As filed on July 30, 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. 8 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 9 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)
___ on __________, pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
_X_ on September 28, 1999, 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:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Page 1 of 113
Exhibit index is located at page 94
<PAGE>
Prospectus | September 30, 1999
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YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
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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...................................4
Fees And Expenses..................................6
Investment Risks...................................7
Risks Associated With Particular Investments.......8
Temporary Defensive Positions.....................13
Fund Management...................................13
Portfolio Managers................................14
Potential Rewards.................................15
Share Price.......................................15
How To Buy Shares.................................16
Your Account Services.............................18
How To Sell Shares................................19
Taxes.............................................21
Dividends And Capital Gain Distributions..........22
Financial Highlights..............................23
[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
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[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.
[KEY ICON]
INVESCO EQUITY INCOME FUND
The Fund normally invests at least 65% of its assets in dividend-paying
common and preferred stocks, although in recent years that percentage has
been somewhat higher. Stocks selected for the Fund generally are expected
to produce a relatively high level of income and a consistent, stable
return. 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).
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.
<PAGE>
[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.
The portion of the Fund's portfolio invested in debt securities includes
obligations of the U.S. government and government agencies or investment
grade corporate bonds. These securities tend to offer lower income than
bonds of lower quality but are more shielded from credit risk. Obligations
issued by U.S. government agencies 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 normally invests at least 30% of its assets in common stocks of
companies with a strong history of paying regular dividends and at least
30% of its assets in debt securities. Debt securities include obligations
of the U.S. governments and government agencies. The remaining 40% of the
Fund is 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. The return that INVESCO believes is available from each
category of investments is weighed against the returns expected from other
categories to determine the actual allocations. 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 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 Equity Income, Balanced and Total Return
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 its performance compared to a broad
measure of market performance. The bar charts provide some indication of
the risks of investing in a particular Fund by showing changes in the year
to year performance of each Fund. Remember, past performance does not
indicate how a Fund will perform in the future.(1)
<PAGE>
ACTUAL ANNUAL TOTAL RETURN(2) ACTUAL ANNUAL TOTAL RETURN(2)
The bar chart shows the Balanced The bar chart shows the Equity
Fund's actual yearly performance Income Fund's actual yearly
for the years ended December 31. performance for the years ended
December 31.
Best Calendar Qtr. 12/98 13.67% Best Calendar Qtr. 3/91 16.84%
Worse Calendar Qtr. 9/98 (6.61%) Worse Calendar Qtr. 9/90 (12.28%)
ACTUAL ANNUAL TOTAL RETURN(2)
The bar chart shows the Total
Return Fund's actual yearly
performance for the years
ended December 31.
Best Calendar Qtr. 6/97 11.86%
Worse Calendar Qtr. 9/90 (8.13%)
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AVERAGE ANNUAL TOTAL RETURN(2)(3)
AS OF 12/31/98
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1 year 5 years 10 years
Equity Income Fund 14.13% 15.57% 16.82%
Balanced Fund 17.33% 19.15% 18.97%(4)
Total Return Fund 13.62% 16.20% 14.51%
Lehman Government/Corporate Bond(1) 9.47% 7.30% 9.33%
S&P 500(1) 28.58% 24.03% 19.17%
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(1)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.
(2)Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.
(3)Year-to-date return for Equity Income Fund, Balanced Fund and Total Return
Fund were ____%, ____% and ____%, respectively, for the quarter ended
August 31, 1999.
(4)Inception date of December 31, 1993.
<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(4) 0.48%
Distribution and Service (12b-1) Fees(1) 0.25%
Other Expenses(2)(4) 0.21%
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Total Annual Fund Operating Expenses(2)(4) 0.94%
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BALANCED FUND
Management Fees 0.60%
Distribution and Service (12b-1) Fees(1) 0.25%
Other Expenses (2)(3) 0.39%
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Total Annual Fund Operating Expenses(2)(3) 1.24%
=====
TOTAL RETURN FUND
Management Fees(4) 0.56%
Distribution and Service (12b-1) Fees(1) 0.25%
Other Expenses(2)(4) 0.23%
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Total Annual Fund Operating Expenses(2)(4) 1.04%
=====
(1)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.
(2)Each Fund's actual Total Annual Fund Operating Expenses were lower than
the figures shown, because their transfer agent fees and/or custodian
fees were reduced under expense offset arrangements. Because of an SEC
requirement, the figures shown do not reflect these reductions.
(3)The expense information presented in the table has been restated to
reflect a change in the administrative services fee.
(4)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" were 0.21% and 0.94%, respectively, and Total Return Fund's "
Other Expenses" and "Total Annual Fund Operating Expenses" were 0.22%
and 1.03%, respectively.
INVESCO has voluntarily agreed to absorb certain expenses of Balanced Fund,
so that the Fund's total operating expenses (excluding excess amounts that
have been offset by the expense offset arrangements described above) do not
exceed 1.25% of the Fund's average net assets. This commitment may be
changed at any time following consultation with the board of directors.
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.
<PAGE>
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:
The following reflects the costs without the absorption of expenses:(1)
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
(1)The following reflects the costs with the absorption of expenses:
1 year 3 years 5 years 10 years
Total Return Fund $105 $327 $567 $1,257
[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 Federal Deposit Insurance
Corporation ("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.
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.
<PAGE>
[ARROW ICON]
RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS
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 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 protective characteristics, these are usually
outweighed by large uncertainties or major risk exposures to adverse
conditions.
<PAGE>
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.
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.
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.
<PAGE>
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.
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>
EQUITY TOTAL
INVESTMENT RISKS BALANCED INCOME RETURN
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Market,
AMERICAN DEPOSITORY Information,
RECEIPTS (ADRS) Political,
These are securities Regulatory,
issued by U.S. banks that Diplomatic,
represent shares of foreign Liquidity X X X
corporations held by those and Currency
banks. Although traded in Risks
U.S. securities markets and
valued in U.S. dollars,
ADRs carry most of the
risks of invest ing
directly in foreign
securities.
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Market,
DEBT SECURITIES Credit,
Securities issued by Interest
private com panies or Rate and
governments representing an Duration X X X
obligation to pay interest Risks
and to repay principal
when the security matures.
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Currency,
FORWARD FOREIGN CURRENCY Political,
CONTRACTS Diplomatic
A contract to exchange and Regula-
an amount of currency on tory Risks
a date in the future at
an agreed-upon exchange
rate might be used by the
Fund to hedge against
changes in foreign currency X X
exchange rates when the
Fund invests in foreign
securities. Does not
reduce price fluctuations
in foreign securities, or
prevent losses if the prices
of those securities decline.
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Market,
FUTURES Liquidity
A futures contract and
is an agreement to buy or Options
sell a specific amount of a and
financial instrument (such Futures X X X
as an index option) at a Risks
stated price on a stated
date. The Fund may use
futures con tracts to
provide liquidity and to
hedge portfolio value.
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ILLIQUID SECURITIES Liquidity
A security that cannot Risk X X X
be sold quickly at its
fair value.
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<PAGE>
EQUITY TOTAL
INVESTMENT RISKS BALANCED INCOME RETURN
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JUNK BONDS
Debt Securities that Market,
are rated BB or lower by Credit,
Standard & Poors or Ba or Interest
lower by Moody's. Tend Rate and X
to pay higher interest Duration
rates than higher-rated Risks
debt securities, but carry
a higher credit risk.
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OPTIONS
The obligation or Credit,
right to deliver or receive Informa-
a security or other instru tion, Liquid-
ment, index or commodity, ity and
or cash payment depending Options and
on the price of the Futures
underlying security or the Risks X X X
performance of an index or
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.
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OTHER FINANCIAL INSTRUMENTS Counterparty,
These may include Credit,
forward con tracts, swaps, Currency,
caps, floors and collars. Interest
They may be used to try to Rate,
manage the Fund's foreign Liquidity,
currency exposure and other Market and
investment risks, which can Regulatory
cause its net asset value Risks X X X
to rise or fall. The Fund
may use these financial
instruments, commonly known
as "derivatives," to
increase or decrease its
exposure to changing
securities prices, interest
rates, currency exchange
rates or other factors.
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REPURCHASE AGREEMENTS Credit and
A contract under which Counter-
the seller of a security Party Risks X X X
agrees to buy it back at
an agreed-upon price and
time in the future.
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RULE 144A SECURITIES Liquidity
Securities that are Risk X X X
not registered, but which
are bought and sold solely
by institutional investors.
The Fund considers many
Rule 144A securities to
be "liquid," although the
market for such
securities typically is
less active than the
public securities
markets.
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<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. 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 $281 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 $22.7 billion for more than 916,165 shareholders of 50 INVESCO mutual
funds. INVESCO performs a wide variety of other services for the Funds,
including administration 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 the 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
FUND AVERAGE ANNUAL ASSETS UNDER MANAGEMENT
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INVESCO Equity Income Fund 0.48% (Annualized)
INVESCO Balanced Fund 0.60% (Annualized)
INVESCO Total Return Fund 0.56% (Annualized)
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[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 W. Durkes
James O. Baker
<PAGE>
CHARLES P. MAYER is Director of Investments, a co-portfolio manager of the
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 the 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, 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 W. DURKES, a Chartered Financial Analyst, has been an assistant
portfolio manager of the Total Return Fund since 1997 and an assistant
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, has been an assistant
portfolio manager of the 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 the 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, has managed the Total
Return Fund since 1987. He joined INVESCO Capital Management, Inc. in 1979,
and manages other ICM portfolios for investors. Ed also is Chairman of ICM.
He received his M.B.A. from the University of Colorado and his B.A. from
the University of Virginia.
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.
<PAGE>
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. New York 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 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.
<PAGE>
[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 year.
o Each Fund reserves the right to reject any exchange request, or to modify
or terminate the exchange policy, 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.
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).
<PAGE>
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
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BY CHECK $1,000 for regular Please remember that
Mail to: accounts; if you pay by check or
INVESCO Funds Group, Inc., $250 for an IRA; wire and your funds do
P.O. Box 173706, $50 minimum for not clear, you will be
Denver, CO 80217-3706. each subsequent responsible for any
You may send your check investment. related loss to any
by overnight courier to: Fund or INVESCO. If
7800 E. Union Ave. you are already an
Denver, CO 80237. INVESCO funds
shareholder, the Fund
may seek reimbursement
for any loss from your
existing account(s).
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BY WIRE $1,000 Payment must be
Send your payment by received within 3
bank wire (call INVESCO business days, or the
for instructions). transaction may be
cancelled.
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BY TELEPHONE WITH ACH $50.
Call 1-800-525-8085 to
request your purchase.
INVESCO will move money
from your designated
bank/credit union
checking or savings
account in order to
purchase shares, upon
your telephone
instructions, whenever
your wish.
- --------------------------------------------------------------------------------
REGULAR INVESTING WITH $50 per month for Like all regular
EASIVEST EasiVest; $50 investment plans, neither
OR DIRECT PAYROLL per pay period for EasiVest nor
PURCHASE Direct Pay roll Direct Payroll Purchase
You may enroll on your Purchase. You may ensures a profit
fund start or stop your or protects against
application, or call us regular investment loss in a falling
for a separate plan at any time, market. Because you'll
form and more details. with two weeks' invest continually,
Investing notice to INVESCO. regardless of varying
the same amount on a price levels, consider
monthly basis your financial ability
allows you to buy more to keep buying
shares when prices are through low price
low and fewer shares levels. And remember
when prices are high. that you will lose
This "dollar cost averag money if you redeem
ing" may help offset your shares when the
market fluctuations. market value of all
Over a period of time, your shares is less
your average cost per than their cost.
share may be less than
the actual average price
per share.
- --------------------------------------------------------------------------------
BY PAL(R) $1,000; $250 for Be sure to write down
Your "Personal Account an IRA. the confirmation
Line" is available number provided by
for subsequent PAL(R). Payment must be
purchases and received within 3
exchanges 24 hours a business days, or
day. Simply call the transaction may be
1-800-525-8085. cancelled.
<PAGE>
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
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BY EXCHANGE $1,000 to open a See "Exchange Policy."
Between two INVESCO new account; $50
funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO funds. shares for an
Exchanges may be made existing account.
by phone or at our (The exchange
Web site at minimum is $250
www.invesco.com. You for exchanges
may also establish an requested by
automatic monthly telephone.)
exchange service between
two INVESCO funds; call
us for further details
and the correct form.
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 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.
<PAGE>
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
any 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 MINIMUM REDEMPTION PLEASE REMEMBER
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BY TELEPHONE $250 (or, if less, INVESCO's telephone
Call us toll-free at: full liquidation of redemption privileges
1-800-825-8085 the account) for a may be modified or
redemption check; terminated in the
$1,000 for a wire to future at INVESCO's
your bank of record. discretion.
The maximum amount
which may be redeemed
by telephone is
generally $25,000.
- --------------------------------------------------------------------------------
IN WRITING Any amount. The redemption
Mail your request to request must be
INVESCO Funds Group, signed by all
Inc., P.O. Box registered account
173706, Denver, CO owners. Payment will
80217-3706. You may be mailed to your
also send your address as it appears
request by overnight on INVESCO's records,
courier to 7800 E. or to a bank
Union Ave., designated by you in
Denver, CO 80237. writing.
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BY TELEPHONE WITH ACH $250.
Call 1-800-525-8085
to request your
redemption. INVESCO
will automatically
pay the proceeds into
your designated bank
account.
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BY EXCHANGE $250 for exchanges See "Exchange Policy."
