (the "Independent Directors"). The committee
meets quarterly 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 has a management liaison committee which meets quarterly with
various management personnel of INVESCO in order to facilitate better
understanding of management and operations of the Company, and 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 has a soft dollar brokerage committee. The committee meets
periodically to review soft dollar and other brokerage transactions by the
Funds, and to review policies and procedures of INVESCO with respect to
brokerage transactions. It reports on these matters to the Company's board of
directors.

The Company 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 INVESCO 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.

The officers of the Company, all of whom are officers and employees of INVESCO,
are responsible for the day-to-day administration of the Company and the Funds.
The officers of the Company receive no direct compensation from the Company or

<PAGE>

the Funds for their services as officers. INVESCO has the primary responsibility
for making investment decisions on behalf of the Funds. These investment
decisions are reviewed by the investment committee of INVESCO.

All of the officers and directors of the Company hold comparable positions with
the following funds, which, with the Company, are collectively referred to as
the "INVESCO Funds":

INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO Flexible
Funds, 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 Treasurer's Series Funds, Inc. (formerly, INVESCO Treasurer's
Series Trust)
INVESCO Variable Investment Funds, Inc.

The table below provides information about each of the Company's directors and
officers. Their affiliations represent their principal occupations.

<TABLE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years

<S> <C> <C>
Charles W. Brady *+ Director and Chairman of the Board of
1315 Peachtree St., N.E. Chairman of the Board INVESCO Global Health Sciences
Atlanta, Georgia Fund; Chief Executive Officer
Age: 64 and Director of AMVESCAP PLC,
London, England and various
subsidiaries of AMVESCAP PLC.

<PAGE>