As filed on November 1, 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. 10 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 11 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)
X 60 days after filing pursuant to paragraph (a)(1)
___ on _____________, pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on _________, pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
__ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
NOTE
This Post-Effective Amendment (Form N-1A) is being filed to add [Class C] shares
of INVESCO Balanced Fund, INVESCO Equity Income Fund and INVESCO Total Return
Fund and [Class I] shares of INVESCO Balanced Fund and does not affect the
current class of shares of those Funds.
<PAGE>
PROSPECTUS | December 31, 1999
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO
COMBINATION
STOCK & BOND
FUNDS, INC.
INVESCO EQUITY INCOME FUND--[CLASS C]
(FORMERLY, INVESCO INDUSTRIAL INCOME FUND)
INVESCO BALANCED FUND--[CLASS C]
INVESCO TOTAL RETURN FUND--[CLASS C]
THREE MUTUAL FUNDS SEEKING CAPITAL APPRECIATION AND CURRENT INCOME. [[CLASS C
SHARES ARE SOLD EXCLUSIVELY THROUGH THIRD PARTIES, SUCH AS BROKERS, BANKS, AND
FINANCIAL PLANNERS.]
TABLE OF CONTENTS
Investment Goals, Strategies And Risks.............4
Fund Performance...................................6
Fees And Expenses..................................8
Investment Risks..................................10
Risks Associated With Particular Investments......11
Temporary Defensive Positions.....................16
Fund Management...................................17
Portfolio Managers................................17
Potential Rewards.................................19
Share Price.......................................19
How To Buy Shares.................................20
Your Account Services.............................23
How To Sell Shares................................24
Taxes.............................................26
Dividends And Capital Gain Distributions..........27
Financial Highlights..............................28
[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
[INVESCO ICON] Working With Invesco
- -------------------------------------------------------------------------------
[KEY ICON][ARROW ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
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 of the Funds.
[The Funds' [Class C] shares are sold exclusively through third parties, such as
brokers, banks, and financial planners. You cannot purchase the Funds' [Class C]
shares directly from INVESCO or its affiliated companies.] This Prospectus
contains important information about the Funds' [Class C] shares. One or more
additional classes of shares are offered directly to the public through separate
prospectuses. Those other classes of shares have lower sales charges and
expenses, with resulting positive effects on their performance. You can choose
the class of shares that is best for you, based on how much you plan to invest
and how long you plan to hold your shares. To obtain additional information
about other classes of shares, contact INVESCO Distributors, Inc. ("IDI") at
1-800-_______________. You may also obtain information concerning other classes
offered from your broker, bank, or financial planner who is offering the [Class
C] shares offered in this Prospectus.
No dealer, sales person, or any other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus, and you should not rely on such other information or
representations.
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.
<PAGE>
[ARROW ICON] Although the Funds are subject to a number of risks that could
affect their performance, their principal risk is market risk -- that is, that
the price of the securities in a portfolio will rise and fall due to price
movements in the securities markets, and the securities held in a Fund's
portfolio may decline in value more than the overall securities markets. Since
INVESCO has discretion to allocate the amounts of equity securities and debt
securities held in each Fund, there is an additional risk that the portfolio of
a Fund may not be allocated in the most advantageous way between equity and debt
securities, particularly in times of significant market movements.
The Funds are subject to other principal risks such as credit, debt securities,
foreign securities, interest rate, duration, liquidity, derivatives, options and
futures, counterparty and lack of timely information risks. These risks are
described and discussed later in the Prospectus under the headings "Investment
Risks" and "Risks Associated With Particular Investments." An investment in a
Fund is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation ("FDIC") or any other government agency.
As with any mutual fund, there is always a risk that you can lose money on your
investment in a Fund.
[KEY ICON] INVESCO EQUITY INCOME FUND--[CLASS C]
The Fund invests primarily in dividend-paying common and preferred stocks.
Stocks selected for the Fund generally are expected to produce relatively high
levels of income and consistent, stable returns. Although the Fund focuses on
the stocks of larger companies with a strong record of paying dividends, it also
may invest in companies that have not paid regular dividends. The Fund's equity
investments are limited to stocks that can be traded easily in the United
States; it may, however, invest in foreign securities in the form of American
Depository Receipts (ADRs).
The rest of the Fund's assets are invested in debt securities, generally
corporate bonds that are rated investment grade or better. The Fund also may
invest up to 15% of its assets in lower-grade debt securities commonly known as
"junk bonds," which generally offer higher interest rates, but are riskier
investments than investment grade securities.
Because the Fund invests primarily in the securities of larger companies, the
Fund's share price tends to rise and fall with the up and down price movements
of larger company stocks. Due to its investment strategy, the Fund's portfolio
includes relatively few smaller companies, which may be a disadvantage if
smaller companies outperform the broad market.
[KEY ICON] INVESCO BALANCED FUND--[CLASS C]
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.
<PAGE>
The portion of the Fund's portfolio invested in equity securities emphasizes
companies INVESCO believes to have better-than-average earnings growth
potential, as well as companies within industries that INVESCO believes are
well-positioned for the current and expected economic climate. Since current
income is a component of total return, we also consider companies' dividend
payout records. Most of these holdings are traded on national stock exchanges or
in the over-the-counter market. We may also take positions in securities traded
on regional or foreign exchanges.
A portion of the Fund's portfolio invested in debt securities may include
obligations of the U.S. government, government agencies, and investment grade
corporate bonds. These securities tend to offer lower income than bonds of lower
quality but are more shielded from credit risk. Obligations issued by U.S.
government agencies may include some supported only by the credit of the issuing
agency rather than by the full faith and credit of the U.S. government. The Fund
may hold securities of any maturity, with the average maturity of the portfolio
varying depending upon economic and market conditions.
[KEY ICON] INVESCO TOTAL RETURN FUND--[CLASS C]
The Fund invests primarily in a combination of common stocks of companies with a
strong history of paying regular dividends and invests in debt securities. Debt
securities include obligations of the U.S. government and government agencies.
The remaining assets of the Fund are allocated among these and other investments
at INVESCO's discretion, based upon current business, economic and market
conditions.
INVESCO considers a combination of historic financial results, current prices
for stocks and the current yield to maturity available in the debt securities
markets. To determine the actual allocations, the return that INVESCO believes
is available from each category of investments is weighed against the returns
expected from other categories. This analysis is continual, and is updated with
current market information.
The Fund is managed in the value style. That means we seek securities,
particularly stocks, that are currently undervalued by the market -- companies
that are performing well, or have solid management and products, but whose stock
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
Since the Funds' [Class C] shares did not commence investment operations until
December 31, 1999, the bar charts below show the Funds' [Class II] shares'
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. These Funds are not offered in this
Prospectus. THE BAR CHARTS DO NOT REFLECT CONTINGENT DEFERRED SALES CHARGES OR
ASSET BASED SALES CHARGES IN EXCESS OF 0.25% OF NET ASSETS; IF THEY DID, THE
TOTAL RETURNS SHOWN WOULD BE LOWER. The table below shows average annual total
returns for various periods ended December 31 for each [Class II] 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 [Class II] Fund's
return and how its performance compared to a broad measure of market
performance. Remember, past performance does not indicate how a Fund will
perform in the future.
<PAGE>
The three charts below contain the following plot points:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
EQUITY INCOME FUND - [CLASS II]
ACTUAL ANNUAL TOTAL RETURN(1),(2)
-----------------------------------------------------------------------------------------------
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31.95% 0.91% 46.22% 0.99% 16.74% (3.88%) 27.33% 16.728% 26.45% 14.13%
Best Calendar Qtr. 3/91 16.84%
Worst Calendar Qtr. 9/90 (12.28%)
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
BALANCED FUND - [CLASS II]
ACTUAL ANNUAL TOTAL RETURN(1),(2),(3)
-----------------------------------------------------------------------------------------------
'94 '95 '96 '97 '98
<S> <C> <C> <C> <C>
9.44% 36.46% 14.66% 19.53% 17.33%
Best Calendar Qtr. 12/98 13.67%
Worst Calendar Qtr. 9/98 (6.61%)
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
TOTAL RETURN FUND - [CLASS II]
ACTUAL ANNUAL TOTAL RETURN(1),(2)
-----------------------------------------------------------------------------------------------
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19.13% (0.35%) 24.96% 9.84% 12.34% 2.52% 28.64% 13.078% 25.04% 13.62%
Best Calendar Qtr. 6/97 11.86%
Worst Calendar Qtr. 9/90 (8.13%)
-----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)(2)(5)
AS OF 12/31/98
--------------------------------------------------------------------------------------------
10 YEARS
OR SINCE
1 YEAR 5 YEARS INCEPTION
<S> <C> <C> <C>
Equity Income Fund - [Class II] 14.13% 15.57% 16.82%
Balanced Fund - [Class II] 17.33% 19.15% 18.97%(3)
Total Return Fund - [Class II] 13.62% 16.20% 14.51%
Lehman Government/Corporate
Bond Index(4) 9.47% 7.30% 9.33%
S&P 500 Index(4) 28.58% 24.03% 19.17%
</TABLE>
(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Funds' expenses.
(2)Year-to-date return for Equity Income Fund - [Class II], Balanced Fund -
[Class II] and Total Return Fund - [Class II] were _____%, _____% and _____%,
respectively, as of the calendar quarter ended September 30, 1999.
(3)The Fund commenced investment operations on December 31, 1993.
(4)The S&P 500 Index is an unmanaged index considered representative of the
performance of the broad U.S. stock market. The Lehman Government/Corporate Bond
Index is an unmanaged index indicative of the broad domestic fixed-income
market. Please keep in mind that the Indexes do not pay brokerage, management,
administrative or distribution expenses, all of which are paid by the Funds and
are reflected in their annual returns.
(5)The total and average annual returns are for a separate class of shares that
is not offered in this Prospectus. Total returns of [Class C] shares will differ
only to the extent that the classes do not have the same expenses.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds:
SHAREHOLDER FEES PAID DIRECTLY FROM YOUR ACCOUNT
[CLASS C] SHARES
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) 1.00%*
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and Other Distributions None
Redemption Fee (as a percentage of amount redeemed) None
Exchange Fee None
Maximum Account Fee None
* A 1% contingent deferred sales charge is charged on redemptions or exchanges
of shares held thirteen months or less other than shares acquired through
reinvestment of dividends and other distributions.
<PAGE>
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
EQUITY INCOME FUND - [CLASS C]
Management Fees(1) 0.48%
Distribution and Service (12b-1) Fees(2) 1.00%
Other Expenses(1) ___%
Total Annual Fund Operating Expenses(1) ___%
BALANCED FUND - [CLASS C]
Management Fees 0.60%
Distribution and Service (12b-1) Fees(2) 1.00%
Other Expenses ___%
Total Annual Fund Operating Expenses ___%
TOTAL RETURN FUND - [CLASS C]
Management Fees(1) 0.56%
Distribution and Service (12b-1) Fees(2) 1.00%
Other Expenses(1) ___%
Total Annual Fund Operating Expenses(1) ___%
(1) Certain advisory fees of Equity Income and Total Return Funds were
voluntarily absorbed by INVESCO prior to May 13, 1999. After absorption,
Equity Income Fund's Other Expenses and Total Annual Fund Operating
Expenses changed insignificantly, and Total Return Fund's Other Expenses
and Total Annual Fund Operating Expenses were 0.22% and 1.03%,
respectively. Since the Funds' [Class C] shares did not commence investment
operations until December 31, 1999, [Class C] shares paid no advisory fees
to INVESCO for its advisory services in the period ended May 31, 1999.
(2) Because the Funds pay 12b-1 distribution fees which are based upon each
Fund's assets, if you own shares of a Fund for a long period of time, you
may pay more than the economic equivalent of the maximum front-end sales
charge permitted for mutual funds by the National Association of Securities
Dealers, Inc.
EXAMPLES
These Examples are intended to help you compare the cost of investing in the
Funds to the cost of investing in other mutual funds.
The Examples assume that you invested $10,000 in [Class C] shares of a Fund for
the time periods indicated. The first Example assumes that you redeem all of
your shares at the end of those periods. The second Example assumes that you
keep your shares. Both Examples also assume that your investment had a
hypothetical 5% return each year, and assumes that the [Class C]'s operating
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:
IF SHARES ARE REDEEMED 1 year 3 years
Equity Income Fund - [Class C] $___ $___
Balanced Fund - [Class C] $___ $___
Total Return Fund - [Class C] $___ $___
<PAGE>
IF SHARES ARE NOT REDEEMED 1 year 3 years
Equity Income Fund - [Class C] $___ $___
Balanced Fund - [Class C] $___ $___
Total Return Fund - [Class C] $___ $___
[ARROW ICON] INVESTMENT RISKS
You should determine the level of risk with which you are comfortable before you
invest. The principal risks of investing in any mutual fund, including these
Funds, are:
BEFORE INVESTING IN A FUND, YOU SHOULD DETERMINE THE LEVEL OF RISK WITH WHICH
YOU ARE COMFORTABLE. TAKE INTO ACCOUNT FACTORS LIKE YOUR AGE, CAREER, INCOME
LEVEL, AND TIME HORIZON.
NOT INSURED. Mutual funds are not insured by the FDIC or any other agency,
unlike bank deposits such as CDs or savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its performance, nor
assure you that the market value of your investment will increase. You may lose
the money you invest, and the Funds will not reimburse you for any of these
losses.