Between two INVESCO requested by When opening a new account,
funds. Call telephone. investment minimums apply.
1-800-525-8085 for
prospectuses 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.
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PERIODIC WITHDRAWAL $100 per payment on a You must have at
PLAN monthly or quarterly least $10,000 total
You may call us to basis. The redemption invested with the
request the check may be made INVESCO funds with at
appropriate form and payable to any party least $5,000 of that
more information at you designate. total invested in the
1-800-525-8085. fund from which
withdrawals will be
made.
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PAYMENT TO THIRD Any amount. All registered
PARTY account owners must
Mail your request to sign the request,
INVESCO Funds Group, with signature
Inc., P.O. Box guarantees from an
173706, Denver, CO eligible guarantor
80217-3706. financial institution,
such as a commercial bank
or a recognized national
or regional securities
firm.
<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).
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
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This information should be read in conjunction
with the audited financial statements and the Report of Independent
Accountants thereon appearing in the Company's 1999 Annual Report to
Shareholders, which is incorporated by reference into the Statement of
Additional Information. Both are available without charge by contacting IDI
at the address or telephone number on the back cover of this Prospectus.
The Annual Report also contains information about the Funds' performance.
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31 YEAR ENDED JUNE 30
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<S> <C> <C> <C> <C> <C> <C>
EQUITY INCOME FUND 1999(a) 1998 1997 1996 1995 1994
PER SHARE DATA
Net Asset Value- $16.18 $15.31 $13.21 $11.92 $11.32 $11.53
Beginning of Period
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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 Income(b) 0.31 0.38 0.35 0.41 0.42 0.36
In Excess of Net
Investment Income(b) 0.00 0.00 0.00 0.00 0.00 0.11
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
($000 Omitted) $4,845,036 $5,080,735 $4,574,675 $4,170,536 $4,009,609 $3,913,322
Ratio of Expenses to
Average Net Assets(c) 0.90%(e)(f) 0.90%(e) 0.95%(e) 0.93%(e) 0.94% 0.92%
Ratio of Net Investment
Income to Average
Net Assets(c) 2.10%(f) 2.35% 2.54% 3.17% 3.61% 3.11%
Portfolio Turnover Rate 47%(d) 58% 47% 63% 54% 56%
</TABLE>
(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, are not
representative of a full year.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
(f) Annualized.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
<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 Income(b) 0.24 0.35 0.34 0.37 0.29 0.12
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
($000 Omitted) $324,838 $216,624 $161,921 $115,066 $37,224 $4,252
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 to Average
Net Assets(d) 1.94%(e) 2.18% 2.46% 3.03% 3.12% 2.87%(e)
Portfolio Turnover Rate 100%(c) 108% 155% 259% 255% 61%(c)
</TABLE>
(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.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(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
Investment Adviser, which is before any expense offset arrangements.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
<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- $28.16 $27.77 $22.60 $20.95 $18.54 $18.27
Beginning of 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%
</TABLE>
(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.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(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
Investment Adviser, if applicable, which is before any expense
offset arrangements.
(f) Annualized.
<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 in
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, annual
report, semiannual report and SAI of the Funds are available on the SEC Web
site at www.sec.gov.
To obtain a free copy of the current annual report, semiannual report or
SAI, 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., P.O. Box 173706,
Denver, CO 80237 Denver, CO 80214-3706
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 semi-annual reports by writing to INVESCO
Distributors, Inc., 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Investments, Policies and Risks . . . . . . . . . . . . . . . . . . . . . . 29
Management of the Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Other Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . . . . 73
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Tax Consequences of Owning Shares of a Fund . . . . . . . . . . . . . . . . 76
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
<PAGE>
THE COMPANY
The Company was incorporated under the laws of 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
Equity Income Fund, INVESCO Balanced 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 each
portfolio 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.
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 corporationassets but may be backed by
<PAGE>
a letter of credit from a bank or other financial institution. The letter
of credit enhances the papercreditworthiness. The issuer is directly responsible
for payment but the bank "that if the note is not paid at maturity by the
issuer, the bank will pay the principal and interest to the buyer. A Fund's
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, 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. Although Equity Income Fund may
invest in 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
the investment adviser to be of equivalent quality. At the time of purchase,
each Fund's investment adviser will limit Fund investments to debt securities
which the adviser 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
<PAGE>
market for higher-rated straight securities. Therefore, Equity Income
Fund's investment adviser attempts to limit 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, 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
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
<PAGE>
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, bankeracceptances 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 companydebt 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
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,"
<PAGE>
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 -- The Funds may invest in bonds issued by foreign branches of
U.S. banks (and bonds issued by a U.S. branch of a foreign bank and sold in the
United States (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 investment 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
foreign countries than there is in the United States. Investment 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
<PAGE>
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 Fund's investments or, in certain
circumstances, for investment (as a substitute for investing in securities).
These financial instruments include options, futures contracts (sometimes
referred to as forward contracts, swaps, caps, floors and collars (collectively,
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 Fundportfolio. 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 (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.
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.
<PAGE>
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 Fundinvestments, 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 Fundportfolio
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
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
(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 Fundability 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.
<PAGE>
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 (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 Fundassets to cover or to hold as segregated could impede portfolio
management or the Fundability 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 (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 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.
<PAGE>
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, guarantee 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.
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
<PAGE>
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,
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.
<PAGE>
OTC Options. Unlike exchange-traded options, whixh 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.
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 payments. 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.
<PAGE>
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 BONAFIDE 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.
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.
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
<PAGE>
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 Fundsecurities
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 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
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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
Fundcontrol, 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, 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 securities with
the SEC, and otherwise obtaining listing on a securities exchange or in the over
the counter market.
INVESTMENT COMPANY SECURITIES -- 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 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
<PAGE>
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 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 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
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
<PAGE>
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
Fundlimitations 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, treasury notes, and treasury 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 United States government agencies, which are established under
the authority of an act of Congress, such as Government National Mortgage
Association ("GNMA") participation certificates, are supported by the full faith
and credit of the United States Treasury. GNMA Certificates are mortgage-backed
securities representing part ownership of a pool of mortgage loans. These loans
- -- issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations -- are either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. A "pool" or group of such mortgages
is assembled and, after being approved by GNMA, is offered to investors through
securities dealers. Once approved by GNMA, the timely payment of interest and
principal on each mortgage is guaranteed by GNMA and backed by the full faith
and credit of the 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.
<PAGE>
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
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. 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;
<PAGE>
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 Investment
Company Act of 1940;
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 Funds Group, Inc. 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 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 Funds Group, Inc. 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.
<PAGE>
D. The Fund may invest in securities issued by other investment companies
to the extent that such investments are consistent with the Fundinvestment
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.
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISER
INVESCO Funds Group, Inc., a Delaware corporation ("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 Tax-Free Income Funds, Inc.
INVESCO Treasurer Series Funds, Inc. (formerly, INVESCO Treasurer's
Series Trust)
INVESCO Variable Investment Funds, Inc.
As of May 31, 1999, INVESCO managed investment companies having combined
assets of $22.7 billion, consisting of 50 separate funds, on behalf of more than
916,165 shareholders.
<PAGE>
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 $281 billion in assets under management on March 31, 1999.
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, through INVESCO, 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 also offers the
opportunity for its clients to invest both directly and indirectly
through partnerships in primarily
<PAGE>
private investments or privately negotiated transactions. 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.
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 Fundinvestment 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
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;
<PAGE>
o determining what portion of each Fundassets 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.
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;
0 0.50% on each Fund's average net assets from $700 million;
<PAGE>
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
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
are 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
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
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%
<PAGE>
Total Return
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.
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 portfolios 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; and, beginning May 13,
1999, 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.
<PAGE>
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.
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
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% per year 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 the Funds pay 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, the Funds paid the following
fees to INVESCO (prior to the absorption of certain Fund expenses by INVESCO):
Equity Income Fund
Period Ended Year Ended
May 31 June 30,
Type of Fee 1999(a) 1998 1997 1996
- ----------- ------- ---- ---- ----
Advisory $20,935,050 $23,205,917 $21,791,002 $21,541,300
<PAGE>
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
Total Return Fund
Period Ended Year Ended
May 31 August 31,
Type of Fee 1999 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.
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 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 brokerage transactions by the Funds, and to
review policies and procedures of the Funds' adviser with respect to soft dollar
brokerage transactions. It reports on these matters to the Company's board of
directors.
<PAGE>
The Company has a derivatives committee. The committee meets periodically
to review derivatives investments made by the Funds. It monitors derivatives
usage by the Funds and the procedures utilized by the Funds' adviser to ensure
that the use of such instruments follows the policies on such instruments
adopted by the Company's board of directors. It reports on these matters to the
Company's board of directors.
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 the Funds for their services as officers. The investment adviser for
the Funds 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":
Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
Combination Stock & Bond Funds, Inc. (formerly, INVESCO Flexible
Funds, Inc.)
International Funds, Inc.
Money Market Funds, Inc.
Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.)
Specialty Funds, Inc.
Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
Tax-Free Income Funds, Inc.
Treasurer Series Funds, Inc. (formerly, INVESCO Treasurer Series Trust)
Variable Investment Funds, Inc.
The table below provides information about each of the Company's directors
and officers. Unless otherwise indicated, the address of the directors and
officers is P.O. Box 173706, Denver, CO 80217-3706. Their affiliations represent
their principal occupations.
<PAGE>
Name, Address, and Age Position(s)Held With Principal Occupations(s)
Company During Past Five Years
Charles W. Brady *+ Director and Chairman Chairman of the Board of
1315 Peachtree St.,N.E. of the Board INVESCO Global Health
Atlanta,Georgia Sciences Fund; Chief
Age: 64 Executive Officer and
Director of AMVESCAP
PLC, London, England
and various
subsidiaries of AMVESCAP
PLC.
Fred A. Deering +#
Security Life Center Director and Vice Trustee of INVESCO Global
1290 Broadway Chairman Health Sciences Fund;
Denver, Colorado of the Board formerly, Chairman of the
Age: 71 Executive Committee and
Chairman of the Board of
Security Life of Denver
Insurance Company;
Director of ING
American Holdings Company
and First ING Life
Insurance Company of New
York.
Mark H. Williamson *+ President, Chief Exec- Chief Executive
7800 E. Union Avenue utive Officer and Officer and Director
Denver, Colorado Director of INVESCO
Age: 48 Distributors, Inc.;
President, Chief
Executive Officer and
Director of INVESCO Funds
Group, Inc.; President,
Chief Operating Officer
and Trustee of INVESCO
Global Health Sciences
Fund; formerly, Chairman
and Chief Executive
Officer of NationsBanc
Advisors, Inc.; formerly,
Chairman of NationsBanc
Investments, Inc.
<PAGE>
Name, Address, and Age Position(s) Held Principal Occupation(s)
Company During Past Five Years
Victor L. Andrews, Ph.D. Director Professor Emeritus,
**! Chairman Emeritus and
34 Seawatch Drive Chairman of the CFO
Savannah, Georgia Roundtable of the
Age: 69 Department of Finance of
Georgia State University;
President, Andrews
Financial Associates,
Inc. (consulting firm);
formerly, member of the
faculties of the Harvard
Business School and the
Sloan School of
Management of MIT;
Director of The Sheffield
Funds, Inc.
Bob R. Baker +** Director President and Chief Exec-
AMC Cancer Research utive Officer of AMC
Center Cancer Research
1600 Pierce Street Center, Denver,
Denver, Colorado Colorado, since January
Age: 62 1989; until mid-December
1988, Vice Chairman of
the Board of First
Columbia Financial
Corporation, Englewood,
Colorado; formerly,
Chairman of the Board and
Chief Executive Officer
of First Columbia
Financial Corporation.
Lawrence H. Budner # @ Director Consultant; prior to
7608 Glen Albens Circle June 30, 1987,
Dallas, Texas Senior Vice
Age: 62 President and Senior
Trust Officer of
InterFirst Bank,
Dallas, Texas.
<PAGE>
Name, Address, and Age Position(s) Held With Principal Occupation(s)
Company During Past Five Years
Wendy L. Gramm, Ph.D**! Director Self-employed(since
4201 Yuma Street, N.W. 1993); Professor of
Washington, DC Economics and Public
Age: 54 Administration,
University of Texas at
Arlington; formerly,
Chairman, Commodity
Futures Trading
Commission; Administrator
for Information and
Regulatory Affairs at the
Office of Management and
Budget; Executive
Director of the
Presidential Task Force
on Regulatory Relief; and
Director of the Federal
Trade CommissionBureau of
Economics; also, Director
of Chicago Mercantile
Exchange, Enron
Corporation, IBP, Inc.,
State Farm Insurance
Company, Independent
WomenForum, International
Republic Institute, and
the Republican
WomenFederal Forum. Also,
Member of Board of
Visitors, College of
Business Administration,
University of Iowa, and
Member of Board of
Visitors, Center for
Study of Public Choice,
George Mason University.
<PAGE>
Name, Address, and Age Position(s) Held With Principal Occupation(s)
Company During Past Five Years
Kenneth T. King +#@ Director Retired. Formerly, Chair-
4080 North Circulo man of the Board of The
Manzanillo Capitol Life
Tucson, Arizona Insurance Company,
Age: 73 Providence Washington
Insurance Company and
Director of numerous U.S.
subsidiaries thereof;
formerly, Chairman of the
Board of The Providence
Capitol Companies in the
United Kingdom and
Guernsey; Chairman of the
Board of the Symbion
Corporation until 1987.
John W. McIntyre + #@ Director Retired. Formerly, Vice
7 Piedmont Center Chairman of the
Suite 100 Board of Directors
Atlanta, Georgia of the Citizens and
Age: 68 Southern Corporation
and Chairman of the
Board and Chief
Executive Officer of
the Citizens and
Southern Georgia
Corp. and the
Citizens and
Southern National
Bank; Trustee of
INVESCO Global
Health Sciences
Fund, Gables
Residential Trust,
EmployeeRetirement
System of GA, Emory
University and J.M.
Tull Charitable
Foundation; Director
of Kaiser Foundation
Health Plans of
Georgia, Inc.
<PAGE>
Name, Address, and Age Position(s) Held With Principal Occupation(s)
Company During Past Five Years
Larry Soll, Ph.D.!** Director Retired. Formerly, Chair-
345 Poorman Road man of the Board (1987
Boulder, Colorado to 1994), Chief Executive
Age: 51 Officer (1982 to 1989 and
1993 to 1994) and
President (1982 to 1989)
of Synergen Inc.;
Director of Synergen
since incorporation in
1982; Director of Isis
Pharmaceuticals, Inc.;
Trustee of INVESCO Global
Health Sciences Fund.
Glen A. Payne Secretary Senior Vice President,
7800 E. Union Avenue General Counsel and
Denver,Colorado Secretary of INVESCO
Age: 51 Funds Group, Inc.; Senior
Vice President, Secretary
and General Counsel of
INVESCO Distributors,
Inc.; Secretary, INVESCO
Global Health Sciences
Fund; formerly, General
Counsel of INVESCO Trust
Company (1989 to 1998);
formerly, employee of a
U.S. regulatory agency,
Washington, D.C. (1973 to
1989).
<PAGE>
Name, Address, and Age Position(s) Held With Principal Occupation(s)
Company During Past Five Years
Ronald L. Grooms Chief Accounting Senior Vice President and
7800 E.Union Avenue Officer, Chief Treasurer of INVESCO
Denver, Colorado Financial Officer Funds Group, Inc.;
Age: 52 and Treasurer Senior Vice
President and
Treasurer of INVESCO
Distributors, Inc.;
Treasurer, Principal
Financial and
Accounting Officer
of INVESCO Global
Health Sciences
Fund; formerly,
Senior Vice
President and
Treasurer of INVESCO
Trust Company (1988
to 1998).
William J. Galvin, Jr. Assistant Secretary Senior Vice President of
7800 E. Union Avenue INVESCO Funds Group,
Denver, Colorado Inc.; Senior Vice
Age: 42 President of INVESCO
Distributors, Inc.;
formerly, Trust
Officer of INVESCO
Trust Company.
Pamela J. Piro Assistant Treasurer Vice President of INVESCO
7800 E. Union Avenue Funds Group, Inc.;
Denver, Colorado formerly, Assistant Vice
Age: 38 President (1996 to 1997),
Director Portfolio
Accounting (1994 to
1996), Portfolio
Accounting Manager (1993
to 1994) and Assistant
Accounting Manager (1990
to 1993).
Alan I. Watson Assistant Secretary Vice President of INVESCO
7800 E. Union Avenue Funds Group, Inc.;
Denver, Colorado formerly, Trust
Age: 57 Officer of INVESCO
Trust Company.
<PAGE>
Name, Address, and Age Position(s) Held With Principal Occupation(s)
Company During Past Five Years
Judy P. Wiese Assistant Secretary Vice President of INVESCO
7800 E. Union Avenue Funds Group, Inc.;
Denver, Colorado formerly, Trust
Age: 51 Officer of INVESCO
Trust Company.
# Member of the audit committee of the Company.
+ Member of the executive committee of the Company. On occasion, the
executive committee acts upon the current and ordinary business of the Company
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
* These directors are "interested persons" of the Company as defined in the
1940 Act.
** Member of the management liaison committee of the Company.
@ Member of the soft dollar brokerage committee of the Company.
! Member of the derivatives committee of the Company.
The following table shows the compensation paid by the Company to its
independent directors for services rendered in their capacities as directors of
the Company; the benefits accrued as Company expenses with respect to the
Defined Benefit Deferred Compensation Plan discussed below; and the estimated
annual benefits to be received by these directors upon retirement as a result of
their service to the Company, all for the period ended May 31, 1999.
In addition, the table sets forth the total compensation paid by all of the
INVESCO Funds and INVESCO Global Health Sciences Fund (collectively, the
"INVESCO Complex") to these directors for services rendered in their capacities
as directors during the year ended December 31, 1998. As of May 31, 1999, there
were 50 funds in the INVESCO Complex.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Name of Person Aggregate Compen- Benefits Accrued Estimated Annual Total Compansa-
and Position sation From As Part of Company Benefits Upon tion From
Company(1) Expenses(2) Retirement(3) INVESCO Com-
plex Paid to
Directors(6)
- -----------------------------------------------------------------------------------------------
Fred A. Deering, $16,432 $22,793 $15,394 103,700
Vice Chairman of
the Board
- -----------------------------------------------------------------------------------------------
Victor L. Andrews 13,805 21,804 16,972 80,350
- -----------------------------------------------------------------------------------------------
Bob R. Baker 14,385 19,470 22,744 84,000
- -----------------------------------------------------------------------------------------------
Lawrence H. Budner 13,668 21,804 16,972 79,350
- -----------------------------------------------------------------------------------------------
Daniel D. Chabris(4) 13,518 22,282 13,963 70,000
- -----------------------------------------------------------------------------------------------
Wendy L. Gramm 13,253 0 0 79,000
- -----------------------------------------------------------------------------------------------
Kenneth T. King 15,660 23,265 13,963 77,050
- -----------------------------------------------------------------------------------------------
John W. McIntyre 15,641 0 0 98,500
- -----------------------------------------------------------------------------------------------
Larry Soll 13,253 0 0 96,000
- -----------------------------------------------------------------------------------------------
Total 129,615 131,418 100,008 767,950
- -----------------------------------------------------------------------------------------------
% of Net Assets 0.0015%(5) 0.0015%(5) 0.0035%(6)
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) The vice chairman of the board, the chairmen of the Funds' committees
who are Independent Directors, and the members of the Funds' committees who are
Independent Directors, each receive compensation for serving in such capacities
in addition to the compensation paid to all Independent Directors.
(2) Represents estimated benefits accrued with respect to the Defined
Benefit Deferred Compensation Plan discussed below, and not compensation
deferred at the election of the directors.
(3) These amounts represent the Company's share of the estimated annual
benefits payable by the INVESCO Funds upon the directors' retirement, calculated
using the current method of allocating director compensation among the INVESCO
Funds. These estimated benefits assume retirement at age 72 and that the basic
retainer payable to the directors will be adjusted periodically for inflation,
for increases in the number of funds in the INVESCO Funds, and for other reasons
during the period in which retirement benefits are accrued on behalf of the
respective directors. This results in lower estimated benefits for directors who
are closer to retirement and higher estimated benefits for directors who are
further from retirement. With the exception of Drs. Soll and Gramm, each of
these directors has served as a director of one or more of the funds in the
<PAGE>
INVESCO Funds for the minimum five-year period required to be eligible to
participate in the Defined Benefit Deferred Compensation Plan. Although Mr.
McIntyre became eligible to participate in the Defined Benefit Deferred
Compensation Plan as of November 1, 1998, he will not be included in the
calculation of retirement benefits until November 1, 1999.
(4) Mr. Chabris retired as a director of the Company on September 30, 1998.
(5) Totals as a percentage of the Company's net assets as of May 31, 1999.
(6) Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1998.
Messrs. Brady and Williamson, as "interested persons" of the Company and the
other INVESCO Funds, receive compensation as officers or employees of INVESCO or
its affiliated companies, and do not receive any director's fees or other
compensation from the Company or the other funds in the INVESCO Funds for their
service as directors.
The boards of directors of the mutual funds in the INVESCO Funds have
adopted a Defined Benefit Deferred Compensation Plan (the "Plan") for the
Independent Directors of the funds. Under this Plan, each director who is not an
interested person of the funds (as defined in Section 2(a)(19) of the 1940 Act)
and who has served for at least five years (a "Qualified Director") is entitled
to receive, upon termination of service as a director (normally, at the
retirement age of 72 or the retirement age of 73 or 74, if the retirement date
is extended by the boards for one or two years, but less than three years),
continuation of payment for one year (the "First Year Retirement Benefit") of
the annual basic retainer and annualized board meeting fees payable by the funds
to the Qualified Director at the time of his/her retirement (the "Basic
Benefit"). Commencing with any such director's second year of retirement, and
commencing with the first year of retirement of any director whose retirement
has been extended by the board for three years, a Qualified Director shall
receive quarterly payments at an annual rate equal to 50% of the Basic Benefit.
These payments will continue for the remainder of the Qualified Director's life
or ten years, whichever is longer (the "Reduced Benefit Payments"). If a
Qualified Director dies or becomes disabled after age 72 and before age 74 while
still a director of the funds, the First Year Retirement Benefit and Reduced
Benefit Payments will be made to him/her or to his/her beneficiary or estate. If
a Qualified Director becomes disabled or dies either prior to age 72 or during
his/her 74th year while still a director of the funds, the director will not be
entitled to receive the First Year Retirement Benefit; however, the Reduced
Benefit Payments will be made to his/her beneficiary or estate. The Plan is
administered by a committee of three directors who are also participants in the
Plan and one director who is not a Plan participant. The cost of the Plan will
be allocated among the INVESCO Funds in a manner determined to be fair and
equitable by the committee. The Company began making payments under the Plan to
Mr. Chabris as of October 1, 1998. The Company has no stock options or other
pension or retirement plans for management or other personnel and pays no salary
or compensation to any of its officers.
<PAGE>
The Independent Directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of certain of the INVESCO
Funds. Deferred amounts have been invested in the shares of certain INVESCO
Funds, except Funds offered by INVESCO Variable Investment Funds, Inc., in which
the directors are legally precluded from investing . Each Independent Director
may, therefore, be deemed to have an indirect interest in shares of each such
INVESCO Fund, in addition to any INVESCO Fund shares the Independent Director
may own either directly or beneficially.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of June 30, 1999, the following persons owned more than 5% of the
outstanding shares of the Funds indicated below. This level of share ownership
is considered to be a "principal shareholder" relationship with a Fund under the
1940 Act. Shares that are owned "of record" are held in the name of the person
indicated. Shares that are owned "beneficially" are held in another name, but
the owner has the full economic benefit of ownership of those shares:
Equity Income Fund
- ----------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
============================================================================
Charles Schwab & Co. Inc. Record 13.32%
Special Custody Acct For The
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
- ----------------------------------------------------------------------------
Balanced Fund
- -----------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
============================================================================
Charles Schwab & Co. Inc. Record 31.19%
Special Custody Acct For The
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
- ----------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
============================================================================
Saxon & Co Tr Record 5.94%
91 Vested Interest Omnib Asset
A/C #20-01-302-9912426
PO Box 7780-1888
Philadelphia, PA 19182-0001
- ----------------------------------------------------------------------------
Total Return Fund
- ----------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
============================================================================
Charles Schwab & Co Inc. Record 19.66%
Special Custody Acct For The
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
- ----------------------------------------------------------------------------
Connecticut General Life Ins Record 12.15%
c/o Liz Pezda M-110
PO Box 2975 H 19 B
Hartford, CT 0610492975
- ----------------------------------------------------------------------------
Bankers Trust Company Record 7.02%
Siemens Savings Plan
100 Plaza One Ste M53048
Jersey City, NJ 07311-3999
- ----------------------------------------------------------------------------
FIIOC Agent Record 5.38%
Employee Benefit Plans
100 Magellan May KW1C
Covington KY 41015-1987
- ----------------------------------------------------------------------------
As of July 14, 1999, officers and directors of the Company, as a group,
beneficially owned less than 1% of any Fund's outstanding shares.
<PAGE>
DISTRIBUTOR
INVESCO Distributors, Inc. ("IDI"), a wholly-owned subsidiary of INVESCO,
is the distributor of the Funds. IDI receives no compensation and bears all
expenses, including the cost of printing and distributing prospectuses, incident
to marketing of the Funds' shares, except for such distribution expenses as are
paid out of Fund assets under the Company's plan of distribution which has been
adopted by each Fund pursuant to Rule 12b-1 under the 1940 Act.
The Company has adopted a Plan and Agreement of Distribution (the "Plan")
which provides that each Fund will make monthly payments to IDI computed at an
annual rate no greater than 0.25% of a Fund's average net assets. These payments
permit IDI, at its discretion, to engage in certain activities and provide
services in connection with the distribution of a Fundshares to investors.
Payments by a Fund under the Plan, for any month, may be made to compensate IDI
for permissible activities engaged in and services provided during the rolling
12-month period in which that month falls.
A significant expenditure under the Plan is compensation paid to securities
companies and other financial institutions and organizations, which may include
INVESCO-affiliated companies, in order to obtain various distribution-related
and/or administrative services for the Funds. Each Fund is authorized by the
Plan to use its assets to finance the payments made to obtain those services.
Payments will be made by IDI to broker-dealers who sell shares of a Fund and may
be made to banks, savings and loan associations and other depository
institutions. Although the Glass-Steagall Act limits the ability of certain
banks to act as underwriters of mutual fund shares, INVESCO does not believe
that these limitations would affect the ability of such banks to enter into
arrangements with IDI, but can give no assurance in this regard. However, to the
extent it is determined otherwise in the future, arrangements with banks might
have to be modified or terminated, and, in that case, the size of the Funds
possibly could decrease to the extent that the banks would no longer invest
customer assets in the Funds. Neither the Company nor its investment adviser
will give any preference to banks or other depository institutions which enter
into such arrangements when selecting investments to be made by a Fund.