VOLATILITY. The price of your mutual fund shares will increase or decrease with
changes in the value of a Fund's underlying investments and changes in the
equity markets as a whole.
NOT A COMPLETE INVESTMENT PLAN. An investment in any mutual fund does not
constitute a complete investment plan. The Funds are designed to be only a part
of your personal investment plan.
YEAR 2000. Many computer systems in use today may not be able to recognize any
date after December 31, 1999. If these systems are not fixed by that date, it is
possible that they could generate erroneous information or fail altogether.
INVESCO has committed substantial resources in an effort to make sure that its
own major computer systems will continue to function on and after January 1,
2000. Of course, INVESCO cannot fix systems that are beyond its control. If
INVESCO's own systems, or the systems of third parties upon which it relies, do
not perform properly after December 31, 1999, the Funds could be adversely
affected.
In addition, the markets for, or values of, securities in which the Funds invest
may possibly be hurt by computer failures affecting portfolio investments or
trading of securities beginning January 1, 2000. For example, improperly
functioning computer systems could result in securities trade settlement
problems and liquidity issues, production issues for individual companies and
overall economic uncertainties. Individual issuers may incur increased costs in
making their own systems Year 2000 compliant. The combination of market
uncertainty and increased costs means that there is a possibility that Year 2000
computer issues may adversely affect the Funds' investments. At this time, it is
generally believed that foreign issuers, particularly those in emerging and
other markets, may be more vulnerable to Year 2000 problems than issuers in the
U.S.
<PAGE>
[ARROW ICON] RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS
You should consider the special factors associated with the policies discussed
below in determining the appropriateness of investing in a Fund. See the
Statement of Additional Information for a discussion of additional risk factors.
MARKET RISK
Equity stock prices vary and may fall, thus reducing the value of a Fund's
investments. Certain stocks selected for any Fund's portfolio may decline in
value more than the overall stock market. In general, the securities of large
businesses with outstanding securities worth $5 billion or more have less
volatility than those of mid-size businesses with outstanding securities worth
more than $1 billion, or small businesses with outstanding securities worth less
than $1 billion.
CREDIT RISK
The Funds may invest in debt instruments, such as notes and bonds. There is a
possibility that the issuers of these instruments will be unable to meet
interest payments or repay principal. Changes in the financial strength of an
issuer may reduce the credit rating of its debt instruments and may affect their
value.
DEBT SECURITIES RISK
Debt securities include bonds, notes and other securities that give the holder
the right to receive fixed amounts of principal, interest, or both on a date in
the future or on demand. Debt securities also are often referred to as
fixed-income securities, even if the rate of interest varies over the life of
the security.
Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that the
market value of the security may decline for a variety of reasons, including
changes in interest rates. An increase in interest rates tends to reduce the
market values of debt securities in which the Fund invests. A decline in
interest rates tends to increase the market values of debt securities in which
the Fund invests.
Moody's Investor Services, Inc. ("Moody's") and Standard & Poor's ("S&P")
ratings provide a useful but not certain guide to the credit risk of many debt
securities. The lower the rating of a debt security, the greater the credit risk
the rating service assigns to the security. To compensate investors for
accepting that greater risk, lower-rated securities tend to offer higher
interest rates. Lower-rated debt securities are often referred to as "junk
bonds." A debt security is considered lower grade if it is rated Ba or less by
Moody's or BB or less by S&P.
<PAGE>
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.
FOREIGN SECURITIES RISKS
Investments in foreign and emerging markets carry special risks, including
currency, political, regulatory and diplomatic risks. Balanced and Total Return
Funds may invest up to 25% of their assets in securities of non-U.S. issuers.
Equity Income Fund may invest up to 25% of its assets in foreign debt
securities, provided that all such securities are denominated and pay interest
in U.S. dollars (such as Eurobonds and Yankee bonds). Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of a Fund's investment in a
security valued in the foreign currency, or based on that currency
value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a
security. In foreign countries, securities markets that are less
regulated than those in the U.S. may permit trading practices that are
not allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. and
a foreign country could affect the value or liquidity of investments.
<PAGE>
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.
DERIVATIVES RISK
A derivative is a financial instrument whose value is "derived," in some manner,
from the price of another security, index, asset or rate. Derivatives include
options and futures contracts, among a wide range of other instruments. The
principal risk of investments in derivatives is that the fluctuations in their
values may not correlate perfectly with the overall securities markets. Some
derivatives are more sensitive to interest rate changes and market price
fluctuations than others. Also, derivatives are subject to counterparty risk
described below.
<PAGE>
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.
- --------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY
RECEIPTS (ADRS) Market, Equity Income
These are securities Information, Balanced
issued by U.S. banks that Political, Total Return
represent shares of Regulatory,
foreign corporations held Diplomatic,
by those banks. Although Liquidity and
traded in U.S. securities Currency Risks
mar kets and valued in
U.S. dollars, ADRs carry
most of the risks of
investing directly in
foreign securities.
- --------------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by Market, Credit, Equity Income
private companies or Interest Rate Balanced
governments representing and Duration Total Return
an obliga tion to pay Risks
interest and to repay
princi pal when the
security matures.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY Balanced
CONTRACTS Currency, Total Return
A contract to exchange an Political,
amount of currency on a Diplomatic,
date in the future at an Counterparty
agreed-upon exchange rate and Regulatory
might be used by the Fund Risks
to hedge against changes
in foreign currency
exchange rates when the
Fund invests in foreign
securities. Does not
reduce price fluc
tuations in foreign
securities, or pre vent
losses if the prices of
those securities decline.
- --------------------------------------------------------------------------------
FUTURES
A futures contract is an Market, Equity Income
agreement to buy or sell Liquidity and Balanced
a specific amount of a Options and Total Return
finan cial instrument Futures Risks
(such as an index option)
at a stated price on a
stated date. The Fund
may use futures con
tracts to provide
liquidity and to hedge
portfolio value.
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot Liquidity Risk Equity Income
be sold quickly at its Balanced
fair value. Total Return
- --------------------------------------------------------------------------------
JUNK BONDS
Debt securities that are Market, Credit, Equity Income
rated BB or lower by S&P Interest Rate
or Ba or lower by and Duration
Moody's. Tend to pay Risks
higher interest rates
than higher-rated debt
securities, but carry a
higher credit risk.
- --------------------------------------------------------------------------------
OPTIONS
The obligation or right Credit, Equity Income
to deliver or receive a Information, Balanced
security or other Liquidity and Total Return
instrument, index or Options and
commodity, or cash Futures Risks
payment depending on the
price of the underly ing
security or the
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.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
- --------------------------------------------------------------------------------
OTHER FINANCIAL
INSTRUMENTS Counterparty, Equity Income
These may include forward Credit, Balanced
contracts, swaps, caps, Currency, Total Return
floors and collars. They Interest Rate,
may be used to try to Liquidity,
manage the Fund's foreign Market and
currency exposure and Regulatory Risks
other investment risks,
which can cause its net
asset value to rise or
fall. The Fund may use
these financial instru
ments, commonly known as
"deriva tives," to
increase or decrease its
exposure to changing
securities prices,
interest rates, currency
exchange rates or other
factors.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A contract under which Credit and Equity Income
the seller of a security Counterparty Balanced
agrees to buy it back at Risks Total Return
an agreed-upon price and
time in the future.
- --------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not Liquidity Risk Equity Income
registered, but which are Balanced
bought and sold solely by Total Return
institutional investors.
The Fund con siders many
Rule 144A securities to
be "liquid," although the
market for such
securities typically is
less active than the
public securities
markets.
- --------------------------------------------------------------------------------
[ARROW ICON] TEMPORARY DEFENSIVE POSITIONS
When securities markets or economic conditions are unfavorable or unsettled, we
might try to protect the assets of a Fund by investing in securities that are
highly liquid, such as high quality money market instruments like short-term
U.S. government obligations, commercial paper or repurchase agreements, even
though that is not the normal investment strategy of any Fund. We have the right
to invest up to 100% of a Fund's assets in these securities, although we are
unlikely to do so. Even though the securities purchased for defensive purposes
often are considered the equivalent of cash, they also have their own risks.
Investments that are highly liquid or comparatively safe tend to offer lower
returns. Therefore, a Fund's performance could be comparatively lower if it
concentrates in defensive holdings.
<PAGE>
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $296 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Funds. INVESCO was founded in 1932 and manages over $____ billion
for more than _______ shareholders of __ INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative and
transfer agency functions (the processing of purchases, sales and exchanges of
Fund shares).
INVESCO Capital Management, Inc. ("ICM"), located at 1315 Peachtree Street,
Atlanta, Georgia, is the sub-adviser to Total Return Fund.
A wholly owned subsidiary of INVESCO, INVESCO Distributors, Inc. ("IDI"), is the
Funds' distributor and is responsible for the sale of the Funds' shares.
INVESCO, ICM and IDI are subsidiaries of AMVESCAP PLC.
Since the Funds' [Class C] shares did not commence operations until December 31,
1999, [Class C] shares paid no fees to INVESCO for the advisory services in the
period ended May 31, 1999.
[INVESCO ICON] PORTFOLIO MANAGERS
The following individuals are primarily responsible for the day-to-day
management of each Fund's portfolio holdings:
FUND PORTFOLIO MANAGER(S)
Equity Income Charles P. Mayer
Donovan J. (Jerry) Paul
Balanced Charles P. Mayer
Donovan J. (Jerry) Paul
Peter M. Lovell
Total Return Edward C. Mitchell. Jr.
David S. Griffin
Margaret Durkes Hoogs
James O. Baker
CHARLES P. MAYER is Director of Investments, a co-portfolio manager of Balanced
and Equity Income Funds and a director and senior vice president of INVESCO. He
began his investment career in 1969 and has been with INVESCO since 1993. Before
joining INVESCO, Charlie was a portfolio manager with Westinghouse Pension. He
received his M.B.A. from St. John's University and his B.A. from St. Peter's
College.
<PAGE>
DONOVAN J. (JERRY) PAUL heads INVESCO's Fixed-Income Team. He is a co-portfolio
manager of Balanced and Equity Income Funds and a senior vice president of
INVESCO. Jerry manages several other fixed-income INVESCO Funds. He is a
Chartered Financial Analyst and a Certified Public Accountant. Before joining
INVESCO in 1994, he was with Stein, Roe & Farnham, Inc. and Quixote Investment
Management. Jerry received his M.B.A. from the University of Northern Iowa and
his B.B.A. from the University of Iowa.
JAMES O. BAKER, a Chartered Financial Analyst, a co-portfolio manager of Total
Return Fund since 1997 and a portfolio manager for INVESCO Capital Management,
Inc. since 1992. Prior to joining INVESCO Capital Management, Inc., he was with
Willis Investment Counsel, Morgan Keegan and Drexel Burnham Lambert. Jim
received his B.A. from Mercer University.
MARGARET DURKES HOOGS, a Chartered Financial Analyst, an assistant portfolio
manager of Total Return Fund since 1997 and a portfolio manager for INVESCO
Capital Management, Inc. since 1993. Before joining INVESCO Capital Management,
Inc., Peg was a vice president and portfolio manager for Sovran Capital
Management. She received her B.A. from The Colorado College.
DAVID S. GRIFFIN, a Chartered Financial Analyst, and an assistant portfolio
manager of Total Return Fund since 1993. He has been a portfolio manager for
INVESCO Capital Management, Inc. since 1991. Dave received his MBA from the
College of William and Mary and his B.A. from Ohio Wesleyan University.
PETER M. LOVELL has been a co-portfolio manager of Balanced Fund since 1998.
Before joining INVESCO in 1994, Pete was a financial consultant with Merrill
Lynch. He received his M.B.A in Finance and Accounting from Regis University and
his B.A. from Colorado State University.
EDWARD C. MITCHELL, a Chartered Financial Analyst, and a co-portfolio manager of
Total Return Fund since 1987. He joined INVESCO Capital Management, Inc. in
1979, and manages other INVESCO Capital Management, Inc. portfolios for
investors. Ed also is Chairman of INVESCO Capital Management, Inc. He received
his M.B.A. from the University of Colorado and his B.A. from the University of
Virginia.
Charlie Mayer and Pete Lovell are each members of the INVESCO Equity Team, which
is led by Charlie Mayer.
<PAGE>
[INVESCO ICON] POTENTIAL REWARDS
NO SINGLE FUND SHOULD REPRESENT YOUR COMPLETE INVESTMENT
PROGRAM NOR SHOULD YOU ATTEMPT TO USE THE FUNDS FOR SHORT-TERM TRADING PURPOSES.
The Funds offer shareholders the potential to increase the value of their
capital over time and also offer the opportunity for current income. Like most
mutual funds, each Fund seeks to provide higher returns than the market or its
competitors, but cannot guarantee that performance. Each Fund seeks to minimize
risk by investing in many different companies in a variety of industries.
SUITABILITY FOR INVESTORS
Only you can determine if an investment in a Fund is right for you based upon
your own economic situation, the risk level with which you are comfortable and
other factors. In general, the Funds are most suitable for investors who:
* are willing to grow their capital over the long-term (at least five years).
* understand that shares of a Fund can, and likely will, have daily price
fluctuations.
* 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:
* primarily seeking current dividend income.
* unwilling to accept potentially daily changes in the price of Fund shares.
* speculating on short-term fluctuations in the stock markets.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND
ASSETS + ACCRUED INTEREST AND
DIVIDENDS - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- -----------------------------
/ NUMBER OF SHARES
= YOUR SHARE PRICE (NAV).