During the period ended May 31, 1999, the Funds made payments to IDI under
the Plan in the amounts of $11,115,878, $516,187 and $1,542,554 for Equity
Income, Balanced and Total Return Funds, respectively. In addition, as of May
31, 1999, $984,605, $64,787, and $309,780 of additional distribution accruals
had been incurred for Equity Income, Balanced and Total Return Funds,
respectively, and will be paid during the fiscal year ended May 31, 2000. For
the period ended May 31, 1999, and in the full fiscal year preceding that period
<PAGE>
for each Fund, allocation of 12b-1 amounts paid by the Funds for the following
categories of expenses were:
Equity Income Fund
Period Ended Year Ended
May 31, 1999 June 30, 1998
Advertising $3,788,682.10 $3,264,533
Sales literature, printing,
and postage 698,772.77 786,905
Direct Mail 553,991.91 1,058,990
Public Relations/Promotion 600,268.54 287,465
Compensation to securites dealers
and other organizations 4,150,563.39 5,381,075
Marketing personnel 1,323,599.04 1,383,127
Balanced Fund
Advertising $ 156,986.70 $ 146,478
Sales literature, printing,
and postage 60,173.65 80,184
Direct Mail 13,073.88 22,071
Public Relations/Promotion 22,362.96 20,601
Compensation to securities dealers
and other organizations 190,918.35 123,899
Marketing personnel 72,671.17 58,574
Total Return Fund
Advertising $ 288,036.05 $ 3,231
Sales literature, printing,
and postage 112,513.09 6,483
Direct Mail 31,454.91 1,079
Public Relations/Promotion 45,730.08 12,038
Compensation to securities dealers
and other organizations 912,141.02 0
Marketing personnel 152,678.92 23,899
The services which are provided by securities dealers and other
organizations may vary by dealer but include, among other things, processing new
shareholder account applications, preparing and transmitting to the Company's
Transfer Agent computer-processable tapes of all Fund transactions by customers,
serving as the primary source of information to customers in answering questions
concerning the Funds, and assisting in other customer transactions with the
Funds.
The Plan provides that it shall continue in effect with respect to each
Fund as long as such continuance is approved at least annually by the vote of
the board of directors of the Company cast in person at a meeting called for the
purpose of voting on such continuance, including the vote of a majority of the
Independent Directors. The Plan can also be terminated at any time by a Fund,
without penalty, if a majority of the Independent Directors, or shareholders of
<PAGE>
the Fund, vote to terminate the Plan. The Company may, in its absolute
discretion, suspend, discontinue or limit the offering of its shares at any
time. In determining whether any such action should be taken, the board of
directors intends to consider all relevant factors including, without
limitation, the size of a Fund, the investment climate for a Fund, general
market conditions, and the volume of sales and redemptions of a Fund's shares.
The Plan may continue in effect and payments may be made under the Plan
following any temporary suspension or limitation of the offering of Fund shares;
however, the Company is not contractually obligated to continue the Plan for any
particular period of time. Suspension of the offering of a Fundshares would not,
of course, affect a shareholder's ability to redeem his or her shares.
So long as the Plan is in effect, the selection and nomination of persons
to serve as independent directors of the Company shall be committed to the
Independent Directors then in office at the time of such selection or
nomination. The Plan may not be amended to increase the amount of a Fundpayments
under the Plan without approval of the shareholders of that Fund, and all
material amendments to the Plan must be approved by the board of directors of
the Company, including a majority of the Independent Directors. Under the
agreement implementing the Plan, IDI or a Fund, the latter by vote of a majority
of the Independent Directors, or the holders of a majority of the Fund's
outstanding voting securities, may terminate such agreement without penalty upon
30 days' written notice to the other party. No further payments will be made by
a Fund under the Plan in the event of its termination.
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it shall remain in effect as such, so
as to authorize the use of Fund assets in the amounts and for the purposes set
forth therein, notwithstanding the occurrence of an assignment, as defined by
the 1940 Act, and rules thereunder. To the extent it constitutes an agreement
pursuant to a plan, a Fund's obligation to make payments to IDI shall terminate
automatically, in the event of such "assignment." In this event, a Fund may
continue to make payments pursuant to the Plan only upon the approval of new
arrangements regarding the use of the amounts authorized to be paid by a Fund
under the Plan. Such new arrangements must be approved by the directors,
including a majority of the Independent Directors, by a vote cast in person at a
meeting called for such purpose. These new arrangements might or might not be
with IDI. On a quarterly basis, the directors review information about the
distribution services that have been provided to each Fund and the 12b-1 fees
paid for such services. On an annual basis, the directors consider whether the
Plan should be continued and, if so, whether any amendment to the Plan,
including changes in the amount of 12b-1 fees paid by each Fund, should be made.
The only Company directors and interested persons, as that term is defined
in Section 2(a)(19) of the 1940 Act, who have a direct or indirect financial
interest in the operation of the Plan are the officers and directors of the
Company who are also officers either of IDI or other companies affiliated with
IDI. The benefits which the Company believes will be reasonably likely to flow
to a Fund and its shareholders under the Plan include the following:
o Enhanced marketing efforts, if successful, should result in an increase
in net assets through the sale of additional shares and afford greater
resources with which to pursue the investment objectives of the Funds;
<PAGE>
o The sale of additional shares reduces the likelihood that redemption of
shares will require the liquidation of securities of the Funds in
amounts and at times that are disadvantageous for investment purposes;
and
o Increased Fund assets may result in reducing each investor's share of
certain expenses through economies of scale (e.g. exceeding
established breakpoints in an advisory fee schedand allocating fixed
expenses over a larger asset base), thereby partially offsetting the
costs of the plan.
The positive effect which increased Fund assets will have on INVESCO's
revenues could allow INVESCO and its affiliated companies:
o To have greater resources to make the financial commitments necessary to
improve the quality and level of the Funds'shareholder services (in both
systems and personnel);
o To increase the number and type of mutual funds available to investors
from INVESCO and its affiliated companies (and support them in their
infancy), and thereby expand the investment choices available to all
shareholders; and
o To acquire and retain talented employees who desire to be associated with
a growing organization.
OTHER SERVICE PROVIDERS
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 950 Seventeenth Street, Denver, Colorado, are
the independent accountants of the Company. The independent accountants are
responsible for auditing the financial statements of the Funds.
CUSTODIAN
Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts, is the
custodian of the cash and investment securities of the Company. The custodian is
also responsible for, among other things, receipt and delivery of each Fund's
investment securities in accordance with procedures and conditions specified in
the custody agreement with the Company. The custodian is authorized to establish
separate accounts in foreign countries and to cause foreign securities owned by
the Funds to be held outside the United States in branches of U.S. banks and, to
the extent permitted by applicable regulations, in certain foreign banks and
securities depositories.
TRANSFER AGENT
INVESCO Funds Group, Inc., 7800 E. Union Avenue, Denver, Colorado is the
Companytransfer agent, registrar, and dividend disbursing agent. Services
provided by INVESCO include the issuance, cancellation and transfer of shares of
the Funds, and the maintenance of records regarding the ownership of such
shares.
<PAGE>
LEGAL COUNSEL
The firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
2nd Floor, Washington, D.C., is legal counsel for the Company. The firm of Moye,
Giles, O'Keefe, Vermeire & Gorrell LLP, 1225 17th Street, Suite 2900, Denver,
Colorado, acts as special counsel to the Company.
BROKERAGE ALLOCATION AND OTHER PRACTICES
As the investment adviser to the Funds, INVESCO places orders for the
purchase and sale of securities with broker-dealers based upon an evaluation of
the financial responsibility of the brokers and dealers and the ability of the
broker-dealers to effect transactions at the best available prices.
While INVESCO seeks reasonably competitive commission rates, the Funds do
not necessarily pay the lowest commission or spread available. INVESCO is
permitted to, and does, consider qualitative factors in addition to price in the
selection of brokers. Among other things, INVESCO considers the quality of
executions obtained on a Fund's portfolio transactions, viewed in terms of the
size of transactions, prevailing market conditions in the security purchased or
sold, and general economic and market conditions. INVESCO has found that a
brokerconsistent ability to execute transactions is at least as important as the
price the broker charges for those services.
In seeking to ensure that the commissions charged a Fund are consistent
with prevailing and reasonable commissions, INVESCO monitors brokerage industry
practices and commissions charged by broker-dealers on transactions effected for
other institutional investors like the Funds.
Consistent with the standard of seeking to obtain the best qualitative
execution on portfolio transactions, INVESCO may select brokers that provide
research services to INVESCO and the Company, as well as other INVESCO mutual
funds and other accounts managed by INVESCO. Research services include
statistical and analytical reports relating to issuers, industries, securities
and economic factors and trends, which may be of assistance or value to INVESCO
in making informed investment decisions. Research services prepared and
furnished by brokers through which a Fund effects securities transactions may be
used by INVESCO in servicing all of its accounts and not all such services may
be used by INVESCO in connection with a particular Fund. Conversely, a Fund
receives benefits of research acquired through the brokerage transactions of
other clients of INVESCO.
In order to obtain reliable trade execution and research services, INVESCO
may utilize brokers that charge higher commissions than other brokers would
charge for the same transaction. This practice is known as "paying up." However,
even when paying up, INVESCO is obligated to obtain best qualitative execution
of a Fundtransactions.
Portfolio transactions also may be effected through brokers and dealers
that recommend the Funds to their clients, or that act as agent in the purchase
<PAGE>
of a Fund's shares for their clients. When a number of brokers and dealers
can provide comparable best price and execution on a particular transaction,
INVESCO may consider the sale of a Fund's shares by a broker or dealer in
selecting among qualified broker-dealers.
The aggregate dollar amount of brokerage commissions paid by each Fund for
the periods outlined in the table below were:
Equity Income Fund
Period Ended May 31, 1999(b) $5,889,896
Year Ended June 30, 1999 $6,092,269
Year Ended June 30, 1998 $4,594,928
Year Ended June 30, 1997 $_________
Balanced Fund
Period Ended May 31, 1999(a) $1,103,175
Year Ended July 31, 1998 $1,318,035
Year Ended July 31, 1997 $ 932,705
Year Ended July 31, 1996 $_________
Total Return Fund
Period Ended May 31, 1999(c) $ 0
Year Ended August 31, 1999 $ 330,263
Year Ended August 31, 1998 $ 484,776
Year Ended August 31, 1997 $_________
(a) For the period August 1, 1998 through May 31, 1999.
(b) For the period July 1, 1998 through May 31, 1999.
(c) For the period September 1, 1998 through May 31, 1999.
For the period ended May 31, 1999, brokers providing research services
received $2,888,481 in commissions on portfolio transactions effected for the
Funds. The aggregate dollar amount of such portfolio transactions was
$2,481,143,858. Commissions totaling $0 were allocated to certain brokers in
recognition of their sales of shares of the Funds on portfolio transactions of
the Funds effected during the period ended May 31, 1999.
<PAGE>
May 31, 1999, each Fund held debt securities of its regular brokers or dealers,
or their parents, as follows:
- -------------------------------------------------------------------------------
Fund Broker or Dealer Value Of Securities
at May 31, 1999
===============================================================================
Equity Income State Street Bank & Trust $ 6,616,000.00
- -------------------------------------------------------------------------------
Sears Roebuck $ 40,000,000.00
Acceptance
- ------------------------------------------------------------------------------
Associates Corp of North $ 40,000,000.00
America
- -------------------------------------------------------------------------------
General Electric Services $166,940,625.00
- -------------------------------------------------------------------------------
American Express Credit $ 40,000,000.00
- -------------------------------------------------------------------------------
Hertz Corp $ 34,734,000.00
- -------------------------------------------------------------------------------
Morgan (JP) and Co $ 83,587,500.00
- -------------------------------------------------------------------------------
Balanced State Street Bank and $ 1,398,000.00
Trust
- -------------------------------------------------------------------------------
Associates Corp of North $ 17,068,872.00
America
- -------------------------------------------------------------------------------
General Electric $ 4,474,250.00
- -------------------------------------------------------------------------------
Morgan (JP) and Company $ 5,795,400.00
- -------------------------------------------------------------------------------
Total Return State Street Bank and $ 49,437,000.00
Trust
- -------------------------------------------------------------------------------
Associates Corp of North $ 19,423,019.40
America
- -------------------------------------------------------------------------------
General Electric $ 30,506,250.00
- -------------------------------------------------------------------------------
Morgan Stanley Dean $ 38,600,000.00
Witter
- -------------------------------------------------------------------------------
Neither INVESCO nor any affiliate of INVESCO receives any brokerage
commissions on portfolio transactions effected on behalf of the Funds, and there
is no affiliation between INVESCO or any person affiliated with INVESCO or the
Funds and any broker or dealer that executes transactions for the Funds.
<PAGE>
CAPITAL STOCK
The Company is authorized to issue up to one billion six hundred million
shares of common stock with a par value of $0.01 per share. As of June 30, 1999,
the following shares of each Fund were outstanding:
Equity Income Fund 303,657,199
Balanced Fund 20,952,086
Total Return Fund 104,472,069
All shares of each Fund are of one class with equal rights as to voting,
dividends and liquidation. All shares issued and outstanding are, and all shares
offered hereby, when issued, will be, fully paid and nonassessable. The board of
directors has the authority to designate additional classes of common stock
without seeking the approval of shareholders and may classify and reclassify any
authorized but unissued shares.
Shares have no preemptive rights and are freely transferable on the books
of each Fund.
All shares of the Company have equal voting rights based on one vote for
each share owned. The Company is not generally required and does not expect to
hold regular annual meetings of shareholders. However, when requested to do so
in writing by the holders of 10% or more of the outstanding shares of the
Company or as may be required by applicable law or the Company's Articles of
Incorporation, the board of directors will call special meetings of
shareholders.
Directors may be removed by action of the holders of a majority of the
outstanding shares of the Company. The Funds will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
Fund shares have noncumulative voting rights, which means that the holders
of a majority of the shares of the Company voting for the election of directors
of the Company can elect 100% of the directors if they choose to do so. If that
occurs, the holders of the remaining shares voting for the election of directors
will not be able to elect any person or persons to the board of directors.
Directors may be removed by action of the holders of a majority of the
outstanding shares of the Company.
TAX CONSEQUENCES OF OWNING SHARES OF A FUND
Each Fund intends to continue to conduct its business and satisfy the
applicable diversification of assets, distribution and source of income
requirements to qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended. Each Fund qualified as a
regulated investment company and intends to continue to qualify during its
current fiscal year. 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
Funds' qualification as regulated investment companies, it is anticipated that
none of the Funds will pay federal income or excise taxes and that all of the
Funds will be accorded conduit or "pass through" treatment for federal income
<PAGE>
tax purposes. Therefore, any taxes that a Fund would ordinarily owe are paid by
its shareholders on a pro-rata basis. If a Fund does not distribute all of its
net investment income or net capital gains, it will be subject to income and
excise tax on the amount that is not distributed. If a Fund does not qualify as
a regulated investment company, it will be subject to corporate tax on its net
investment income and net capital gains at the corporate tax rates.
Dividends paid by a Fund from net investment income as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are taxable for federal income tax
purposes as ordinary income to shareholders. After the end of each calendar
year, the Funds send shareholders information regarding the amount and character
of dividends paid in the year, including the dividends eligible for the
dividends-received-deduction for corporations. Dividends eligible for the
dividends-received-deduction will be limited to the aggregate amount of
qualifying dividends that a Fund derives from its portfolio investments.
A Fund realizes a capital gain or loss when it sells a portfolio security
for more or less than it paid for that security. Capital gains and losses are
divided into short-term and long-term, depending on how long the Fund held the
security which gave rise to the gain or loss. If the security was held one year
or less the gain or loss is considered short-term, while holding a security for
more than one year will generate a long-term gain or loss. A capital gain
distribution consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest as ordinary income and are paid to shareholders as dividends, as
discussed above. If total long-term gains on sales exceed total short-term
losses, including any losses carried forward from previous years, a Fund will
have a net capital gain. Distributions by a Fund of net capital gain are, for
federal income tax purposes, taxable to the shareholder as a long-term capital
gain regardless of how long a shareholder has held shares of the particular
Fund. Such distributions are not eligible for the dividends-received-deduction.
After the end of each calendar year, the Funds send information to shareholders
regarding the amount and character of distributions paid during the year.
All dividends and other distributions are taxable income to the
shareholder, whether or not such dividends and distributions are reinvested in
additional shares or paid in cash. If the net asset value of a Fund's shares
should be reduced below a shareholder's cost as a result of a distribution, such
distribution would be taxable to the shareholder although a portion would be a
return of invested capital. The net asset value of shares of a Fund reflects
accrued net investment income and undistributed realized capital and foreign
currency gains; therefore, when a distribution is made, the net asset value is
reduced by the amount of the distribution. If shares of a Fund are purchased
shortly before a distribution, the full price for the shares will be paid and
some portion of the price may then be returned to the shareholder as a taxable
dividend or capital gain. However, the net asset value per share will be reduced
by the amount of the distribution, which would reduce any gain (or increase any
loss) for tax purposes on any subsequent redemption of shares.
If it invests in foreign securities, a Fund may be subject to the
withholding of foreign taxes on dividends or interest it receives on foreign
securities. Foreign taxes withheld will be treated as an expense of the Fund
unless the Fund meets the qualifications and makes the election to enable it to
pass these taxes through to shareholders for use by them as a foreign tax credit
or deduction. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.
<PAGE>
A Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average value of at least 50% of its assets produce, or are held for the
production of, passive income. Each Fund intends to "mark-to-market" its stock
in any PFIC. In this context, "marking-to-market" means including in ordinary
income for each taxable year the excess, if any, of the fair market value of the
PFIC stock over the Fundadjusted basis in the PFIC stock as of the end of the
year. In certain circumstances, a Fund will also be allowed to deduct from
ordinary income the excess, if any, of its adjusted basis in PFIC stock over the
fair market value of the PFIC stock as of the end of the year. The deduction
will only be allowed to the extent of any PFIC mark-to-market gains recognized
as ordinary income in prior years. A Fundadjusted tax basis in each PFIC stock
for which it makes this election will be adjusted to reflect the amount of
income included or deduction taken under the election.
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currencies that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders.
INVESCO may provide Fund shareholders with information concerning the
average cost basis of their shares in order to help them prepare their tax
returns. This information is intended as a convenience to shareholders, and will
not be reported to the Internal Revenue Service (the "IRS"). The IRS permits the
use of several methods to determine the cost basis of mutual fund shares. The
cost basis information provided by INVESCO will be computed using the
single-category average cost method, although neither INVESCO nor the Funds
recommend any particular method of determining cost basis. Other methods may
result in different tax consequences. If you have reported gains or losses for a
Fund in past years, you must continue to use the method previously used, unless
you apply to the IRS for permission to change methods.
If you sell Fund shares at a loss after holding them for six months or
less, your loss will be treated as long-term (instead of short-term) capital
loss to the extent of any capital gain distributions that you may have received
on those shares.
Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and its net capital gains for the one-year period
ending on October 31 of that year, plus certain other amounts.
You should consult your own tax adviser regarding specific questions as to
federal, state and local taxes. Dividends and capital gain distributions will
generally be subject to applicable state and local taxes. Qualification as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, for income tax purposes does not entail government supervision of
management or investment policies.
<PAGE>
PERFORMANCE
To keep shareholders and potential investors informed, INVESCO will
occasionally advertise the Funds' total return for one-, five-, and ten-year
periods (or since inception). Total return figures show the rate of return on a
$10,000 investment in a Fund, assuming reinvestment of all dividends and capital
gain distributions for the periods cited.
Cumulative total return shows the actual rate of return on an investment
for the period cited; average annual total return represents the average annual
percentage change in the value of an investment. Both cumulative and average
annual total returns tend to "smooth out" fluctuations in a Fund's investment
results, because they do not show the interim variations in performance over the
periods cited. More information about the Funds' recent and historical
performance is contained in the CompanyAnnual Report to Shareholders. You can
get a free copy by calling or writing to INVESCO using the phone number or
address on the back cover of the Funds' prospectus.
When we quote mutual fund rankings published by Lipper Inc., we may compare
a Fund to others in its appropriate Lipper category, as well as the broad-based
Lipper general fund groupings. These rankings allow you to compare a Fund to its
peers. Other independent financial media also produce performance- or
service-related comparisons, which you may see in our promotional materials.
Performance figures are based on historical earnings and are not intended
to suggest future performance.
Average annual total return performance for the one-, five-, and ten-year
periods (or since inception) ended May 31, 1999 was:
Name of Fund 1 Year 5 Year 10 Year
Equity Income Fund 10.31%(a) 17.36% 15.74%
Balanced Fund 13.12%(b) 20.08% 18.66%(c)
Total Return Fund 20.27%(d) 17.22% 13.88%
(a) For the period July 1, 1998 through May 31, 1999.
(b) For the period August 1, 1998 through May 31, 1999.
(c) Inception date of December 1, 1993.
(d) For the period September 1, 1998 through May 31, 1999.
Average annual total return performance for each of the periods indicated
was computed by finding the average annual compounded rates of return that would
<PAGE>
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $10,000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown above were
determined by solving the above formula for "T" for each time period indicated.
In conjunction with performance reports, comparative data between a Fund's
performance for a given period and other types of investment vehicles, including
certificates of deposit, may be provided to prospective investors and
shareholders.
In conjunction with performance reports and/or analyses of shareholder
services for a Fund, comparative data between that Fund's performance for a
given period and recognized indices of investment results for the same period,
and/or assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company,
Standard & Poor's, Lipper, Inc., Lehman Brothers, National Association of
Securities Dealers Automated Quotations, Frank Russell Company, Value Line
Investment Survey, the American Stock Exchange, Morgan Stanley Capital
International, Wilshire Associates, the Financial Times Stock Exchange, the New
York Stock Exchange, the Nikkei Stock Average and Deutcher Aktienindex, all of
which are unmanaged market indicators. In addition, rankings, ratings, and
comparisons of investment performance and/or assessments of the quality of
shareholder service made by independent sources may be used in advertisements,
sales literature or shareholder reports, including reprints of, or selections
from, editorials or articles about the Fund. These sources utilize information
compiled (i) internally; (ii) by Lipper Inc.; or (iii) by other recognized
analytical services. The Lipper Inc. mutual fund rankings and comparisons which
may be used by the Fund in performance reports will be drawn from the mutual
fund groupings, in addition to the broad-based Lipper general fund groupings:
Equity Income Fund Equity Income Funds
Balanced Fund Balanced Funds
Total Return Fund Flexible Portfolio Funds
Sources for Fund performance information and articles about the Funds
include, but are not limited to, the following:
AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS' JOURNAL
BANXQUOTE
BARRON'S
BUSINESS WEEK
CDA INVESTMENT TECHNOLOGIES
CNBC
<PAGE>
CNN
CONSUMER DIGEST
FINANCIAL TIMES
FINANCIAL WORLD
FORBES
FORTUNE
IBBOTSON ASSOCIATES, INC.
INSTITUTIONAL INVESTOR
INVESTMENT COMPANY DATA, INC.
INVESTOR'S BUSINESS DAILY
KIPLINGER'S PERSONAL FINANCE
LIPPER INC.'S MUTUAL FUND PERFORMANCE ANALYSIS
MONEY
MORNINGSTAR
MUTUAL FUND FORECASTER
NO-LOAD ANALYST
NO-LOAD FUND X
PERSONAL INVESTOR
SMART MONEY
THE NEW YORK TIMES
THE NO-LOAD FUND INVESTOR
U.S. NEWS AND WORLD REPORT
UNITED MUTUAL FUND SELECTOR
USA TODAY
THE WALL STREET JOURNAL
WIESENBERGER INVESTMENT COMPANIES SERVICES
WORKING WOMAN
WORTH
FINANCIAL STATEMENTS
The financial statements for the Company for the period ended May 31, 1999
are incorporated herein by reference from the Company Annual Report to
Shareholders dated May 31, 1999.
<PAGE>
APPENDIX A
BOND RATINGS
The following is a description of Moody's and S&P bond ratings:
Moody's Corporate Bond Ratings
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any longer period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
<PAGE>
S&P Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to default
and are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation filed April 2, 1993.(2)
(1) Articles of Amendment to Articles of Incorporation filed
September 10, 1998.(4)
(2) Articles of Amendment to Articles of Incorporation filed
May 24, 1999.(5)
(b) Bylaws.(2)
(c) Provisions of instruments defining the rights of holders of
Registrant's securities are contained in Articles II, IV, VI and
VIII of the Articles of Incorporation and Articles I, II, V, VI,
VII, VIII, IX and X of the Bylaws of the Registrant.
(d)(1) Investment Advisory Agreement between Registrant and
INVESCO Funds Group, Inc. dated February 28, 1997.(3)
(a) Amendment to Advisory Agreement dated June 30,
1998.(4)
(b) Form of Amendment dated May 13,1999 to Advisory
Agreement.
(2) Form of Sub-advisory Agreement between INVESCO Funds
Group, Inc. and INVESCO Capital Management, Inc. dated
May 28, 1999.
(e)(1) General Distribution Agreement dated February 28, 1997.(3)
(2) Distribution Agreement between Registrant and INVESCO
Distributors, Inc. dated September 30, 1997.(3)
(f)(1) Defined Benefit Deferred Compensation Plan for Non-
Interested Directors and Trustees.(3)
(2) Amended Defined Benefit Deferred Compensation Plan
for Non-Interested Directors and Trustees.
(g)Custody Agreement between Registrant and State Street Bank
and Trust Company dated July 1, 1993.(2)
(1) Amendment to Custody Agreement dated October 25, 1995.(2)
(2) Data Access Services Addendum.(3)
(3) Additional Fund Letter dated April 15, 1998.(3)
(h)(1) Transfer Agency Agreement dated February 28, 1997.(3)
(2) Administrative Services Agreement between the Fund
and INVESCO Funds Group, Inc. dated February 28, 1997.(3)
(a) Amendment dated May 13, 1999 to Administrative
Services Agreement.
(b) Amendment dated May 28, 1999 to Administrative
Services Agreement.
(i)(1)Opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they
will, when sold, be legally issued, fully paid and
non-assessable dated September 30, 1993.(3)
<PAGE>
(2)Opinon and Consent of Counsel with respect to INVESCO
Industrial Income Fund as to the legality of the
securities being registered dated May 28, 1999.(5)
(3)Opinion and Consent of Counsel with respect to
INVESCO Total Return Fund as to the legality of the
securities being registered dated May 28, 1999.(5)
(j) Consent of Independent Accountants.
(k) Not applicable.
(l) Not applicable.