The value of your Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in each Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally
4:00 p.m. Eastern time). Therefore, shares of the Funds are not priced on days
when the NYSE is closed, which generally is on weekends and national holidays in
the U.S.
NAV is calculated by adding together the current market price of all of a Fund's
investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
All purchases, sales and exchanges of Fund shares are made by INVESCO at the NAV
next calculated after INVESCO receives proper instructions from you to purchase,
redeem or exchange shares of a Fund. Your instructions must be received by
INVESCO no later than the close of the NYSE to effect transactions at that day's
NAV. If INVESCO hears from you after that time, your instructions will be
processed at the NAV calculated at the end of the next day that the NYSE is
open.
<PAGE>
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.
[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.
Many of the INVESCO Funds have multiple classes of shares, each class
representing an interest in the same portfolio of investments. When choosing a
share class, you should consider which class best meets your situation. Your
investment representative can help you decide. Contact your investment
representative for several convenient ways to invest in the Funds. [[Class C]
shares are available only through your investment representative.] There is no
charge to invest directly through INVESCO. However, with respect to [Class C]
shares, upon redemption or exchange of [Class C] shares held thirteen months or
less (other than [Class C] shares acquired through reinvestment of dividends or
other distributions), a contingent deferred sales charge of 1% of the current
net value of [Class C] shares will be assessed. 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 [Class C] shares in any of the Funds for
[Class C] shares in another INVESCO mutual fund on the basis of their respective
NAVs at the time of the exchange.
<PAGE>
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:
* 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).
* You may make up to four exchanges out of each Fund per 12-month period.
* Each Fund reserves the right to reject any exchange request, or to modify or
terminate the exchange policy, if it is in the best interests of the Fund and
its shareholders. Notice of all such modifications or termination that affect
all shareholders of the Fund will be given at least 60 days prior to the
effective date of the change, except in unusual instances, including a
suspension of redemption of the exchanged security under Section 22(e) of
the Investment Company Act of 1940.
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).
CONTINGENT DEFERRED SALES CHARGE (CDSC). If you exchange or redeem [Class C]
shares of any Fund after holding them thirteen months or less (other than shares
acquired through reinvestment of dividends or other distributions), a CDSC of 1%
of the current net asset value of the shares being exchanged will be assessed.
The fee applies to redemptions from the Fund and exchanges (other than exchanges
into [Class C] shares) into any of the other mutual funds which are also advised
by INVESCO and distributed by IDI. We will use the "first-in, first-out" method
to determine your holding period. Under this method, the date of redemption or
exchange will be compared with the earliest purchase date of shares held in your
account. If your holding period is less than thirteen months, the CDSC will be
assessed on the current net asset value of those shares.
The CDSC for [Class C] shares generally will be waived:
* to pay account fees;
* for IRA distributions due to death or disability or upon periodic
distributions based on life expectancy;
<PAGE>
* to return excess contributions (and earnings, if applicable) from retirement
plan accounts; or
* for redemptions following the death of a shareholder or beneficial owner.
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
THROUGH YOUR INVESTMENT Contact your
REPRESENTATIVE investment
representative.
- --------------------------------------------------------------------------------
BY CHECK $1,000 for
Mail to: regular
INVESCO Funds Group, accounts;
Inc., $250 for an
P.O. Box 173706, IRA; $50 mini
Denver, CO 80217-3706. mum for each
You may send your check subsequent
by overnight courier to: investment.
7800 E. Union Ave.
Denver, CO 80237.
- --------------------------------------------------------------------------------
BY WIRE $1,000
You may send your
payment by
bank wire (call INVESCO
for instructions).
- --------------------------------------------------------------------------------
BY TELEPHONE WITH ACH $50 You must forward
Call 1-800-525-8085 to your bank account
request your pur chase. information to
INVESCO will move money INVESCO prior to
from your designated using this option.
bank/credit union chec-
king or savings account
in order to purchase
shares, upon your telep-
hone instructions, when-
ever you wish.
- --------------------------------------------------------------------------------
REGULAR INVESTING WITH $50 per month Like all regular
EASIVEST OR DIRECT PAYROLL for EasiVest; $50 investment plans,
Purchase per pay period neither EasiVest
You may enroll on your for Direct nor Direst Payroll
fund Payroll Purchase ensures a
application, or call us Purchase. You profit or protects
for a separate may start or against loss in a
form and more details. stop your falling market.
Investing regular Because you'll
the same amount on a investment plan invest con-
monthly basis at any time, tinually,
allows you to buy more with two weeks' regardless of
shares when prices are notice to varying price
low and fewer shares INVESCO. levels, consider
when prices are high. your financial
This "dollar cost averag- ability to keep
ing" may help offset buying through low
market fluctuations. price levels. And
Over a period of time, remember that you
your average cost per will lose money if
share may be less than you redeem your
the actual aver age shares when the
value per share. market value of
all your shares is
less than their cost.
<PAGE>
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
BY PAL(R) $1,000 (The Be sure to write
Your "Personal Account exchange min- down the confir-
Line" is imum is $250 mation number
available for subsequent for subsequent provided by PAL(R).
purchases purchases You must forward
and exchanges 24 hours a requested by your bank account
day. Simply call telephone.) information to
1-800-424-8085. INVESCO prior to
using this option.
- --------------------------------------------------------------------------------
BY EXCHANGE $1,000 to open See "Exchange
Between two INVESCO a new account; Policy."
funds. Call $50 for written
1-800-525-8085 for requests to
prospectuses of purchase addi
other INVESCO funds. tional shares
Exchanges for an existing
may be made by phone or account. (The
at our exchange
Web site at minimum is $250
www.invesco.com. You for exchanges
may also establish an requested by
automatic telephone.)
monthly exchange service
between
two INVESCO funds; call
us for further details
and the correct form.
DISTRIBUTION EXPENSES. We have adopted a Master Distribution Plan (commonly
known as a "12b-1 Plan") for the Funds' [Class C] shares. The 12b-1 fees paid by
each Funds' [Class C] shares are used to pay distribution fees to IDI for the
sale and distribution of its shares and fees for services provided to
shareholders, all or a substantial portion of which are paid to the dealer of
record. Because the Funds' [Class C] shares pay these fees out of their assets
on an ongoing basis, over time these fees will increase the cost of your
investment.
[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
<PAGE>
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.
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
Contact your investment representative for several convenient ways to sell your
Fund shares. Shares of the Funds may be sold at any time at the next NAV
calculated after your request to sell in proper form is received by INVESCO.
Depending on Fund performance, the NAV at the time you sell your shares may be
more or less than the price you paid to purchase your shares.
TO SELL SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE 4:00 P.M.
EASTERN TIME.
If you own shares in more than one INVESCO fund, please specify the Fund whose
shares you wish to sell. Remember that any sale or exchange of shares in a
non-retirement account will likely result in a taxable gain or loss.
While INVESCO attempts to process telephone redemptions promptly, there may be
times particularly in periods of severe economic or market disruption - when you
may experience delays in redeeming shares by phone.
INVESCO usually mails you the proceeds from the sale of Fund shares within seven
days after we receive your request to sell in proper form. However, payment may
be postponed under unusual circumstances -- for instance, if normal trading is
not taking place on the NYSE, or during an emergency as defined by the
Securities and Exchange Commission. If your INVESCO fund shares were purchased
by a check which has not yet cleared, payment will be made promptly when your
purchase check does clear; that can take up to 15 days.
If you participate in EasiVest, the Funds' automatic monthly investment program,
and sell all of the shares in your account, we will not make any additional
EasiVest purchases unless you give us other instructions.
Because of the Funds' expense structure, it costs as much to handle a small
account as it does to handle a large one. If the value of your account in a Fund
falls below $250 as a result of your actions (for example, sale of your Fund
shares), each Fund reserves the right to sell all of your shares, send the
proceeds of the sale to you and close your account. Before this is done, you
will be notified and given 60 days to increase the value of your account to $250
or more.
<PAGE>
- --------------------------------------------------------------------------------
METHOD REDEMPTION MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
THROUGH YOUR Contact your
INVESTMENT investment
REPRESENTATIVE representative
- --------------------------------------------------------------------------------
BY TELEPHONE $250 (or, if less, INVESCO's telephone
Call us toll-free at: full liquidation redemption
1-800-525-8085. of the account) privileges may be
for a redemption modified or terminated
check; $1000 for in the future
a wire to your at INVESCO's discretion.
bank of record.
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
80217-3706. You may will be mailed to
also send your your address as it
request by overnight appears on
courier to 7800 E. INVESCO's records,
Union Ave., or to a bank
Denver, CO 80237. designated by you
in writing.
- --------------------------------------------------------------------------------
BY TELEPHONE WITH ACH $250 You must forward
Call 1-800-525-8085 your bank account
to request your information to
redemption. INVESCO INVESCO prior to
will automatically using this option.
pay the proceeds into
your designated bank
account.
- --------------------------------------------------------------------------------
BY EXCHANGE $250 for exchanges See "Exchange
Between two INVESCO requested by Policy."
funds. Call telephone. When opening a new
1-800-525-8085 for account, investment
prospectuses of other minimums apply.
INVESCO funds.
Exchanges may be
made by phone or
at our Web site at
www.invesco.com.
You may also establish
an automatic monthly
exchange service
between two INVESCO
funds; call us for further
details and the correct form.
- --------------------------------------------------------------------------------
PERIODIC WITHDRAWAL $100 per payment You must have at
PLAN on a monthly or least $10,000 total
You may call us to quarterly basis. invested with the
request the The redemption INVESCO funds with
appropriate form and check may be made at least $5,000 of
more information at payable to any that total invested
1-800-525-8085. party you in the fund from
designate. which withdrawals
will be made.
<PAGE>
- --------------------------------------------------------------------------------
METHOD REDEMPTION MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
PAYMENT TO THIRD PARTY Any amount. All registered
Mail your request to account owners must
INVESCO Funds Group, Inc., sign the request,
P.O. Box 17306 with signature
Denver, CO guarantees from an
80217-3706. eligable guarantor
financial
institution, such
as a commercial
bank or a
recognized national
or regional
securities firm.
[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 thatyou own. These
distributions are required under federal tax laws governing mutual funds. It is
the policy of each Fund to distribute all investment company taxable income and
net capital gains. As a result of this policy and the Fund's qualification as a
regulated investment company, it is anticipated that none of the Funds will pay
any federal income or excise taxes. Instead, each Fund will be accorded conduit
or "pass through" treatment for federal income tax purposes.
However, unless you are (or your account is) exempt from income taxes, you must
include all dividends and capital gain distributions paid to you by a Fund in
your taxable income for federal, state and local income tax purposes. You also
may realize capital gains or losses when you sell shares of a Fund at more or
less than the price you originally paid. An exchange is treated as a sale, and
is a taxable event. Dividends and other distributions usually are taxable
whether you receive them in cash or automatically reinvest them in shares of the
distributing Fund(s) or other INVESCO funds.
If you have not provided INVESCO with complete, correct tax information, the
Funds are required by law to withhold 31% of your distributions and any money
that you receive from the sale of shares of the Funds as a backup withholding
tax.
We will provide you with detailed information every year about your dividends
and capital gain distributions. Depending on the activity in your individual
account, we may also be able to assist with cost basis figures for shares you
sell.
<PAGE>
[GRAPH ICON] DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Funds earn ordinary or investment income from dividends and interest on
their investments. The Funds expect to distribute substantially all of this
investment income, less Fund expenses, to shareholders quarterly or at such
other times as the Funds may elect.
NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS ARE DISTRIBUTED TO
SHAREHOLDERS AT LEAST ANNUALLY. DISTRIBUTIONS ARE TAXABLE WHETHER REINVESTED IN
ADDITIONAL SHARES OR PAID TO YOU IN CASH (EXCEPT FOR TAX-EXEMPT ACCOUNTS).
TAX-EXEMPT ACCOUNTS).
A Fund also realizes capital gains and losses when it sells securities in its
portfolio for more or less than it had paid for them. If total gains on sales
exceed total losses (including losses carried forward from previous years), a
Fund has a net realized capital gain. Net realized capital gains, if any, are
distributed to shareholders at least annually, usually in December.
Under present federal income tax laws, capital gains may be taxable at different
rates, depending on how long a Fund has held the underlying investment.
Short-term capital gains which are derived from the sale of assets held one year
or less are taxed as ordinary income. Long-term capital gains which are derived
from the sale of assets held for more than one year are taxed at up to 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 declared. If you buy shares of a Fund just before a distribution
is declared, you may wind up "buying a distribution." This means that if the
Fund makes a dividend or capital gain distribution shortly after you buy, you
will receive some of your investment back as a taxable distribution. Most
shareholders want to avoid this. And, if you sell your shares at a loss for tax
purposes and purchase a substantially identical investment within 30 days before
or after that sale, the transaction is usually considered a "wash sale" and you
will not be able to claim a tax loss.
Dividends and capital gain distributions paid by each Fund are automatically
reinvested in additional Fund shares at the NAV on the ex-dividend date, unless
you choose to have them automatically reinvested in another INVESCO fund or paid
to you by check or electronic funds transfer. If you choose to be paid by check,
the minimum amount of the check must be at least $10; amounts less than that
will be automatically reinvested. Dividends and other distributions, whether
received in cash or reinvested in additional Fund shares, may be subject to
federal income tax.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of [Class II] shares of a Fund for the past five years (or, if
shorter, the period of the Fund's operations). Certain information reflects
financial results for a single Fund share. Since [Class C] shares are new,
financial information is not available for that class as of the date of this
Prospectus. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in a Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the financial statements, is included in INVESCO Combination Stock & Bond Funds,
Inc.'s 1999 Annual Report to Shareholders, which is incorporated by reference
into the Statement of Additional Information. This Report is available without
charge by contacting IDI at the address or telephone number on the back cover of
this Prospectus.
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31 YEAR ENDED JUNE 30
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY INCOME FUND -
[CLASS II] 1999(a) 1998 1997 1996 1995 1994
PER SHARE DATA
Net Asset Value-Beginning of Period $16.18 $15.31 $13.21 $11.92 $11.32 $11.53
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.30 0.38 0.35 0.41 0.42 0.36
Net Gains on Securities
(Both Realized and Unrealized) 1.19 2.54 3.05 1.53 1.14 0.02
- --------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.49 2.92 3.40 1.94 1.56 0.38
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment 0.31 0.38 0.35 0.41 0.42 0.36
Income(b)
In Excess of Net Investment 0.00 0.00 0.00 0.00 0.00 0.11
Income(b)
Distributions from Capital Gains 1.51 1.67 0.95 0.24 0.54 0.12
- --------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 1.82 2.05 1.30 0.65 0.96 0.59
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $15.85 $16.18 $15.31 $13.21 $11.92 $11.32
====================================================================================================================
TOTAL RETURN 10.31%(d) 20.55% 27.33% 16.54% 14.79% 3.24%
RATIOS
Net Assets-End of Period $4,845,036 $5,080,735 $4,574,675 $4,170,536 $4,009,609 $3,913,322
($000 Omitted)
Ratio of Expenses to Average Net 0.90%(e)(f) 0.90%(e) 0.95%(e) 0.93%(e) 0.94% 0.92%
Assets(c)
Ratio of Net Investment Income to 2.10%(f) 2.35% 2.54% 3.17% 3.61% 3.11%
Average Net Assets(c)
Portfolio Turnover Rate 47%(d) 58% 47% 63% 54% 56%
(a) From July 1, 1998 to May 31, 1999, the Fund's current fiscal year end.
(b) Distributions in excess of net investment income for the year ended June 30, 1998 aggregated less than $0.01
on a per share basis.
(c) Various expenses of the Fund were voluntarily absorbed by INVESCO for the period ended May 31, 1999 and for
the years ended June 30, 1998, 1997, 1996, 1995 and 1994. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 0.91% (annualized), 0.90%, 0.98%, 0.96%, 0.97% and
0.95%, respectively, and ratio of net investment income to average net assets would have been 2.09%,
(annualized) 2.35%, 2.51%, 3.14%, 3.58% and 3.08%, respectively.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by INVESCO, which is before any expense
offset arrangements.
(f) Annualized.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
MAY 31 YEAR ENDED JULY 31 JULY 31
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCED FUND -
[CLASS II] 1999(a) 1998 1997 1996 1995 1994(b)
PER SHARE DATA
Net Asset Value-Beginning
of Period $15.71 $15.86 $13.36 $12.08 $10.30 $10.00
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.24 0.33 0.34 0.37 0.29 0.12
Net Gains on Securities
(Both Realized and Unrealized) 1.73 1.50 3.37 2.12 2.03 0.30
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 1.97 1.83 3.71 2.49 2.32 0.42
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment 0.24 0.35 0.34 0.37 0.29 0.12
Income
Distributions from Capital Gains 0.66 1.63 0.87 0.84 0.25 0.00
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.90 1.98 1.21 1.21 0.54 0.12
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $16.78 $15.71 $15.86 $13.36 $12.08 $10.30
=========================================================================================================================
TOTAL RETURN 13.12%(c) 12.90% 29.27% 20.93% 23.18% 4.16%(c)
RATIOS
Net Assets-End of Period $324,838 $216,624 $161,921 $115,066 $37,224 $4,252
($000 Omitted)
Ratio of Expenses to
Average Net Assets(d) 1.21%(e)(f) 1.22%(f) 1.29%(f) 1.29%(f) 1.25% 1.25%(e)
Ratio of Net Investment Income 1.94%(e) 2.18% 2.46% 3.03% 3.12% 2.87%(e)
to Average Net Assets(d)
Portfolio Turnover Rate 100%(c) 108% 155% 259% 255% 61%(c)
(a) From August 1, 1998 to May 31, 1999, the Fund's current fiscal year end.
(b) From December 1, 1993, commencement of investment operations, to July 31, 1994.
(c) Based on operations for the period shown and, accordingly, is 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 INVESCO, which is before any expense
offset arrangements.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31 YEAR ENDED AUGUST 31
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL RETURN FUND -
[CLASS II] 1999(a) 1998 1997 1996 1995 1994
PER SHARE DATA
Net Asset Value-Beginning of $28.16 $27.77 $22.60 $20.95 $18.54 $18.27
Period
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.60 0.83 0.77 0.73 0.72 0.69
Net Gains on Securities
(Both Realized and Unrealized) 5.03 0.87 5.26 1.78 2.46 0.60
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 5.63 1.70 6.03 2.51 3.18 1.29
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.60 0.83 0.77 0.73 0.72 0.60
In Excess of Net Investment Income(b) 0.00 0.00 0.00 0.00 0.00 0.09
Distributions from Capital Gains 0.82 0.48 0.09 0.13 0.05 0.17
In Excess of Capital Gains 0.00 0.00 0.00 0.00 0.00 0.16
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 1.42 1.31 0.86 0.86 0.77 1.02
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $32.37 $28.16 $27.77 $22.60 $20.95 $18.54
=============================================================================================================================
TOTAL RETURN 20.27%(c) 6.02% 27.01% 12.06% 17.54% 7.22%
RATIOS
Net Assets - End of Period
($000 Omitted) $3,418,746 $2,561,016 $1,845,594 $1,032,151 $563,468 $292,765
Ratio of Expenses to
Average Net Assets(d) 0.83%(e)(f) 0.79%(e) 0.86%(e) 0.89%(e) 0.95% 0.96%
Ratio of Net Investment Income to
Average Net Assets(d) 2.61%(f) 2.82% 3.11% 3.44% 3.97% 3.31%
Portfolio Turnover Rate 7%(c) 17% 4% 10% 30% 12%
(a) From September 1, 1998 to July 31, 1999, the Fund's current fiscal year end.
(b) Distributions in excess of net investment income for the period ended May 31, 1999 and the year ended August
31, 1995, aggregated less than $0.01 on a per share basis.
(c) Based on operations for the period shown and, accordingly, is 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 INVESCO, if applicable, which is
before any expense offset arrangements.
(f) Annualized.
</TABLE>
<PAGE>
December 31, 1999
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
INVESCO BALANCED FUND--[CLASS C]
INVESCO EQUITY INCOME FUND--[CLASS C]
INVESCO TOTAL RETURN FUND--[CLASS C]
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 December 31, 1999, is a
supplement to this Prospectus and has detailed information about the Funds and
their investment policies and practices. A current SAI for the Funds is on file
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus of the Funds' [Class II] shares may be accessed
through the INVESCO Web site at www.invesco.com. In addition, the Prospectus,
SAI, annual report and semiannual report of the Funds are available on the SEC
Web site at www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; or call 1-800-525-8085. Copies of these materials are also
available (with a copying charge) from the SEC's Public Reference Section at 450
Fifth Street, N.W., Washington, D.C. Information on the Public Reference Section
can be obtained by calling 1-800-SEC-0330. The SEC file numbers for the Funds
are 811-8066 and 033-69904.
811-8066
<PAGE>
PROSPECTUS | December 31, 1999
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO
COMBINATION
STOCK & BOND
FUNDS, INC.
INVESCO BALANCED FUND-[CLASS I]
A NO-LOAD MUTUAL FUND SEEKING CAPITAL APPRECIATION AND CURRENT INCOME.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks............33
Fees And Expenses.................................35
Investment Risks..................................36
Risks Associated With Particular Investments......37
Temporary Defensive Positions.....................41
Fund Management...................................42
Portfolio Managers................................42
Potential Rewards.................................43
Share Price.......................................43
How To Buy Shares.................................44
Your Account Services.............................45
How To Sell Shares................................47
Taxes.............................................48
Dividends And Capital Gain Distributions..........49
[INVESCO ICON]
INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. 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
[INVESCO ICON] Working With Invesco
- -------------------------------------------------------------------------------
[ARROW ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the Fund.
Together with our affiliated companies, we at INVESCO direct all aspects of the
management and sale of the Fund.
FOR MORE DETAILS ABOUT EACH FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
The Fund attempts to provide you with high total return through both growth and
current income from these investments. The Fund is aggressively managed. The
Fund invests 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 Fund attempts
to cushion against sharp price movements in both equity and debt securities.
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.
<PAGE>
A portion of the Fund's portfolio invested in debt securities may include
obligations of the U.S. government, government agencies, and investment grade
corporate bonds. These securities tend to offer lower income than bonds of lower
quality but are more shielded from credit risk. Obligations issued by U.S.
government agencies may include some supported only by the credit of the issuing
agency rather than by the full faith and credit of the U.S. government. The Fund
may hold securities of any maturity, with the average maturity of the portfolio
varying depending upon economic and market conditions.
[ARROW ICON] Although the Fund is subject to a number of risks that could affect
its performance, its 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 the Fund's portfolio may decline
in value more than the overall securities markets. Since INVESCO has discretion
to allocate the amounts of equity securities and debt securities held in the
Fund, there is an additional risk that the portfolio of the Fund may not be
allocated in the most advantageous way between equity and debt securities,
particularly in times of significant market movements.
The Fund is subject to other principal risks such as credit, debt securities,
foreign securities, interest rate, duration, liquidity, derivatives, options and
futures, counterparty and lack of timely information risks. These risks are
described and discussed later in the Prospectus under the headings "Investment
Risks" and "Risks Associated With Particular Investments." An investment in the
Fund is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation ("FDIC") or any other government agency.
As with any mutual fund, there is always a risk that you can lose money on your
investment in the Fund.
<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
BALANCED FUND-[CLASS I]
Management Fees 0.60%
Distribution and Service (12b-1) Fees None
Other Expenses(1) ____%
-----
Total Annual Fund Operating Expenses(1) ____%
=====
(1) Based on estimated expenses for the fiscal year ending May 31, 2000. These
expenses may be higher or lower than actual expenses. If necessary, INVESCO
will voluntarily absorb the Fund's expenses to keep expenses at or below
1.02% of the Fund's average daily 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 Fund
to the cost of investing in other mutual funds.
The Example assumes that you invested $10,000 in the 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 the Fund's expenses remained the same. Although the Fund's actual
costs and performance may be higher or lower, based on these assumptions your
costs would have been:
1 year 3 years 5 years 10 years
$---- $---- $---- $-----
<PAGE>
[ARROW ICON] INVESTMENT RISKS
You should determine the level of risk with which you are comfortable before you
invest. The principal risks of investing in any mutual fund, including the Fund,
are:
BEFORE INVESTING IN THE FUND, YOU SHOULD DETERMINE THE LEVEL OF RISK WITH WHICH
YOU ARE COMFORTABLE. TAKE INTO ACCOUNT FACTORS LIKE YOUR AGE, CAREER, INCOME
LEVEL, AND TIME HORIZON.
NOT INSURED. Mutual funds are not insured by the FDIC or any other agency,
unlike bank deposits such as CDs or savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its performance, nor
assure you that the market value of your investment will increase. You may lose
the money you invest, and the Fund 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 the Fund's underlying investments and changes in the
equity markets as a whole.
NOT A COMPLETE INVESTMENT PLAN. An investment in any mutual fund does not
constitute a complete investment plan. The Fund is 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 Fund could be adversely
affected.
In addition, the markets for, or values of, securities in which the Fund invests
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 Fund's 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
You should consider the special factors associated with the policies discussed
below in determining the appropriateness of investing in the Fund. See the
Statement of Additional Information for a discussion of additional risk factors.
MARKET RISK
Equity stock prices vary and may fall, thus reducing the value of the 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 Fund may invest in debt instruments, such as notes and bonds. There is a
possibility that the issuers of these instruments will be unable to meet
interest payments or repay principal. Changes in the financial strength of an
issuer may reduce the credit rating of its debt instruments and may affect their
value.
DEBT SECURITIES RISK
Debt securities include bonds, notes and other securities that give the holder
the right to receive fixed amounts of principal, interest, or both on a date in
the future or on demand. Debt securities also are often referred to as
fixed-income securities, even if the rate of interest varies over the life of
the security.
Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that the
market value of the security may decline for a variety of reasons, including
changes in interest rates. An increase in interest rates tends to reduce the
market values of debt securities in which the Fund invests. A decline in
interest rates tends to increase the market values of debt securities in which
the Fund invests.
Moody's Investor Services, Inc. ("Moody's") and Standard & Poor's ("S&P")
ratings provide a useful but not certain guide to the credit risk of many debt
securities. The lower the rating of a debt security, the greater the credit risk
the rating service assigns to the security. To compensate investors for
accepting that greater risk, lower-rated securities tend to offer higher
interest rates. Lower-rated debt securities are often referred to as "junk
bonds." A debt security is considered lower grade if it is rated Ba or less by
Moody's or BB or less by S&P.