(m)(1)Plan and Agreement of Distribution pursuant to Rule 12b-1
under the Investment Company Act of 1940 dated October 20,
1993.(2)
(2)Amended Plan and Agreement of Distribution pursuant
to Rule 12b-1 under the Investment Company Act of 1940
dated July 19, 1995.(3)
(3)Amended Plan and Agreement of Distribution pursuant
to Rule 12b-1 under the Investment Company Act of 1940
dated January 1, 1997.(3)
(4)Amended Plan and Agreement of Distribution pursuant
to Rule 12b-1 under the Investment Company Act of 1940
dated September 30, 1997.(3)
(n) Not Applicable.
(o) Not Applicable.
(1)Previously filed on EDGAR with Post-Effective Amendment No. 3 to the
Registration Statement on September 21, 1995, and incorporated by reference
herein.
(2)Previously filed on EDGAR with Post-Effective Amendment No. 4 to the
Registration Statement on November 27, 1996 and incorporated by reference
herein.
(3)Previously filed on EDGAR with Post-Effective Amendment No. 5 to the
Registration Statement on November 24, 1997, and incorporated by reference
herein.
(4)Previously filed on EDGAR with Post-Effective Amendment No. 6 to the
Registration Statement on September 29, 1998, and incorporated by reference
herein.
(5)Previously filed on EDGAR with Post-Effective Amendment No. 7 to the
Registration Statement on May 28, 1999, and incorporated by reference herein.
Item 24. Persons Controlled by or Under Common Control with the Fund
No person is presently controlled by or under common control with the Fund.
<PAGE>
Item 25. Indemnification
Indemnification provisions for officers, directors and employees of Registrant
are set forth in Article Seventh (2) of the Articles of Incorporation, and are
hereby incorporated by reference. See Item 24(a) above. Under these Articles,
directors and officers will be indemnified to the fullest extent permitted to
directors by the Maryland General Corporation Law, subject only to such
limitations as may be required by the Investment Company Act of 1940, as
amended, and the rules thereunder. Under the Investment Company Act of 1940,
Fund directors and officers cannot be protected against liability to the Fund or
its shareholders to which they would be subject because of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties of their office.
The Company also maintains liability insurance policies covering its directors
and officers.
Item 26. Business and Other Connections of Investment Adviser
See "Fund Management" in the Fund's Prospectus and "Management of the Funds" in
the Statement of Additional Information for information regarding the business
of the investment adviser, INVESCO.
Following are the names and principal occupations of each director and officer
of the investment adviser, INVESCO. Certain of these persons hold positions with
IDI, a subsidiary of INVESCO.
- --------------------------------------------------------------------------------
POSITION WITH PRINCIPAL OCCUPATION AND COMPANY
NAME ADVISER AFFILIATION
- --------------------------------------------------------------------------------
Mark H. Williamson Chairman, President & Chief Executive
Director and Officer
Officer INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Raymond Roy Cunningham Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
William J. Galvin, Jr. Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Ronald L. Grooms Officer Senior Vice President & Treasurer
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Richard W. Healey Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
William Ralph Keithler Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Charles P. Mayer Officer & Senior Vice President
Director INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Timothy J. Miller Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Donovan J. (Jerry) Paul Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Glen A. Payne Officer Senior Vice President, Secretary
& General Counsel
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
John R. Schroer, II Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Marie E. Aro Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Ingeborg S. Cosby Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Stacie Cowell Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Dawn Daggy-Mangerson Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Elroy E. Frye, Jr. Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Linda J. Gieger Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Mark D. Greenberg Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Brian B. Hayward Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Richard R. Hinderlie Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Thomas M. Hurley Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Patricia F. Johnston Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Campbell C. Judge Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Peter M. Lovell Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
James F. Lummanick Officer Vice President & Assistant
General Counsel
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Thomas A. Mantone, Jr. Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Trent E. May Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Corey M. McClintock Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Douglas J. McEldowney Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Frederick R. (Fritz) Meyer Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Stephen A. Moran Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Jeffrey G. Morris Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Laura M. Parsons Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Jon B. Pauley Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Pamela J. Piro Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Anthony R. Rogers Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Gary L. Rulh Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
James B. Sandidge Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
John S. Segner Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Terri B. Smith Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Tane T. Tyler Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Thomas R. Wald Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Alan I. Watson Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Judy P. Wiese Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Thomas H. Scanlan Officer Regional Vice President
INVESCO Funds Group, Inc.
12028 Edgepark Court
Potomac, MD 20854
- --------------------------------------------------------------------------------
Reagan A. Shopp Officer Regional Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Michael D. Legoski Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Donald R. Paddack Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Kent T. Schmeckpeper Officer Assistant Vice President
Account Relationship Manager
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Jeraldine E. Kraus Officer Assistant Secretary
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Item 27. (a) Principal Underwriters
INVESCO Bond Funds, Inc.
INVESCO Combination Stock & Bond Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Specialty Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Tax-Free Income Funds, Inc.
INVESCO Treasurer's Series Funds, Inc.
INVESCO Variable Investment Funds, Inc.
(b)
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter the Company
- ------------------ ------------ -------------
William J. Galvin, Jr. Senior Vice Asst. Secretary
7800 E. Union Avenue President &
Denver, CO 80237 Asst. Secretary
Ronald L. Grooms Senior Vice Treasurer,
7800 E. Union Avenue President, Chief Fin'l
Denver, CO 80237 Treasurer, & Officer, and
Director Chief Acctg.
Off.
Richard W. Healey Senior Vice
7800 E. Union Avenue President &
Denver, CO 80237 Director
<PAGE>
Charles P. Mayer Director
7800 E. Union Avenue
Denver, CO 80237
Timothy J. Miller Director
7800 E. Union Avenue
Denver, CO 80237
Glen A. Payne Senior Vice Secretary
7800 E. Union Avenue President,
Denver, CO 80237 Secretary &
General Counsel
Judy P. Wiese Vice President
7800 E. Union Avenue Asst. Treasurer Asst. Secretary
Denver, CO 80237
Mark H. Williamson Chairman of the Board, President,
7800 E. Union Avenue President, & Chief CEO & Director
Denver, CO 80237 Executive Officer
(c) not applicable.
Item 28. Location of Accounts and Records
--------------------------------
Mark H. Williamson
7800 E. Union Avenue
Denver, CO 80237
Item 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
Not applicable
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Fund has duly caused this post-effective amendment to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Denver, County of Denver, and State of Colorado, on the 30th day of
July, 1999.
Attest: INVESCO Combination Stock &
Bond Funds, Inc.
/s/ Glen A. Payne /s/ Mark H. Williamson
- ------------------------------- ----------------------------------
Glen A. Payne, Secretary Mark H. Williamson, President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the date indicated.
/s/ Mark H. Williamson /s/ Lawrence H. Budner
- ------------------------------- -----------------------------
Mark H. Williamson, President & Lawrence H. Budner, Director
Director (Chief Executive Officer)
/s/ Ronald L. Grooms /s/ John W. McIntyre
- ------------------------------- -----------------------------
Ronald L. Grooms, Treasurer John W. McIntyre, Director
(Chief Financial and Accounting
Officer)
/s/ Victor L. Andrews /s/ Fred A. Deering
- ------------------------------- -----------------------------
Victor L. Andrews, Director Fred A. Deering, Director
/s/ Bob R. Baker /s/ Larry Soll
- ------------------------------- -----------------------------
Bob R. Baker, Director Larry Soll, Director
/s/ Charles W. Brady /s/ Kenneth T. King
- ------------------------------- -----------------------------
Charles W. Brady, Director Kenneth T. King, Director
/s/ Wendy L. Gramm
- -------------------------------
Wendy L. Gramm, Director
By*_____________________________ By* /s/ Glen A. Payne
-------------------------
Edward F. O'Keefe Glen A. Payne
Attorney in Fact Attorney in Fact
* Original Powers of Attorney authorizing Edward F. O'Keefe and Glen A. Payne,
and each of them, to execute this post-effective amendment to the Registration
Statement of the Registrant on behalf of the above-named directors and officers
of the Registrant have been filed with the Securities and Exchange Commission on
October 4, 1993, November 24, 1993, September 20, 1995, November 27, 1996 and
November 24, 1997, respectively.
<PAGE>
Exhibit Index
Page in
Exhibit Number Registration Statement
- -------------- ----------------------
d(1)(b) 95
d(2) 97
f(2) 103
h(2)(a) 109
h(2)(b) 111
j 113
Exhibit d(1)(b)
FORM
AMENDMENT TO INVESTMENT ADVISORY AGREEMENT
This is an Amendment to the Investment Advisory Agreement made and entered
into between INVESCO Funds Group, Inc., a Delaware corporation (the "Adviser"),
and INVESCO Multiple Asset Funds, Inc. a Maryland corporation (the "Fund") as of
the 28th day of February, 1997 (the "Agreement").
WHEREAS, effective as of September 10, 1998, the Fund has changed its name
to "INVESCO Flexible Funds, Inc.;" and
WHEREAS, effective as of October 29, 1998, the Fund has changed its name
to "INVESCO Combination Stock & Bond Funds, Inc.;" and
WHEREAS, the Fund and the Adviser are affiliated companies; and
WHEREAS, the Fund desires to add additional breakpoints to the existing
advisory fees that it pays to the Adviser for the management of the Fund's
separate portfolios of investments, the INVESCO Multi-Asset Allocation Fund and
the INVESCO Balanced Fund (each, a "Portfolio");
NOW, THEREFORE, the name of the Fund is "INVESCO Combination Stock &
Bond Funds, Inc.; and
In consideration of the premises and mutual covenants contained in the
Agreement, it is agreed that the first paragraph of the provisions in paragraph
4 of the Agreement entitled "Compensation of the Adviser" is hereby amended to
read as follows:
For the services to be rendered and the charges and expenses to be
assumed by the Adviser hereunder, the Fund shall pay to the Adviser an
advisory fee which will be computed on a daily basis and paid as of the
last day of each month, using for each daily calculation of the most
recently determined net asset value of each Portfolio of the Fund, as
determined by valuations made in accordance with the Fund's procedure for
calculating each Portfolio's net asset value as described in the Fund's
Prospectus and/or Statement of Additional Information. On an annual basis,
the advisory fees applicable to each Portfolio shall be as follows:
(a) INVESCO Balanced Fund: 0.60% of the first $350million
of the Portfolio's average net assets, 0.55% of the
next $350 million of the Portfolio's average net
assets, 0.50% of the Portfolio's average net
assets from $700 million, 0.45% of the Portfolio's
average net assets from $2 billion, 0.40% of the
Portfolio's average net assets from $4 billion,
0.375% of the Portfolio's average net assets from
$6 billion, and 0.35% of the Portfolio's average
net assets over $8 billion.
<PAGE>
(b) INVESCO Multi-Asset Allocation Fund: 0.75% of the
first $500 million of the Portfolio's average net
assets, 0.65% of the next $500 million of the Port-
folio's average net assets, 0.50% of the Portfolio's
average net assets from $1 billion, 0.45% of the
Portfolio's average net assets from $2 billion, 0.40%
of the Portfolio's average net assets from $4 billion,
0.375% of the Portfolio's average net assets from
$6 billion, and 0.35% of the Portfolio's average
net assets over $8 billion.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
the 13th day of May, 1999.
INVESCO FUNDS GROUP, INC.
By: --------------------------
Mark H. Williamson,
President
ATTEST:
- -------------------------------
Glen A. Payne,
Secretary
INVESCO COMBINATION STOCK AND BOND
FUNDS, INC.
By: -----------------------------
Ronald L. Grooms
Treasurer & Chief Financial &
Accounting Officer
ATTEST:
- -------------------------------
Glen A. Payne,
Secretary
Exhibit d(2)
FORM
SUB-ADVISORY AGREEMENT
AGREEMENT made this 28th day of May, 1998, by and between INVESCO Funds
Group, Inc. ("INVESCO"), a Delaware corporation, and INVESCO Capital Management,
Inc., a Delaware corporation ("the Sub-Adviser").
W I T N E S S E T H:
WHEREAS, INVESCO COMBINATION STOCK & BOND FUNDS, INC. (the "Company") is
engaged in business as a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (hereinafter
referred to as the "Investment Company Act") and has one class of shares (the
"Shares"), which is divided into series, each representing an interest in a
separate portfolio of investments, with one such series being designated the
INVESCO Total Return Fund (the "Fund"); and
WHEREAS, INVESCO and the Sub-Adviser are engaged in rendering investment
advisory services and are registered as investment advisers under the Investment
Advisers Act of 1940; and
WHEREAS, INVESCO has entered into an Investment Advisory Agreement with
the Company (the "INVESCO Investment Advisory Agreement"), pursuant to which
INVESCO is required to provide investment advisory services to the Company, and,
upon receipt of written approval of the Company, is authorized to retain
companies which are affiliated with INVESCO to provide such services; and
WHEREAS, the Sub-Adviser is willing to provide investment advisory
services to the Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, INVESCO and the Sub-Adviser hereby agree as follows:
ARTICLE I
DUTIES OF THE SUB-ADVISER
INVESCO hereby employs the Sub-Adviser to act as investment adviser to the
Company and to furnish the investment advisory services described below, subject
to the broad supervision of INVESCO and Board of Directors of the Company, for
the period and on the terms and conditions set forth in this Agreement. The
Sub-Adviser hereby accepts such assignment and agrees during such period, at its
own expense, to render such services and to assume the obligations herein set
forth for the compensation provided for herein. The Sub-Adviser shall for all
purposes herein be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized herein, shall have no authority to act for or
represent the Company in any way or otherwise be deemed an agent of the Company.