Lower-rated and non-rated debt securities of comparable quality are subject to
wider fluctuations in yields and market values than higher-rated debt securities
and may be considered speculative. Junk bonds are perceived by independent
rating agencies as having a greater risk that their issuers will not be able to
pay the interest and principal as they become due over the life of the bond. In
addition to the loss of interest payments, the market value of a defaulted bond
would likely drop, and the Fund would be forced to sell it at a loss. Debt
securities rated lower than B by either S&P or Moody's are usually considered to
be highly speculative.
<PAGE>
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.
FOREIGN SECURITIES RISKS
Investments in foreign and emerging markets carry special risks, including
currency, political, regulatory and diplomatic risks. The Fund may invest up to
25% of its assets in securities of non-U.S. issuers. Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and
a foreign currency may reduce the value of the 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.
<PAGE>
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 the 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
The Fund's portfolio is liquid if the Fund is able to sell the securities it
owns at a fair price within a reasonable time. Liquidity is generally related to
the market trading volume for a particular security. Investments in smaller
companies or in foreign companies or companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.
DERIVATIVES RISK
A derivative is a financial instrument whose value is "derived," in some manner,
from the price of another security, index, asset or rate. Derivatives include
options and futures contracts, among a wide range of other instruments. The
principal risk of investments in derivatives is that the fluctuations in their
values may not correlate perfectly with the overall securities markets. Some
derivatives are more sensitive to interest rate changes and market price
fluctuations than others. Also, derivatives are subject to counterparty risk
described below.
OPTIONS AND FUTURES RISK
Options and futures are common types of derivatives that the 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.
<PAGE>
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 the
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 Fund generally invests in equity and debt securities. However, in an effort
to diversify its holdings and provide some protection against the risk of other
investments, the Fund 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 the Fund's portfolio,
have their own risks.
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRS)
These are securities issued by Market, Information,
U.S. banks that represent shares Political, Regulatory,
of foreign corporations held by Diplomatic,
those banks. Although traded in Liquidity and
U.S. securities markets and valued Currency Risks
in U.S. dollars, ADRs carry most
of the risks of invest ing
directly in foreign securities.
- --------------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by private Market, Credit,
companies or governments Interest Rate and
representing an obligation to pay Duration Risks
interest and to repay principal
when the security matures.
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an amount Currency,
of currency on a date in the Political, Diplo-
future at an agreed-upon exchange matic, Counterparty
rate might be used by the Fund to and Regulatory
hedge against changes in foreign Risks
currency exchange rates when the
Fund invests in for eign
securities. Does not reduce price
fluctuations in foreign
securities, or prevent losses if
the prices of those securities
decline.
- --------------------------------------------------------------------------------
FUTURES Market, Liquidity
A futures contract is an agreement and Options and
to buy or sell a spe cific amount Futures Risks
of a financial instrument (such as
an index option) at a stated price
on a stated date. The Fund may
use futures contracts to provide
liquidity and to hedge portfolio
value.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot be sold Liquidity Risk
quickly at its fair value.
- --------------------------------------------------------------------------------
OPTIONS Credit,
The obligation or right to deliver Information,
or receive a security or other Liquidity and
instrument, index or commodity, or Options and Futures
cash pay ment depending on the Risks
price of the underlying security
or the performance of an index or
other benchmark. Includes options
on specific securities and stock
indi ces, and options on stock
index futures. May be used in the
Fund's portfolio to provide
liquidity and hedge portfolio
value.
- --------------------------------------------------------------------------------
OTHER FINANCIAL INSTRUMENTS Counterparty,
These may include forward Credit, Currency,
contracts, swaps, caps, floors and Interest Rate,
collars. They may be used to try Liquidity, Market
to manage the Fund's foreign and Regulatory
currency exposure and other invest Risks
ment risks, which can cause its
net asset value 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.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A contract under which the seller Credit and
of a security agrees to buy it Counterparty Risks
back at an agreed-upon price and
time in the future.
- --------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not Liquidity Risk
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.
- --------------------------------------------------------------------------------
[ARROW ICON] TEMPORARY DEFENSIVE POSITIONS
When securities markets or economic conditions are unfavorable or unsettled, we
might try to protect the assets of the Fund by investing in securities that are
highly liquid, such as high quality money market instruments like short-term
U.S. government obligations, commercial paper or repurchase agreements, even
though that is not the normal investment strategy of the Fund. We have the right
to invest up to 100% of the 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, the Fund's performance could be comparatively lower if it
concentrates in defensive holdings.
<PAGE>
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $296 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Funds. INVESCO was founded in 1932 and manages over $__ billion
for more than ______ shareholders of ___ INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative and
transfer agency functions (the processing of purchases, sales and exchanges of
Fund shares).
A wholly owned subsidiary of INVESCO, INVESCO Distributors, Inc. ("IDI"), is the
Fund's distributor and is responsible for the sale of the Fund's shares.
INVESCO and IDI are subsidiaries of AMVESCAP PLC.
Since the Fund's [Class I] shares did not commence operations until December 31,
1999, [Class I] shares paid no fees to INVESCO for its advisory services in the
period ended May 31, 1999.
[INVESCO ICON] PORTFOLIO MANAGERS
The following individuals are primarily responsible for the day-to-day
management of the Fund's portfolio holdings:
CHARLES P. MAYER is Director of Investments, a co-portfolio manager of the Fund
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 Fund 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.
<PAGE>
PETER M. LOVELL has been a co-portfolio manager of the 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.
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.
This Fund is offered only to institutional investors and qualified retirement
plans. The Fund offers shareholders the potential to increase the value of their
capital over time and also offer the opportunity for current income. Like most
mutual funds, the Fund seeks to provide higher returns than the market or its
competitors, but cannot guarantee that performance. The Fund seeks to minimize
risk by investing in many different companies in a variety of industries.
SUITABILITY FOR INVESTORS
Only you can determine if an investment in the 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 Fund is 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 the 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 Fund 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 the Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally
4:00 p.m. Eastern time). Therefore, shares of the Fund are not priced on days
when the NYSE is closed, which generally is on weekends and national holidays in
the U.S.
<PAGE>
NAV is calculated by adding together the current market price of all of the
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 the 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 Fund, 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 Fund
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 Fund on that
day.
[INVESCO ICON] HOW TO BUY SHARES
TO BUY SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE THE CLOSE
OF THE NYSE, NORMALLY, 4:00 P.M. EASTERN TIME.
The Fund offers three classes of shares. Each class represents an identical
interest in Balanced Fund and has the same rights, except that each class bears
its own distribution and shareholder servicing charges. The income attributable
to each class and the dividends payable on the shares of each class will be
reduced by the amount of the distribution fee or service fee, if applicable,
payable by that class.
In deciding which class of shares to purchase, you should consider, among other
things, (i) the length of time you expect to hold your shares, (ii) the
provisions of the distribution plan applicable to the class, if any, and (iii)
the eligibility requirements that apply to purchases of a particular class.
This Fund is offered only to institutional investors and qualified retirement
plans. This Fund is not available to retail investors.
There is no charge to invest, exchange or redeem shares when you make
transactions directly through INVESCO. However, if you invest in the Fund
through a securities broker, you may be charged a commission or transaction fee
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.
<PAGE>
EXCHANGE POLICY. You may exchange your shares in the Fund 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 the Fund per 12-month period.
o The Fund reserves the right to reject any exchange request, or to modify or
terminate the exchange policy, if it is in the best interests of the Fund
and its shareholders. Notice of all such modifications or termination that
affect all shareholders of the Fund will be given at least 60 days prior to
the effective date of the change, except in unusual instances, including a
suspension of redemption of the exchanged security under Section 22(e) of
the Investment Company Act of 1940.
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).
[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 Fund does not issue share certificates.
QUARTERLY INVESTMENT SUMMARIES. Each calendar quarter, you receive a written
statement which consolidates and summarizes ccount activity and value at the
beginning and end of the period for each of your INVESCO funds.
<PAGE>
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.
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 Fund 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.
<PAGE>
METHOD REDEMPTION MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
BY TELEPHONE $250 (or, if less, INVESCO's telephone
Call us toll-free at: full liquidation redemption
1-800-525-8085. of the account) privileges may be
for a redemption modified or terminated
check; $1000 for in the future
a wire to your at INVESCO's discretion.
bank of record.
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
80217-3706. You may will be mailed to
also send your your address as it
request by overnight appears on
courier to 7800 E. INVESCO's records,
Union Ave., or to a bank
Denver, CO 80237. designated by you
in writing.
- --------------------------------------------------------------------------------
BY EXCHANGE See "Exchange
Between two INVESCO Policy."
funds. Call When opening a new
1-800-525-8085 for account, investment
prospectuses of other minimums apply.
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.
- --------------------------------------------------------------------------------
<PAGE>
METHOD REDEMPTION MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
PERIODIC WITHDRAWAL This option is You must have at
PLAN not available to least $10,000 total
You may call us to shareholders of invested with the
request the the Fund. INVESCO funds with
appropriate form and at least $5,000 of
more information at that total invested
1-800-525-8085. in the fund from
which withdrawals
will be made.
- --------------------------------------------------------------------------------
PAYMENT TO THIRD PARTY Any amount. All registered
Mail your request to account owners must
INVESCO Funds Group, Inc., sign the request,
P.O. Box 17306 with signature
Denver, CO guarantees from an
80217-3706. eligible guarantor
financial
institution, such
as a commercial
bank or a
recognized national
or regional
securities firm.
[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 Fund.
TO AVOID BACKUP WITHHOLDING, BE SURE WE HAVE YOUR CORRECT SOCIAL SECURITY OR
TAXPAYER IDENTIFICATION NUMBER.
The 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 the Fund's shares thatyou own. These
distributions are required under federal tax laws governing mutual funds. It is
the policy of the 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 the Fund will not pay any
federal income or excise taxes. Instead, the 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 the 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 the 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
Fund or other INVESCO funds.
If you have not provided INVESCO with complete, correct tax information, the
Fund is required by law to withhold 31% of your distributions and any money that
you receive from the sale of shares of the Fund 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 Fund earns ordinary or investment income from dividends and interest on its
investments. The Fund expects to distribute substantially all of this investment
income, less Fund expenses, to shareholders quarterly or at such other times as
the Fund 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).
The 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), the
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 the 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 up to 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. The Fund's NAV will drop by the amount of the distribution on the day
the distribution is declared. If you buy shares of the Fund just before a
distribution is declared, you may wind up "buying a distribution." 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 the 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>
December 31, 1999
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
INVESCO BALANCED FUND-[CLASS I]
You may obtain additional information about the Fund from several sources:
FINANCIAL REPORTS. Although this Prospectus describes the Fund's anticipated
investments and operations, the Fund also prepares annual and semiannual reports
that detail the Fund's actual investments at the report date. These reports
include discussion of the Fund's recent performance, as well as market and
general economic trends affecting the Fund's performance. The annual report also
includes the report of the Fund's independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI, dated December 31, 1999, is a
supplement to this Prospectus and has detailed information about the Fund and
its investment policies and practices. A current SAI for the Fund is on file
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus of the Fund's [Class II] shares may be accessed
through the INVESCO Web site at www.invesco.com. In addition, the Prospectus,
SAI, annual report and semiannual report of the Fund are available on the SEC
Web site at www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; or call 1-800-525-8085. Copies of these materials are also
available (with a copying charge) from the SEC's Public Reference Section at 450
Fifth Street, N.W., Washington, D.C. Information on the Public Reference Section
can be obtained by calling 1-800-SEC-0330. The SEC file numbers for the Funds
are 811-8066 and 033-69904.
811-8066
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
INVESCO Equity Income Fund - [Class II and Class C]
INVESCO Balanced Fund - [Class I, Class II and Class C]
INVESCO Total Return Fund - [Class II and Class C]
Address: Mailing Address:
7800 E. Union Ave., Denver, CO 80237 P.O. Box 173706, Denver, CO 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
December 31, 1999
- ------------------------------------------------------------------------------
A Prospectus for INVESCO Equity Income - [Class II] (formerly, INVESCO
Industrial Income), INVESCO Balanced [Class II], and INVESCO Total Return -
[Class II] Funds dated September 30, 1999, a Prospectus for INVESCO Balanced
Fund - [Class I] and a Prospectus for INVESCO Equity Income Fund - [Class C],
INVESCO Balanced Fund [Class C] and INVESCO Total Return Fund - [Class C] Funds
dated December 31, 1999, provide the basic information you should know before
investing in a Fund. This Statement of Additional Information ("SAI") is
incorporated by reference into the Funds' Prospectuses; in other words, this SAI
is legally part of the Funds' Prospectuses. Although this SAI is not a
prospectus, it contains information in addition to that set forth in the
Prospectues. It is intended to provide additional information regarding the
activities and operations of the Funds and should be read in conjunction with
the Prospectuses.
You may obtain, without charge, copies of the current Prospectuses of the Funds,
SAI and current annual and semiannual reports by writing to INVESCO
Distributors, Inc., P.O. Box 173706, Denver, CO 80217-3706 , or by calling
1-800-525-8085. The current Prospectus of the [Class II] shares of the Funds is
available through the INVESCO Web site at www.invesco.com.
<PAGE>
TABLE OF CONTENTS
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Investments, Policies and Risks. . . . . . . . . . . . . . . . . . . 53
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . 72
Management of the Funds. . . . . . . . . . . . . . . . . . . . . . . 75
Other Service Providers. . . . . . . . . . . . . . . . . . . . . . . 99
Brokerage Allocation and Other Practices . . . . . . . . . . . . . .100
Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . .103
Tax Consequences of Owning Shares of a Fund. . . . . . . . . . . . .104
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .109
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110
<PAGE>
THE COMPANY
The Company was incorporated under the laws of Maryland as INVESCO Multiple
Asset Funds, Inc. on August 19, 1993. On September 10, 1998, the Company changed
its name to INVESCO Flexible Funds, Inc. and on October 29, 1998 to INVESCO
Combination Stock & Bond Funds, Inc. On May 28, 1999, the Company assumed all of
the assets and liabilities of INVESCO Equity Income Fund (formerly, INVESCO
Industrial Income Fund, Inc.) and INVESCO Total Return Fund, a series of INVESCO
Value Trust.
The Company is an open-end, diversified, management investment company currently
consisting of three portfolios of investments: INVESCO Balanced Fund - [Class I,
Class II and Class C], INVESCO Equity Income Fund [Class II and Class C] and
INVESCO Total Return Fund [Class II and Class C] (each a "Fund" and
collectively, the "Funds"). Additional funds may be offered in the future.
"Open-end" means that each Fund issues an indefinite number of shares which it
continuously offers to redeem at net asset value per share ("NAV"). A
"management" investment company actively buys and sells securities for the
portfolio of each Fund at the direction of a professional manager. Open-end
management investment companies (or one or more series of such companies, such
as the Funds) are commonly referred to as mutual funds. The Funds do not charge
sales fees to purchase their shares. However, the [Class II] shares of each Fund
do pay a 12b-1 distribution fee which is computed and paid monthly at an annual
rate of 0.25% of average net assets attributable to [Class II] shares. The
[Class C] shares of each Fund pay a 12b-1 distribution/service fee which is
computed and paid monthly at an annual rate of 1.00% of average net assets
attributable to [Class C] shares.
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.
<PAGE>
CERTIFICATES OF DEPOSIT IN FOREIGN BANKS AND U.S. BRANCHES OF FOREIGN BANKS --
The Funds may maintain time deposits in and invest in U.S. dollar denominated
CDs issued by foreign banks and U.S. branches of foreign banks. The Funds limit
investments in foreign bank obligations to U.S. dollar denominated obligations
of foreign banks which have more than $10 billion in assets, have branches or
agencies in the U.S., and meet other criteria established by the board of
directors. Investments in foreign securities involve special considerations.
There is generally less publicly available information about foreign issuers
since many foreign countries do not have the same disclosure and reporting
requirements as are imposed by the U.S. securities laws. Moreover, foreign
issuers are generally not bound by uniform accounting and auditing and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Such investments may also entail the risks of possible
imposition of dividend withholding or confiscatory taxes, possible currency
blockage or transfer restrictions, expropriation, nationalization or other
adverse political or economic developments, and the difficulty of enforcing
obligations in other countries.
COMMERCIAL PAPER -- Commercial paper is the term for short-term promissory notes
issued by domestic corporations to meet current working capital needs.
Commercial paper may be unsecured by the corporation's assets but may be backed
by a letter of credit from a bank or other financial institution. The letter of
credit enhances the paper's creditworthiness. The issuer is directly responsible
for payment but the bank "guarantees" that if the note is not paid at maturity
by the issuer, the bank will pay the principal and interest to the buyer.
INVESCO Funds Group, Inc. ("INVESCO"), the Funds' adviser, will consider the
creditworthiness of the institution issuing the letter of credit, as well as the
creditworthiness of the issuer of the commercial paper, when purchasing paper
enhanced by a letter of credit. Commercial paper is sold either as
interest-bearing or on a discounted basis, with maturities not exceeding 270
days.
DEBT SECURITIES -- Debt securities include bonds, notes and other securities
that give the holder the right to receive fixed amounts of principal, interest,
or both on a date in the future or on demand. Debt securities also are often
referred to as fixed-income securities, even if the rate of interest varies over
the life of the security.
Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that the
market value of the security may decline for a variety of reasons, including
changes in interest rates. An increase in interest rates tends to reduce the
market values of debt securities in which a Fund has invested. A decline in
interest rates tends to increase the market values of debt securities in which a
Fund has invested.
Moody's Investor Services, Inc. ("Moody's") and Standard & Poor's ("S&P")
ratings provide a useful guide to the credit risk of many debt securities. The
lower the rating of a debt security, the greater the credit risk the rating
service assigns to the security. To compensate investors for accepting that
greater risk, lower-rated debt securities tend to offer higher interest rates.
Equity Income Fund may invest up to 15% of its portfolio in lower-rated debt
securities, which are often referred to as "junk bonds." Increasing the amount
of Fund assets invested in unrated or lower-grade straight debt securities may
increase the yield produced by the Fund's debt securities but will also increase
the credit risk of those securities. A debt security is considered lower grade
if it is rated Ba or less by Moody's or BB or less by S&P. Never, under any
circumstances, does Equity Income Fund invest in bonds rated below Caa by
Moody's or CCC by S&P.
<PAGE>
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 INVESCO to be of
equivalent quality. At the time of purchase, INVESCO will limit Fund investments
to debt securities which INVESCO believes are not highly speculative.
A significant economic downturn or increase in interest rates may cause issuers
of debt securities to experience increased financial problems which could
adversely affect their ability to pay principal and interest obligations, to
meet projected business goals, and to obtain additional financing. These
conditions more severely impact issuers of lower-rated debt securities. The
market for lower-rated straight debt securities may not be as liquid as the
market for higher-rated straight debt securities. Therefore, INVESCO attempts to
limit Equity Income Fund's purchases of lower-rated securities to securities
having an established secondary market.
Lower-rated securities by S&P (categories BB, B, CCC) include those which are
predominantly speculative because of the issuer's perceived capacity to pay
interest and repay principal in accordance with their terms; BB indicates the
lowest degree of speculation and CCC a high degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
usually outweighed by large uncertainties or major risk exposures to adverse
conditions.
Although bonds in the lowest investment grade debt category (those rated BBB by
S&P, Baa by Moody's or the equivalent) are regarded as having adequate
capability to pay principal and interest, they have speculative characteristics.
Adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case for
higher-rated bonds. Lower-rated bonds by Moody's (categories Ba, B or Caa) are
of poorer quality and also have speculative characteristics. Bonds having
equivalent ratings from other ratings services will have characteristics similar
to those of the corresponding S&P and Moody's ratings. For a specific
description of S&P and Moody's corporate bond rating categories, please refer to
Appendix A.
The Funds may invest in zero coupon bonds, step-up bonds, mortgage-backed
securities and asset-backed securities. Zero coupon bonds do not make regular
interest payments. Zero coupon bonds are sold at a discount from face value.
Principal and accrued discount (representing interest earned but not paid) are
paid at maturity in the amount of the face value. Step-up bonds initially make
no (or low) cash interest payments but begin paying interest (or a higher rate
of interest) at a fixed time after issuance of the bond. The market values of
zero coupon and step-up bonds generally fluctuate more in response to changes in
interest rates than interest-paying securities of comparable term and quality. A
Fund may be required to distribute income recognized on these bonds, even though
no cash may be paid to a Fund until the maturity or call date of a bond, in
<PAGE>
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
customer (the "drawer"). Bankers' acceptances are used to finance the import,
export, transfer, or storage of goods and reflect the obligation of both the
bank and the drawer to pay the face amount. Both types of securities are subject
to the ability of the issuing bank to meet its obligations, and are subject to
risks common to all debt securities. In addition, banker's acceptances may be
subject to foreign currency risk and certain other risks of investment in
foreign securities.
EQUITY SECURITIES -- The Funds may invest in common, preferred and convertible
preferred stocks, and securities whose values are tied to the price of stocks,
such as rights, warrants and convertible debt securities. Common stocks and
preferred stocks represent equity ownership in a corporation. Owners of stock,
such as the Funds, share in a corporation's earnings through dividends which may
be declared by the corporation, although the receipt of dividends is not the
principal benefit that the Funds seek when they invest in stocks and similar
instruments.
Instead, the Funds seek to invest in stocks that will increase in market value
and may be sold for more than a Fund paid to buy them. Market value is based
upon constantly changing investor perceptions of what the company is worth
compared to other companies. Although dividends are a factor in the changing
market value of stocks, many companies do not pay dividends, or pay
comparatively small dividends. The principal risk of investing in equity
securities is that their market values fluctuate constantly, often due to
factors entirely outside the control of the Funds or the company issuing the
stock. At any given time, the market value of an equity security may be
significantly higher or lower than the amount paid by a Fund to acquire it.
Owners of preferred stocks are entitled to dividends payable from the
corporation's earnings, which in some cases may be "cumulative" if prior
dividends on the preferred stock have not been paid. Dividends payable on
preferred stock have priority over distributions to holders of common stock, and
preferred stocks generally have a priority on the distribution of assets in the
event of the corporation's liquidation. Preferred stocks may be "participating,"
which means that they may be entitled to dividends in excess of the stated
dividend in certain cases. The holders of a company's debt securities generally
are entitled to be paid by the company before it pays anything to its
stockholders.
<PAGE>
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,"
which is the market value the convertible security would have if it were
exchanged for the underlying equity security. Convertible securities may be
purchased at varying price levels above or below their investment values or
conversion values.
Conversion value is a simple mathematical calculation that fluctuates directly
with the price of the underlying security. However, if the conversion value is
substantially below investment value, the market value of the convertible
security is governed principally by its investment value. If the conversion
value is near or above investment value, the market value of the convertible
security generally will rise above investment value. In such cases, the market
value of the convertible security may be higher than its conversion value, due
to the combination of the convertible security's right to interest (or dividend
preference) and the possibility of capital appreciation from the conversion
feature. However, there is no assurance that any premium above investment value
or conversion value will be recovered because prices change and, as a result,
the ability to achieve capital appreciation through conversion may be
eliminated.
EUROBONDS AND YANKEE BONDS -- The Funds may invest in bonds issued by foreign
branches of U.S. banks ("Eurobonds") and bonds issued by a U.S. branch of a
foreign bank and sold in the United States ("Yankee bonds"). These bonds are
bought and sold in U.S. dollars, but generally carry with them the same risks as
investing in foreign securities.
FOREIGN SECURITIES -- Investments in the securities of foreign companies, or
companies that have their principal business activities outside the United
States, involve certain risks not associated with investments in U.S. companies.
Non-U.S. companies generally are not subject to the same uniform accounting,
auditing and financial reporting standards that apply to U.S. companies.
Therefore, financial information about foreign companies may be incomplete, or
may not be comparable to the information available on U.S. companies. There may
also be less publicly available information about a foreign company.
<PAGE>
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. Investments in non-U.S.
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, confiscatory taxation, and
imposition of withholding taxes on dividends or interest payments. If it becomes
necessary, it may be more difficult for a Fund to obtain or to enforce a
judgment against a foreign issuer than against a domestic issuer.
Securities traded on foreign markets are usually bought and sold in local
currencies, not in U.S. dollars. Therefore, the market value of foreign
securities acquired by a Fund can be affected -- favorably or unfavorably -- by
changes in currency rates and exchange control regulations. Costs are incurred
in converting money from one currency to another. Foreign currency exchange
rates are determined by supply and demand on the foreign exchange markets.
Foreign exchange markets are affected by the international balance of payments
and other economic and financial conditions, government intervention,
speculation and other factors, all of which are outside the control of each
Fund. Generally, the Funds' foreign currency exchange transactions will be
conducted on a cash or "spot" basis at the spot rate for purchasing or selling
currency in the foreign currency exchange markets.
FUTURES, OPTIONS AND OTHER FINANCIAL INSTRUMENTS
GENERAL. As discussed in the Prospectus, the adviser and/or sub-adviser may use
various types of financial instruments, some of which are derivatives, to
attempt to manage the risk of the Funds' investments or, in certain
circumstances, for investment (e.g., as a substitute for investing in
securities). These financial instruments include options, futures contracts
(sometimes referred to as "futures"), forward contracts, swaps, caps, floors and
collars (collectively, "Financial Instruments"). The policies in this section do
not apply to other types of instruments sometimes referred to as derivatives,
such as indexed securities, mortgage-backed and other asset-backed securities,
and stripped interest and principal of debt.
Hedging strategies can be broadly categorized as "short" hedges and "long" or
"anticipatory" hedges. A short hedge involves the use of a Financial Instrument
in order to partially or fully offset potential variations in the value of one
or more investments held in a Fund's portfolio. A long or anticipatory hedge
involves the use of a Financial Instrument in order to partially or fully offset
potential increases in the acquisition cost of one or more investments that the
Fund intends to acquire. In an anticipatory hedge transaction, the Fund does not
already own a corresponding security. Rather, it relates to a security or type
of security that the Fund intends to acquire. If the Fund does not eliminate the
hedge by purchasing the security as anticipated, the effect on the Fund's
portfolio is the same as if a long position were entered into. Financial
Instruments may also be used, in certain circumstances, for investment (e.g., as
a substitute for investing in securities).
<PAGE>
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.
Special Risks. Financial Instruments and their use involve special
considerations and risks, certain of which are described below.
(1) Financial Instruments may increase the volatility of the Funds. If the
adviser and/or sub-adviser employs a Financial Instrument that correlates
imperfectly with a Fund's investments, a loss could result, regardless of
whether or not the intent was to manage risk. In addition, these techniques
could result in a loss if there is not a liquid market to close out a position
that a Fund has entered.