The Sub-Adviser hereby agrees to manage the investment operations of the
Fund, subject to the supervision of the Company's directors (the "Directors")
and INVESCO. Specifically, the Sub-Adviser agrees to perform the following
services:
(a) to manage the investment and reinvestment of all the assets, now or
hereafter acquired, of the Fund, and to execute all purchases and
sales of portfolio securities;
(b) to maintain a continuous investment program for the Fund, consistent
with (i) the Fund's investment policies as set forth in the
Company's Registration Statement, as from time to time amended,
<PAGE>
under the Investment Company Act of 1940, as amended (the "1940
Act"), and in any prospectus and/or statement of additional inform-
ation of the Fund,as from time to time amended and in use under the
Securities Act of 1933,as amended, and (ii) the Company's status as
a regulated investment company under the Internal Revenue Code
of 1986, as amended;
(c) to determine what securities are to be purchased or sold for the
Fund, unless otherwise directed by the Directors of the Company or
INVESCO, and to execute transactions accordingly;
(d) to provide to the Fund the benefit of all of the investment analysis
and research, the reviews of current economic conditions and trends,
and the consideration of long-range investment policy now or
hereafter generally available to investment advisory customers of
the Sub-Adviser;
(e) to determine what portion of the Fund should be invested in the
various types of securities authorized for purchase by the Fund; and
(f) to make recommendations as to the manner in which voting rights,
rights to consent to Fund action and any other rights pertaining to
the Fund's portfolio securities shall be exercised.
With respect to execution of transactions for the Fund, the Sub-Adviser is
authorized to employ such brokers or dealers as may, in the Sub-Adviser's best
judgment, implement the policy of the Fund to obtain prompt and reliable
execution at the most favorable price obtainable. In assigning an execution or
negotiating the commission to be paid therefor, the Sub-Adviser is authorized to
consider the full range and quality of a broker's services which benefit the
Fund, including but not limited to research and analytical capabilities,
reliability of performance, and financial soundness and responsibility. Research
services prepared and furnished by brokers through which the Sub-Adviser effects
securities transactions on behalf of the Fund may be used by the Sub-Adviser in
servicing all of its accounts, and not all such services may be used by the
Sub-Adviser in connection with the Fund. The Sub-Adviser may follow a policy of
considering sales of shares of the Fund as a factor in the selection of
broker/dealers to execute portfolio transactions, subject to the requirements of
best execution discussed above. In the selection of a broker or dealer for
execution of any negotiated transaction, the Sub-Adviser shall have no duty or
obligation to seek advance competitive bidding for the most favorable negotiated
commission rate for such transaction, or to select any broker solely on the
basis of its purported or "posted" commission rate for such transaction,
provided, however, that the Sub-Adviser shall consider such "posted" commission
rates, if any, together with any other information available at the time as to
the level of commissions known to be charged on comparable transactions by other
qualified brokerage firms, as well as all other relevant factors and
circumstances, including the size of any contemporaneous market in such
securities, the importance to the Fund of speed, efficiency, and confidentiality
of execution, the execution capabilities required by the circumstances of the
particular transactions, and the apparent knowledge or familiarity with sources
from or to whom such securities may be purchased or sold. Where the commission
rate reflects services, reliability and other relevant factors in addition to
the cost of execution, the Sub-Adviser shall have the burden of demonstrating
that such expenditures were bona fide and for the benefit of the Fund.
<PAGE>
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
The Sub-Adviser assumes and shall pay for maintaining the staff and
personnel necessary to perform its obligations under this Agreement, and shall,
at its own expense, provide the office space, equipment and facilities necessary
to perform its obligations under this Agreement. Except to the extent expressly
assumed by the Sub-Adviser herein and except to the extent required by law to be
paid by the Sub-Adviser, INVESCO and/or the Company shall pay all costs and
expenses in connection with the operations of the Fund.
ARTICLE III
COMPENSATION OF THE SUB-ADVISER
For the services rendered, facilities furnished, and expenses assumed by
the Sub-Adviser, INVESCO shall pay to the Sub-Adviser an annual fee, computed
daily and paid as of the last day of each month, using for each daily
calculation the most recently determined net asset value of the Fund, as
determined by a valuation made in accordance with the Fund's procedures for
calculating its net asset value as described in the Fund's Prospectus and/or
Statement of Additional Information. The advisory fee to the Sub-Adviser shall
be computed at the annual rate of 0.30% of the first $500 million of the Fund's
average net assets, 0.26% of the Fund's average net assets in excess of $500
million but not more than $1 billion, 0.20% of the Fund's average net assets in
excess of $1 billion but not more than $2 billion, 0.18% of the Fund=s average
net assets in excess of $2 billion but not more than $4 billion, 0.16% of the
Fund=s average net assets in excess of $4 billion but not more than $6 billion,
0.15% of the Fund=s average net assets in excess of $6 billion but not more than
$8 billion and 0.14% on the Fund=s average net assets in excess of $8 billion.
During any period when the determination of the Fund's net asset value is
suspended by the Directors of the Company, the net asset value of a share of the
Fund as of the last business day prior to such suspension shall, for the purpose
of this Article III, be deemed to be the net asset value at the close of each
succeeding business day until it is again determined. However, no such fee shall
be paid to the Sub-Adviser with respect to any assets of the Fund which may be
invested in any other investment company for which the Sub-Adviser serves as
investment adviser or sub-adviser. The fee provided for hereunder shall be
prorated in any month in which this Agreement is not in effect for the entire
month. The Sub-Adviser shall be entitled to receive fees hereunder only for such
periods as the INVESCO Investment Advisory Agreement remains in effect.
ARTICLE IV
LIMITATION OF LIABILITY OF SUB-ADVISER
The Sub-Adviser shall not be liable for any error of judgment, mistake of
law or for any loss arising out of any investment or for any act or omission in
the performance of sub-advisory services rendered with respect to the Company or
the Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties hereunder. As used in this Article IV, "Sub-Adviser" shall include
any affiliates of the Sub-Adviser performing services contemplated hereby and
directors, officers and employees of the Sub-Adviser and such affiliates.
<PAGE>
ARTICLE V
ACTIVITIES OF THE SUB-ADVISER
The services of the Sub-Adviser to the Fund are not to be deemed to be
exclusive, the Sub-Adviser and any person controlled by or under common control
with the Sub-Adviser (for purposes of this Article V referred to as
"affiliates") being free to render services to others. It is understood that
directors, officers, employees and shareholders of the Company are or may become
interested in the Sub-Adviser and its affiliates, as directors, officers,
employees and shareholders or otherwise and that directors, officers, employees
and shareholders of the Sub-Adviser, INVESCO and their affiliates are or may
become interested in the Company as directors, officers and employees.
ARTICLE VI
AVOIDANCE OF INCONSISTENT POSITIONS AND COMPLIANCE WITH APPLICABLE LAWS
In connection with purchases or sales of securities for the investment
portfolio of the Fund, neither the Sub-Adviser nor any of its directors,
officers or employees will act as a principal or agent for any party other than
the Fund or receive any commissions. The Sub-Adviser will comply with all
applicable laws in acting hereunder including, without limitation, the 1940 Act;
the Investment Advisers Act of 1940, as amended; and all rules and regulations
duly promulgated under the foregoing.
ARTICLE VII
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date it is approved by a
majority of the outstanding voting securities of the Fund, and shall remain in
force for an initial term expiring May 29, 2001, and from year to year
thereafter until its termination in accordance with this Article VII, but only
so long as such continuance is specifically approved at least annually by (i)
the Directors of the Company, or by the vote of a majority of the outstanding
voting securities of the Fund, and (ii) a majority of those Directors who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by INVESCO, the Fund by vote of the Directors of the Company, or by
vote of a majority of the outstanding voting securities of the Fund, or by the
Sub-Adviser. A termination by INVESCO or the Sub-Adviser shall require sixty
days' written notice to the other party and to the Company, and a termination by
the Company shall require such notice to each of the parties. This Agreement
shall automatically terminate in the event of its assignment to the extent
required by the Investment Company Act of 1940 and the Rules thereunder.
The Sub-Adviser agrees to furnish to the Directors of the Company such
information on an annual basis as may reasonably be necessary to evaluate the
terms of this Agreement.
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Article III hereof earned prior to such termination.
<PAGE>
ARTICLE VIII
AMENDMENTS OF THIS AGREEMENT
No provision of this Agreement may be orally changed or discharged, but
may only be modified by an instrument in writing signed by the Sub-Adviser and
INVESCO. In addition, no amendment to this Agreement shall be effective unless
approved by (1) the vote of a majority of the Directors of the Company,
including a majority of the Directors who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for the
purpose of voting on such amendment and (2) the vote of a majority of the
outstanding voting securities of the Fund (other than an amendment which can be
effective without shareholder approval under applicable law).
ARTICLE IX
DEFINITIONS OF CERTAIN TERMS
In interpreting the provisions of this Agreement, the terms "vote of a
majority of the outstanding voting securities," "assignments," "affiliated
person" and "interested person," when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
ARTICLE X
GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State
of Colorado and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of Colorado, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
ARTICLE XI
MISCELLANEOUS
Notice. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.
Severability. Each provision of this Agreement is intended to be
severable. If any provision of this Agreement shall be held illegal or made
invalid by a court decision, statute, rule or otherwise, such illegality or
invalidity shall not affect the validity or enforceability of the remainder of
this Agreement.
Headings. The headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret, define or
limit the size, extent or intent of this Agreement or any provision hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
INVESCO FUNDS GROUP, INC.
ATTEST:
By: _______________________________
Mark H. Williamson
__________________________________ President
Glen A. Payne
Secretary
INVESCO CAPITAL MANAGEMENT, INC.
ATTEST:
By: ________________________________
__________________________________ President
Secretary
Exhibit f(2)
DEFINED BENEFIT DEFERRED COMPENSATION PLAN
FOR NON-INTERESTED DIRECTORS AND TRUSTEES
The registered, open-end management investment companies referred to on
Schedule A as the Schedule may hereafter be revised by the addition and deletion
of investment companies (the "Funds") have adopted this Defined Benefit Deferred
Compensation Plan ("Plan") for the benefit of those directors and trustees of
the Funds who are not interested directors or trustees thereof as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended ("Independent
Directors").
1. Eligibility
Each Independent Director who has served as such ("Eligible Service") on
the boards of any of the Funds and their predecessor and successor entities, if
any, or as an Independent Director of the now-defunct investment management
company known as FG Series for an aggregate of at least five years at the time
of his Service Termination Date (as defined in paragraph 2) will be entitled to
receive benefits under the Plan. An Independent Director's period of Eligible
Service commences on the date of election to the board of directors or trustees
of any one or more of the Funds ("Board"). Hereafter, references in this Plan to
Independent Directors shall be deemed to include only those Directors who have
met the Eligible Service requirement for Plan participation.
2. Service Termination and Service Termination Date
a. Service Termination. Service Termination means termination of service
(other than by disability or death) of an Independent Director which results
from the Director's having reached his Service Termination Date.
b. Service Termination Date. An Independent Director's Service Termination
Date is normally the last day of the calendar quarter in which such Director's
seventy-second birthday occurs. A majority of the Board of a Fund may annually
extend a Director's Service Termination Date for a maximum period of three
years, through the date not later than the last day of the calendar quarter in
which such Director's seventy-fifth birthday occurs.
As used in this Plan unless otherwise stipulated, Service Termination Date
shall mean an Independent Director's normal Service Termination Date, or the
Director's extended Service Termination Date, whichever may be applicable to the
Independent Director.
3. Defined Payments and Benefit
a. Payments. If an Independent Director's Service Termination Date occurs
on a date not later than the last day of the calendar quarter in which such
Director's seventy-fourth birthday occurs, the Independent Director will receive
four quarterly payments during the first twelve months subsequent to his Service
<PAGE>
Termination Date (the "First Year Retirement Payments"), with each payment to be
equal to 50 percent of the annual basic retainer and annualized board meeting
fees payable by each Fund to the Independent Director on his Service Termination
Date (excluding any fees relating to chairing committees).
b. Benefit. Commencing with the first anniversary of the Service
Termination Date of any Independent Director who has received the First Year
Retirement Payments, and commencing as of the Service Termination Date of an
Independent Director whose Service Termination Date is subsequent to the date of
the last day of the calendar quarter in which such Director's seventy-fourth
birthday occurred, the Independent Director will receive, for the remainder of
his life, a benefit (the "Benefit"), payable quarterly, with each quarterly
payment to be equal to 50 percent of the annual basic retainer and annualized
board meeting fees payable by each Fund to the Independent Director on his
Service Termination Date (excluding any fees relating to chairing committees).
c. Death Provisions. If an Independent Director's service as a Director is
terminated because of his death subsequent to the last day of the calendar
quarter in which such Director's seventy-second birthday occurred and prior to
the last day of the calendar quarter in which such Director's seventy-fourth
birthday occurs, the designated beneficiary of the Independent Director shall
receive the First Year Retirement Payments and shall, commencing with the
quarter following the quarter in which the last First Year Retirement Payment is
made, receive the Benefit for a period of ten years, with quarterly payments to
be made to the designated beneficiary.