(2) There might be imperfect correlation between price movements of a Financial
Instrument and price movement of the investment(s) being hedged. For example, if
the value of a Financial Instrument used in a short hedge increased by less than
the decline in value of the hedged investment(s), the hedge would not be fully
successful. This might be caused by certain kinds of trading activity that
distorts the normal price relationship between the security being hedged and the
Financial Instrument. Similarly, the effectiveness of hedges using Financial
Instruments on indexes will depend on the degree of correlation between price
movements in the index and price movements in the securities being hedged.
The Funds are authorized to use options and futures contracts related to
securities with issuers, maturities or other characteristics different from the
securities in which it typically invests. This involves a risk that the options
or futures position will not track the performance of a Fund's portfolio
investments.
<PAGE>
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 (i.e., Financial
Instruments other than purchased options). If a Fund is unable to close out its
positions in such Financial Instruments, it might be required to continue to
maintain such assets or segregated accounts or make such payments until the
position expired. These requirements might impair a Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time.
Cover. Positions in Financial Instruments, other than purchased options, expose
the Funds to an obligation to another party. A Fund will not enter into any such
transaction unless it owns (1) an offsetting ("covered") position in securities,
currencies or other options, futures contracts or forward contracts, or (2) cash
and liquid assets with a value, marked-to-market daily, sufficient to cover its
obligations to the extent not covered as provided in (1) above. The Funds will
comply with SEC guidelines regarding cover for these instruments and will, if
the guidelines so require, designate cash or liquid assets as segregated in the
prescribed amount as determined daily.
Assets used as cover or held as segregated cannot be sold while the position in
the corresponding Financial Instrument is open unless they are replaced with
other appropriate assets. As a result, the commitment of a large portion of a
Fund's assets to cover or to hold as segregated could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
<PAGE>
Options. Each Fund may engage in certain strategies involving options to attempt
to manage the risk of its investments or, in certain circumstances, for
investment (e.g., as a substitute for investing in securities). A call option
gives the purchaser the right to buy, and obligates the writer to sell the
underlying investment at the agreed-upon exercise price during the option
period. A put option gives the purchaser the right to sell, and obligates the
writer to buy the underlying investment at the agreed-upon exercise price during
the option period. Purchasers of options pay an amount, known as a premium, to
the option writer in exchange for the right under the option contract. See
"Options on Indexes" below with regard to cash settlement of option contracts on
index values.
The purchase of call options can serve as a hedge against a price rise of the
underlier and the purchase of put options can serve as a hedge against a price
decline of the underlier. Writing call options can serve as a limited short
hedge because declines in the value of the hedged investment would be offset to
the extent of the premium received for writing the option. However, if the
security or currency appreciates to a price higher than the exercise price of
the call option, it can be expected that the option will be exercised and a Fund
will be obligated to sell the security or currency at less than its market
value.
Writing put options can serve as a limited long or anticipatory hedge because
increases in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency depreciates to a price lower than the exercise price of the put option,
it can be expected that the put option will be exercised and a Fund will be
obligated to purchase the security or currency at more than its market value.
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the price volatility of the underlying investment and general market
and interest rate conditions. Options that expire unexercised have no value.
A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; which is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option, which is known as a
closing sale transaction. Closing transactions permit a Fund to realize profits
or limit losses on an option position prior to its exercise or expiration.
Risks of Options on Securities. Options embody the possibility of large amounts
of exposure, which will result in a Fund's net asset value being more sensitive
to changes in the value of the related investment. A Fund may purchase or write
both exchange-traded and OTC options. Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization guarantee. Thus, when a Fund purchases an OTC option,
it relies on the counterparty from whom it purchased the option to make or take
delivery of the underlying investment upon exercise of the option. Failure by
the counterparty to do so would result in the loss of any premium paid by a Fund
as well as the loss of any expected benefit of the transaction.
<PAGE>
The Funds' ability to establish and close out positions in options depends on
the existence of a liquid market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. There can be no
assurance that a Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
counterparty, a Fund might be unable to close out an OTC option position at any
time prior to the option's expiration. If a Fund is not able to enter into an
offsetting closing transaction on an option it has written, it will be required
to maintain the securities subject to the call or the liquid assets underlying
the put until a closing purchase transaction can be entered into or the option
expires. However, there can be no assurance that such a market will exist at any
particular time.
If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
Options on Indexes. Puts and calls on indexes are similar to puts and calls on
securities or futures contracts except that all settlements are in cash and
changes in value depend on changes in the index in question. When a Fund writes
a call on an index, it receives a premium and agrees that, prior to the
expiration date, upon exercise of the call, the purchaser will receive from the
Fund an amount of cash equal to the positive difference between the closing
price of the index and the exercise price of the call times a specified multiple
("multiplier"), which determines the total dollar value for each point of such
difference. When a Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When a Fund buys a put on an
index, it pays a premium and has the right, prior to the expiration date, to
require the seller of the put to deliver to the Fund an amount of cash equal to
the positive difference between the exercise price of the put and the closing
price of the index times the multiplier. When a Fund writes a put on an index,
it receives a premium and the purchaser of the put has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash equal to
the positive difference between the exercise price of the put and the closing
level of the index times the multiplier.
The risks of purchasing and selling options on indexes may be greater than
options on securities. Because index options are settled in cash, when a Fund
writes a call on an index it cannot fulfill its potential settlement obligations
by delivering the underlying securities. A Fund can offset some of the risk of
writing a call index option by holding a diversified portfolio of securities
similar to those on which the underlying index is based. However, a Fund cannot,
as a practical matter, acquire and hold a portfolio containing exactly the same
securities as underlie the index and, as a result, bears a risk that the value
of the securities held will vary from the value of the index.
<PAGE>
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.
OTC Options. Unlike exchange-traded options, which are standardized with respect
to the underlying instrument, expiration date, contract size, and strike price,
the terms of OTC options (options not traded on exchanges) generally are
established through negotiation with the other party to the option contract.
While this type of arrangement allows a Fund great flexibility to tailor the
option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchange where they are traded.
Generally, OTC foreign currency options used by a Fund are European-style
options. This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.
Futures Contracts and Options on Futures Contracts. When a Fund purchases or
sells a futures contract, it incurs an obligation respectively to take or make
delivery of a specified amount of the obligation underlying the contract at a
specified time and price. When a Fund writes an option on a futures contract, it
becomes obligated to assume a position in the futures contract at a specified
exercise price at any time during the term of the option. If a Fund writes a
call, on exercise it assumes a short futures position. If it writes a put, on
exercise it assumes a long futures position.
The purchase of futures or call options on futures can serve as a long or an
anticipatory hedge, and the sale of futures or the purchase of put options on
futures can serve as a short hedge. Writing call options on futures contracts
can serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indexes. Similarly, writing put options on
futures contracts can serve as a limited long or anticipatory hedge.
<PAGE>
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 deposits. If the Fund has insufficient cash
to meet daily variation margin requirements, it might need to sell securities in
order to do so at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. However, there can be no assurance that a liquid
market will exist for a particular contract at a particular time. In such event,
it may not be possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a futures contract or an option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures contract or an option on a futures
contract position due to the absence of a liquid market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to continue to maintain the
position being hedged by the futures contract or option or to continue to
maintain cash or securities in a segregated account.
<PAGE>
To the extent that a Fund enters into futures contracts, options on futures
contracts and options on foreign currencies traded on a CFTC-regulated exchange,
in each case that is not for bona fide hedging purposes (as defined by the
CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
Risks of Futures Contracts and Options Thereon. The ordinary spreads at a given
time between prices in the cash and futures markets (including the options on
futures markets), due to differences in the natures of those markets, are
subject to the following factors. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions, which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Due to the possibility of distortion, a hedge may not be successful.
Although stock index futures contracts do not require physical delivery, under
extraordinary market conditions liquidity of such futures contracts also could
be reduced. Additionally, the adviser and/or sub-adviser may be incorrect in its
expectations as to the extent of various interest rates, currency exchange rates
or stock market movements or the time span within which the movements take
place.
Index Futures. The risk of imperfect correlation between movements in the price
of index futures and movements in the price of the securities that are the
subject of a hedge increases as the composition of a Fund's portfolio diverges
from the index. The price of the index futures may move proportionately more
than or less than the price of the securities being hedged. If the price of the
index futures moves proportionately less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective. Assuming
the price of the securities being hedged has moved in an unfavorable direction,
as anticipated when the hedge was put into place, the Fund would be in a better
position than if it had not hedged at all, but not as good as if the price of
the index futures moved in full proportion to that of the hedged securities.
However, if the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially offset by movement of the price of
the futures contract. If the price of the futures contract moves more than the
price of the securities, the Fund will experience either a loss or a gain on the
futures contract that will not be completely offset by movements in the price of
the securities that are the subject of the hedge.
Where index futures are purchased in an anticipatory hedge, it is possible that
the market may decline instead. If a Fund then decides not to invest in the
securities at that time because of concern as to possible further market decline
or for other reasons, it will realize a loss on the futures contract that is not
offset by a reduction in the price of the securities it had anticipated
purchasing.
Foreign Currency Hedging Strategies--Special Considerations. A Fund may use
options and futures contracts on foreign currencies, as mentioned previously,
and forward currency contracts, as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated or, in certain circumstances, for investment (e.g., as a
substitute for investing in securities denominated in foreign currency).
Currency hedges can protect against price movements in a security that a Fund
owns or intends to acquire that are attributable to changes in the value of the
currency in which it is denominated.
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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 to sell
or purchase related investments, thus increasing its turnover rate. Once a Fund
has received an exercise notice on an option it has written, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price. The
exercise of puts purchased by a Fund may also cause the sale of related
investments, increasing turnover. Although such exercise is within the Fund's
control, holding a protective put might cause it to sell the related investments
for reasons that would not exist in the absence of the put. A Fund will pay a
brokerage commission each time it buys or sells a put or call or purchases or
sells a futures contract. Such commissions may be higher than those that would
apply to direct purchases or sales.
Swaps, Caps, Floors and Collars. The Funds are authorized to enter into swaps,
caps, floors and collars. Swaps involve the exchange by one party with another
party of their respective commitments to pay or receive cash flows, e.g., an
exchange of floating rate payments for fixed rate payments. The purchase of a
cap or a floor entitles the purchaser, to the extent that a specified index
exceeds in the case of a cap, or falls below in the case of a floor, a
predetermined value, to receive payments on a notional principal amount from the
party selling such instrument. A collar combines elements of buying a cap and
selling a floor.
ILLIQUID SECURITIES -- Securities which do not trade on stock exchanges or in
the over the counter market, or have restrictions on when and how they may be
sold, are generally considered to be "illiquid." An illiquid security is one
that a Fund may have difficulty -- or may even be legally precluded from --
selling at any particular time. The Funds may invest in illiquid securities,
including restricted securities and other investments which are not readily
marketable. A Fund will not purchase any such security if the purchase would
cause the Fund to invest more than 15% of its net assets, measured at the time
of purchase, in illiquid securities. Repurchase agreements maturing in more than
seven days are considered illiquid for purposes of this restriction.
<PAGE>
The principal risk of investing in illiquid securities is that a Fund may be
unable to dispose of them at the time desired or at a reasonable price. In
addition, in order to resell a restricted security, a Fund might have to bear
the expense and incur the delays associated with registering the security with
the SEC, and otherwise obtaining listing on a securities exchange or in the over
the counter market.
INVESTMENT COMPANY SECURITIES -- To manage their daily cash positions, the Funds
may invest in securities issued by other investment companies that invest in
short-term debt securities and seek to maintain a net asset value of $1.00 per
share ("money market funds"). The Funds also may invest in Standard & Poor's
Depository Receipt's ("SPDRs") and shares of other investment companies. SPDRs
are investment companies whose portfolios mirror the compositions of specific
S&P indices, such as the S&P 500 and the S&P 400. SPDRs are traded on the
American Stock Exchange. SPDR holders such as a Fund are paid a "Dividend
Equivalent Amount" that corresponds to the amount of cash dividends accruing to
the securities held by the SPDR Trust, net of certain fees and expenses. The
Investment Company Act of 1940 limits investments in securities of other
investment companies, such as the SPDR Trust. These limitations include, among
others, that, subject to certain exceptions, no more than 10% of a Fund's total
assets may be invested in securities of other investment companies and no more
than 5% of its total assets may be invested in the securities of any one
investment company. As a shareholder of another investment company, a Fund would
bear its pro rata portion of the other investment company's expenses, including
advisory fees, in addition to the expenses the Fund bears directly in connection
with its own operations.
REITS -- Real Estate Investment Trusts are investment trusts that invest
primarily in real estate and securities of businesses connected to the real
estate industry.
REPURCHASE AGREEMENTS -- A Fund may enter into repurchase agreements, or REPOs,
on debt securities that the Fund is allowed to hold in its portfolio. This is a
way to invest money for short periods. A REPO is an agreement under which the
Fund acquires a debt security and then resells it to the seller at an agreed
upon price and date (normally, the next business day). The repurchase price
represents an interest rate effective for the short period the debt security is
held by the Fund, and is unrelated to the interest rate on the underlying debt
security. A repurchase agreement is often considered as a loan collateralized by
securities. The collateral securities acquired by the Fund (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement. The collateral securities are held by the Fund's custodian
bank until the repurchase agreement is completed.