If an Independent Director's service as a Director is terminated because
of his death prior to the last day of the calendar quarter in which such
Director's seventy-second birthday occurs or subsequent to the last day of the
calendar quarter in which such Director's seventy-fourth birthday occurred, the
designated beneficiary of the Independent Director shall receive the Benefit for
a period of ten years, with quarterly payments to be made to the designated
beneficiary commencing in the first quarter following the Director's death.
d. Disability Provisions. If an Independent Director's service as a
Director is terminated because of his disability subsequent to the last day of
the calendar quarter in which such Director's seventy-second birthday occurred
and prior to the last day of the calendar quarter in which such Director's
seventy-fourth birthday occurs, the Independent Director shall receive the First
Year Retirement Payments and shall, commencing with the quarter following the
quarter in which the last First Year Retirement Payment is made, receive the
Benefit for the remainder of his life, with quarterly payments to be made to the
disabled Independent Director. If the disabled Independent Director should die
before the First Year Retirement Payments are completed and before forty
<PAGE>
quarterly Benefit payments are made, such payments will continue to be made to
the Independent Director's designated beneficiary until the aggregate of the
First Year Retirement Payments and forty quarterly Benefit payments have been
made to the disabled Independent Director and the Director's designated
beneficiary.
If an Independent Director's service as a Director is terminated because
of his disability prior to the last day of the calendar quarter in which such
Director's seventy-second birthday occurs or subsequent to the last day of the
calendar quarter in which such Director's seventy-fourth birthday occurred, the
Independent Director shall receive the Benefit for the remainder of his life,
with quarterly payments to be made to the disabled Independent Director
commencing in the first quarter following the Director's termination for
disability. If the disabled Independent Director should die before forty
quarterly payments are made, payments will continue to be made to the
Independent Director's designated beneficiary until the aggregate of forty
quarterly payments has been made to the disabled Independent Director and the
Director's designated beneficiary.
e. Death of Independent Director and Beneficiary. If the Independent
Director and his designated beneficiary should die before the First Year
Retirement Payments and/or a total of forty quarterly Benefit payments are made,
the remaining value of the Independent Director's First Year Retirement Payments
and/or Benefit shall be determined as of the date of the death of the
Independent Director's designated beneficiary and shall be paid to the estate of
the designated beneficiary in one lump sum or in periodic payments, with the
determinations with respect to the value of the First Year Retirement Payments
and/or Benefit and the method and frequency of payment to be made by the
Committee (as defined in paragraph 8.a.) in its sole discretion.
4. Designated Beneficiary
The beneficiary referred to in paragraph 3 may be designated or changed by
the Independent Director without the consent of any prior beneficiary on a form
provided by the Committee (as defined in paragraph 8.a.) and delivered to the
Committee before the Independent Director's death. If no such beneficiary shall
have been designated, or if no designated beneficiary shall survive the
Independent Director, the value or remaining value of the Independent Director's
First Year Retirement Payments and/or Benefit shall be determined as of the date
of the death of the Independent Director by the Committee and shall be paid as
promptly as possible in one lump sum to the Independent Director's estate.
5. Disability
An Independent Director shall be deemed to have become disabled for the
purposes of paragraph 3 if the Committee shall find on the basis of medical
evidence satisfactory to it that the Independent Director is disabled, mentally
<PAGE>
or physically, as a result of an accident or illness, so as to be prevented from
performing each of the duties which are incumbent upon an Independent Director
in fulfilling his responsibilities as such.
6. Time of Payment
The First Year Retirement Payments and/or the Benefit for each year will
be paid in quarterly installments that are as nearly equal as possible.
7. Payment of First Year Retirement Payments and/or Benefit: Allocation
of Costs
Each Fund is responsible for the payment of the amount of the First Year
Retirement Payments and/or Benefit applicable to the Fund, as well as its
proportionate share of all expenses of administration of the Plan, including
without limitation all accounting and legal fees and expenses and fees and
expenses of any Actuary. The obligations of each Fund to pay such First Year
Retirement Payments and/or Benefit and expenses will not be secured or funded in
any manner, and such obligations will not have any preference over the lawful
claims of each Fund's creditors and shareholders. To the extent that the First
Year Retirement Payments and/or Benefit is paid by more than one Fund, such
costs and expenses will be allocated among such Funds in a manner that is
determined by the Committee to be fair and equitable under the circumstances. To
the extent that one or more of such Funds consist of one or more separate
portfolios, such costs and expenses allocated to any such Fund will thereafter
be allocated among such portfolios by the Board of the Fund in a manner that is
determined by such Board to be fair and equitable under the circumstances.
8. Administration
a. The Committee. Any question involving entitlement to payments under or
the administration of the Plan will be referred to a four-person committee (the
"Committee") composed of three Independent Directors designated by all of the
Independent Directors of the Funds and one director of the Funds who is not an
Independent Director, designated by the non-Independent Directors. Except as
otherwise provided herein, the Committee will make all interpretations and
determinations necessary or desirable for the Plan's administration, and such
interpretations and determinations will be final and conclusive. Committee
members will be elected annually.
b. Powers of the Committee. The Committee will represent and act on behalf
of the Funds in respect of the Plan and, subject to the other provisions of the
Plan, the Committee may adopt, amend or repeal bylaws or other regulations
relating to the administration of the Plan, the conduct of the Committee's
affairs, its rights or powers, or the rights or powers of its members. The
Committee will report to the Independent Directors and to the Boards of the
Funds from time to time on its activities in respect of the Plan. The Committee
or persons designated by it will cause such records to be kept as may be
necessary for the administration of the Plan.
<PAGE>
9. Miscellaneous Provisions
a. Rights Not Assignable. Other than as is specifically provided in
paragraph 3, the right to receive any payment under the Plan is not transferable
or assignable, and nothing in the Plan shall create any benefit, cause of
action, right of sale, transfer, assignment, pledge, encumbrance, or other such
right in any heirs or the estate of any Independent Director.
b. Amendment, etc. The Committee, with the concurrence of the Board of any
Fund, may as to the specific Fund at any time amend or terminate the Plan or
waive any provision of the Plan; provided, however, that subject to the
limitations imposed by paragraph 7, no amendment, termination or waiver will
impair the rights of an Independent Director to receive the payments which would
have been made to such Independent Director had there been no such amendment,
termination, or waiver.
c. No Right to Reelection. Nothing in the Plan will create any obligation
on the part of the Board of any Fund to nominate any Independent Director for
reelection.
d. Consulting. Subsequent to his Service Termination Date, an Independent
Director may render such services for any Fund, for such compensation, as may be
agreed upon from time to time by such Independent Director and the Board of the
Fund which desires to procure such services.
e. Effectiveness. The Plan will be effective for all Independent Directors
who have Service Termination Dates occurring on and after October 20, 1993.
Periods of Eligible Service shall include periods commencing prior and
subsequent to such date. Upon its adoption by the Board of a Fund, the Plan will
become effective as to that Fund on the date when the Committee determines that
any regulatory approval or advice that may be necessary or appropriate in
connection with the Plan have been obtained.
Adopted October 20, 1993.
Amended October 19, 1994.
Amended May 1, 1996, effective July 1, 1996.
Amended May 14, 1998, effective July 1, 1998.
<PAGE>
SCHEDULE A
TO
DEFINED BENEFIT DEFERRED COMPENSATION PLAN
FOR NON-INTERESTED DIRECTORS AND TRUSTEES
INVESCO Diversified Funds, Inc.
INVESCO Capital Appreciation Funds, Inc.
INVESCO Emerging Opportunity Funds, Inc.
INVESCO Growth Fund, Inc.
INVESCO Income Funds, Inc.
INVESCO Industrial Income Fund, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Multiple Asset Funds, Inc.
INVESCO Specialty Funds, Inc.
INVESCO Strategic Portfolios, Inc.
INVESCO Tax-Free Income Funds, Inc.
INVESCO Value Trust
INVESCO Variable Investment Funds, Inc.
INVESCO Treasurer's Series Trust
Exhibit h(2)(a)
AMENDMENT TO ADMINISTRATIVE SERVICES AGREEMENT
This is an Amendment to the Administrative Services Agreement made and
entered into between INVESCO Funds Group, Inc., a Delaware corporation
("INVESCO"), and INVESCO Multiple Asset Funds, Inc., a Maryland corporation (the
"Fund") as of the 28th day of February, 1997 (the "Agreement").
WHEREAS, effective as of September 10, 1998, the Fund has changed its name
to "INVESCO Flexible Funds, Inc.;" and
WHEREAS, effective as of October 29, 1998, the Fund has changed its name
to "INVESCO Combination Stock & Bond Funds, Inc."; and
WHEREAS, the Fund is engaged in business as an open-end management
investment company, is registered as such under the Investment Company Act of
1940, as amended (the "Act"), and is authorized to issue shares representing
interests in separate portfolios of investments (the "Portfolios"); and
WHEREAS, the Fund and INVESCO are affiliated companies; and
WHEREAS, the Fund desires to amend the amount of payment that it pays to
INVESCO for certain administrative, sub-accounting and recordkeeping services as
described in the Agreement;
NOW, THEREFORE, the name of the Fund is "INVESCO Combination Stock &
Bond Funds, Inc."; and
The Fund is authorized to issue shares representing interests in the
following separate Portfolios: (1) INVESCO Balanced Fund, and (2) INVESCO
Multi-Asset Allocation Fund, and
In consideration of the premises and mutual covenants contained in the
Agreement, it is agreed that paragraph 5 of the Agreement is hereby amended to
read as follows:
For the services rendered, facilities furnished, and expenses
assumed by INVESCO under this Agreement, the Fund shall pay to INVESCO a
$10,000 per year per Portfolio base fee, plus an additional fee, computed
on a daily basis and paid on a monthly basis. For purposes of each daily
calculation of this additional fee, the most recently determined net asset
value of each Portfolio, as determined by a valuation made in accordance
with the Fund's procedure for calculating each Portfolio's net asset value
as described in the Portfolios' Prospectus and/or Statement of Additional
Information, shall be used. The additional fee to INVESCO under this
Agreement shall be computed at the annual rate of 0.045% of each
Portfolio's daily net assets as so determined. During any period when the
determination of a Portfolio's net asset value is suspended by the
<PAGE>
directors of the Fund, the net asset value of a share of that Portfolio as
of the last business day prior to such suspension shall, for the purpose
of this Paragraph 5, be deemed to be the net asset value at the close of
each succeeding business day until it is again determined.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
the 13th day of May, 1999.
INVESCO FUNDS GROUP, INC.
By: /s/ Mark H. Williamson
---------------------------------
Mark H. Williamson
President
ATTEST:
/s/ Glen A. Payne
- -------------------------------
Glen A. Payne
Secretary
INVESCO MULTIPLE ASSET FUNDS, INC.
By: /s/ Ronald L. Grooms
--------------------------------
Ronald L. Grooms
Treasurer & Chief Financial
Officer & Accounting Officer
ATTEST:
/s/ Glen A. Payne
- -------------------------------
Glen A. Payne
Secretary
Exhibit h(2)(b)
AMENDMENT TO ADMINISTRATIVE SERVICES AGREEMENT
This is an Amendment to the Administrative Services Agreement made and
entered into between INVESCO Funds Group, Inc., a Delaware corporation
("INVESCO"), and INVESCO Combination Stock & Bond Funds, Inc. (formerly INVESCO
Multiple Asset Funds, Inc.), a Maryland corporation (the "Fund") as of the 28th
day of February, 1997 (the "Agreement").
WHEREAS, the Fund and INVESCO are affiliated companies; and
WHEREAS, the Fund desires to amend the amount of payment that it pays to
INVESCO for certain administrative, sub-accounting and recordkeeping services as
described in the Agreement;
NOW, THEREFORE, the Fund is authorized to issue shares representing
interests in the following separate Portfolios: (1) INVESCO Balanced Fund, and
(2) INVESCO Industrial Income Fund, and (3) INVESCO Total Return Fund; and
In consideration of the premises and mutual covenants contained in the
Agreement, it is agreed that paragraph 5 of the Agreement is hereby amended to
read as follows:
For the services rendered, facilities furnished, and expenses
assumed by INVESCO under this Agreement, the Fund shall pay to INVESCO a
$10,000 per year per Portfolio base fee, plus an additional fee, computed
on a daily basis and paid on a monthly basis. For purposes of each daily
calculation of this additional fee, the most recently determined net asset
value of each Portfolio, as determined by a valuation made in accordance
with the Fund's procedure for calculating each Portfolio's net asset value
as described in the Portfolios' Prospectus and/or Statement of Additional
Information, shall be used. The additional fee to INVESCO under this
Agreement shall be computed at the annual rate of 0.045% of each
Portfolio's daily net assets as so determined. During any period when the
determination of a Portfolio's net asset value is suspended by the
directors of the Fund, the net asset value of a share of that Portfolio as
of the last business day prior to such suspension shall, for the purpose
of this Paragraph 5, be deemed to be the net asset value at the close of
each succeeding business day until it is again determined.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
the 28th day of May, 1999.
INVESCO FUNDS GROUP, INC.
By: /s/ Mark H. Williamson
--------------------------------
Mark H. Williamson
President
ATTEST:
/s/ Glen A. Payne
- ------------------------------
Glen A. Payne
Secretary
INVESCO COMBINATION STOCK &
BOND FUNDS, INC.
By: /s/ Ronald L. Grooms
--------------------------------
Ronald L. Grooms
Treasurer & Chief Financial
Officer & Accounting Officer
ATTEST:
/s/ Glen A. Payne
- ------------------------------
Glen A. Payne
Secretary
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 8 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated July 6, 1999, relating to the financial
statements and financial highlights appearing in the May 31, 1999 Annual Report
to Shareholders of INVESCO Combination Stock & Bond Funds, Inc., which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the heading "Independent Accountants" in the Statement of Additional
Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Denver, Colorado
July 27, 1999