The Funds may enter into repurchase agreements with commercial banks, registered
broker-dealers or registered government securities dealers that are creditworthy
under standards established by the Company's board of directors. The Company's
board of directors has established standards that the investment adviser and
sub-adviser must use to review the creditworthiness of any bank, broker or
dealer that is a party to a REPO. REPOs maturing in more than seven days are
considered illiquid securities. A Fund will not enter into repurchase agreements
maturing in more than seven days if as a result more than 15% of the Fund's net
assets would be invested in these repurchase agreements and other illiquid
securities.
<PAGE>
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 concluded that if a
sufficient institutional trading market exists for a given Rule 144A security,
it may be considered "liquid," and not subject to a Fund's limitations on
investment in restricted securities. The Company's board of directors has given
INVESCO the day-to-day authority to determine the liquidity of Rule 144A
Securities, according to guidelines approved by the board. The principal risk of
investing in Rule 144A Securities is that there may be an insufficient number of
qualified institutional buyers interested in purchasing a Rule 144A Security
held by a Fund, and the Fund might be unable to dispose of such security
promptly or at reasonable prices.
SECURITIES LENDING -- Each Fund may lend its portfolio securities. The advantage
of lending portfolio securities is that a Fund continues to have the benefits
(and risks) of ownership of the loaned securities, while at the same time
receiving interest from the borrower of the securities. The primary risk in
lending portfolio securities is that a borrower may fail to return a portfolio
security.
SOVEREIGN DEBT -- In certain emerging countries, the central government and its
agencies are the largest debtors to local and foreign banks and others.
Sovereign debt involves the risk that the government, as a result of political
considerations or cash flow difficulties, may fail to make scheduled payments of
interest or principal and may require holders to participate in rescheduling of
payments or even to make additional loans. If an emerging country government
defaults on its sovereign debt, there is likely to be no legal proceeding under
which the debt may be ordered repaid, in whole or in part. The ability or
willingness of a foreign sovereign debtor to make payments of principal and
interest in a timely manner may be influenced by, among other factors, its cash
<PAGE>
flow, the magnitude of its foreign reserves, the availability of foreign
exchanges on the payment date, the debt service burden to the economy as a
whole, the debtor's then current relationship with the International Monetary
Fund and its then current political constraints. Some of the emerging countries
issuing such instruments have experienced high rates of inflation in recent
years and have extensive internal debt. Among other effects, high inflation and
internal debt service requirements may adversely affect the cost and
availability of future domestic sovereign borrowing to finance government
programs, and may have other adverse social, political and economic
consequences, including effects on the willingness of such countries to service
their sovereign debt. An emerging country government's willingness and ability
to make timely payments on its sovereign debt also are likely to be heavily
affected by the country's balance of trade and its access to trade and other
international credits. If a country's exports are concentrated in a few
commodities, such country would be more significantly exposed to a decline in
the international process of one or more of such commodities. A rise in
protectionism on the part of its trading partners, or unwillingness by such
partners to make payment for goods in hard currency, could also adversely affect
the country's ability to export its products and repay its debts. Sovereign
debtors may also be dependent on expected receipts from such agencies and other
abroad to reduce principal and interest arrearages on their debt. However,
failure by the sovereign debtor or other entity to implement economic reforms
negotiated with multilateral agencies or others, to achieve specified levels of
economic performance, or to make other debt payments when due, may cause third
parties to terminate their commitments to provide funds to the sovereign debtor,
which may further impair such debtor's willingness or ability to service its
debts.
The Fund may invest in debt securities issued under the "Brady Plan" in
connection with restructurings in emerging country debt markets or earlier
loans. These securities, often referred to as "Brady Bonds," are, in some cases,
denominated in U.S. dollars and collateralized as to principal by U.S. Treasury
zero coupon bonds have the same maturity. At least one year's interest payments,
on a rolling basis, are collateralized by cash or other investments. Brady Bonds
are actively traded on an over-the-counter basis in the secondary market for
emerging country debt securities. Brady Bonds are lower-rated bonds and highly
volatile.
U.S. GOVERNMENT SECURITIES -- Each Fund may, from time to time, purchase debt
securities issued by the U.S. government. These securities include Treasury
bills, notes and bonds. Treasury bills have a maturity of one year or less,
Treasury notes generally have a maturity of one to ten years and Treasury bonds
generally have maturities of more than ten years.
U.S. government debt securities also include securities issued or guaranteed by
agencies or instrumentalities of the U.S. government. Some obligations of U.S.
government agencies, which are established under the authority of an act of
Congress, such as Government National Mortgage Association ("GNMA")
participation certificates, are supported by the full faith and credit of the
U.S. Treasury. GNMA Certificates are mortgage-backed securities representing
part ownership of a pool of mortgage loans. These loans -- issued by lenders
such as mortgage bankers, commercial banks and savings and loan associations --
are either insured by the Federal Housing Administration or guaranteed by the
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.
<PAGE>
Other United States government debt securities, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury. Others, such as bonds issued by Fannie Mae, a federally chartered
private corporation, are supported only by the credit of the corporation. In the
case of securities not backed by the full faith and credit of the United States,
a Fund must look principally to the agency issuing or guaranteeing the
obligation in the event the agency or instrumentality does not meet its
commitments. A Fund will invest in securities of such instrumentalities only
when its investment adviser and sub-advisers are satisfied that the credit risk
with respect to any such instrumentality is comparatively minimal.
WHEN-ISSUED/DELAYED DELIVERY -- Ordinarily, the Funds buy and sell securities on
an ordinary settlement basis. That means that the buy or sell order is sent, and
a Fund actually takes delivery or gives up physical possession of the security
on the "settlement date," which is three business days later. However, the Funds
also may purchase and sell securities on a when-issued or delayed delivery
basis.
When-issued or delayed delivery transactions occur when securities are purchased
or sold by a Fund and payment and delivery take place at an agreed-upon time in
the future. The Funds may engage in this practice in an effort to secure an
advantageous price and yield. However, the yield on a comparable security
available when delivery actually takes place may vary from the yield on the
security at the time the when-issued or delayed delivery transaction was entered
into. When a Fund engages in when-issued and delayed delivery transactions, it
relies on the seller or buyer to consummate the sale at the future date. If the
seller or buyer fails to act as promised, that failure may result in the Fund
missing the opportunity of obtaining a price or yield considered to be
advantageous. No payment or delivery is made by a Fund until it receives
delivery or payment from the other party to the transaction. However,
fluctuation in the value of the security from the time of commitment until
delivery could adversely affect a Fund.
INVESTMENT RESTRICTIONS
The Funds operate under certain investment restrictions. For purposes of the
following restrictions, all percentage limitations apply immediately after a
purchase or initial investment. Any subsequent change in a particular percentage
resulting from fluctuations in value does not require elimination of any
security from a Fund.
The following restrictions are fundamental and may not be changed without prior
approval of a majority of the outstanding voting securities of a Fund, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Each
Fund may not:
<PAGE>
1. purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities or municipal securities) if, as a result, more than 25%
of the Fund's total assets would be invested in the securities of
companies whose principal business activities are in the same industry;
2. with respect to 75% of the Fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities, or securities of
other investment companies) if, as a result, (i) more than 5% of a Fund's
total assets would be invested in the securities of that issuer, or (ii) a
Fund would hold more than 10% of the outstanding voting securities of that
issuer;
3. underwrite securities of other issuers, except insofar as it may be
deemed to be an underwriter under the Securities Act of 1933, as amended,
in connection with the disposition of the Fund's portfolio securities;
4. borrow money, except that the Fund may borrow money in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings);
5. issue senior securities, except as permitted under the 1940 Act;
6. lend any security or make any loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limitation
does not apply to the purchase of debt securities or to repurchase
agreements;
7. purchase or sell physical commodities; however, this policy shall not
prevent the Fund from purchasing and selling foreign currency, futures
contracts, options, forward contracts, swaps, caps, floors, collars and
other financial instruments; or
8. purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
9. Each Fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company managed by INVESCO or an affiliate
or a successor thereof, with substantially the same fundamental investment
objective, policies and limitations as the Fund.
In addition, each Fund has the following non-fundamental policies, which may be
changed without shareholder approval:
A. The Fund may not sell securities short (unless it owns or has the right
to obtain securities equivalent in kind and amount to the securities sold
short) or purchase securities on margin, except that (i) this policy does
not prevent the Fund from entering into short positions in foreign
<PAGE>
currency, futures contracts, options, forward contracts, swaps, caps,
floors, collars and other financial instruments, (ii) the Fund may obtain
such short-term credits as are necessary for the clearance of
transactions, and (iii) the Fund may make margin payments in connection
with futures contracts, options, forward contracts, swaps, caps, floors,
collars and other financial instruments.
B. The Fund may borrow money only from a bank or from an open-end
management investment company managed by INVESCO or an affiliate or a
successor thereof for temporary or emergency purposes (not for leveraging
or investing) or by engaging in reverse repurchase agreements with any
party (reverse repurchase agreements will be treated as borrowings for
purposes of fundamental limitation (4)).
C. The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
D. The Fund may invest in securities issued by other investment companies
to the extent that such investments are consistent with the Fund's
investment objective and policies and permissible under the 1940 Act.
E. With respect to fundamental limitation (1), domestic and foreign
banking will be considered to be different industries.
In addition, with respect to a Fund that may invest in municipal obligations,
the following non-fundamental policy applies, which may be changed without
shareholder approval:
Each state (including the District of Columbia and Puerto Rico), territory
and possession of the United States, each political subdivision, agency,
instrumentality and authority thereof, and each multi-state agency of
which a state is a member is a separate "issuer." When the assets and
revenues of an agency, authority, instrumentality or other political
subdivision are separate from the government creating the subdivision and
the security is backed only by assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer. Similarly, in the
case of an Industrial Development Bond or Private Activity bond, if that
bond is backed only by the assets and revenues of the non-governmental
user, then that non-governmental user would be deemed to be the sole
issuer. However, if the creating government or another entity guarantees a
security, then to the extent that the value of all securities issued or
guaranteed by that government or entity and owned by a Fund exceeds 10% of
the Fund's total assets, the guarantee would be considered a separate
security and would be treated as issued by that government or entity.
Following is a chart outlining some of the limitations pursuant to
non-fundamental investment policies set by the board of directors. These
non-fundamental policies may be changed by the board of directors without
shareholder approval:
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT BALANCED EQUITY INCOME TOTAL RETURN
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT SECURITIES Normally, at least Normally, up to Normally, a minimum
25% (investment 35% of 30% (investment
grade only) grade only)
- ---------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES Normally, 50%-70% Normally, 65% in Normally, a minimum
common stock dividend-paying of 30%; the remainder
common stock; will vary with market
Up to 10% in condi tions
non-dividend paying
- ---------------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES Up to 25% Up to 25% (must be Up to 25%
(Percentages exclude ADRs and Canadian denominated and pay
issuers.) interest in U.S.
dollars)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISER
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the
Company's investment adviser. INVESCO was founded in 1932 and serves as an
investment adviser to:
INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
INVESCO Combination Stock & Bond Funds, Inc.
(formerly, INVESCO Flexible Funds, Inc.)
IINVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.)
INVESCO Specialty Funds, Inc.
INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
INVESCO Treasurer's Series Funds, Inc.
(formerly, INVESCO Treasurer's Series Trust)
INVESCO Variable Investment Funds, Inc.
As of ______________, 1999, INVESCO managed __ mutual funds having combined
assets of $___ billion, on behalf of more than ___________ shareholders.
INVESCO is an indirect wholly owned subsidiary of AMVESCAP PLC, a publicly
traded holding company. Through its subsidiaries, AMVESCAP PLC engages in the
business of investment management on an international basis. AMVESCAP PLC is one
of the largest independent investment management businesses in the world, with
approximately $296 billion in assets under management on June 30, 1999.
<PAGE>
AMVESCAP PLC's North American subsidiaries include:
INVESCO Retirement and Benefit Services, Inc. ("IRBS"), Atlanta, Georgia,
develops and provides domestic and international defined contribution
retirement plan services to plan sponsors, institutional retirement plan
sponsors, institutional plan providers and foreign governments.
INVESCO Retirement Plan Services ("IRPS"), Atlanta, Georgia, a division of
IRBS, provides recordkeeping and investment selection services to defined
contribution plan sponsors of plans with between $2 million and $200 million
in assets. Additionally, IRPS provides investment consulting services to
institutions seeking to provide retirement plan products and services.
Institutional Trust Company, doing business as INVESCO Trust Company
("ITC"), Denver, Colorado, a division of IRBS, provides retirement account
custodian and/or trust services for individual retirement accounts ("IRAs")
and other retirement plan accounts. This includes services such as
recordkeeping, tax reporting and compliance. ITC acts as trustee or
custodian to these plans. ITC accepts contributions and provides complete
transfer agency functions: correspondence, sub-accounting, telephone
communications and processing of distributions.
INVESCO Capital Management, Inc., Atlanta, Georgia, manages institutional
investment portfolios, consisting primarily of discretionary employee
benefit plans for corporations and state and local governments, and
endowment funds.
INVESCO Management & Research, Inc., Boston, Massachusetts, primarily
manages pension and endowment accounts.
PRIMCO Capital Management, Inc., Louisville, Kentucky, specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
INVESCO Realty Advisors, Inc., Dallas, Texas, is responsible for providing
advisory services in the U.S. real estate markets for AMVESCAP PLC's clients
worldwide. Clients include corporate pension plans and public pension funds
as well as endowment and foundation accounts.
INVESCO (NY), Inc., New York, is an investment adviser for separately
managed accounts, such as corporate and municipal pension plans,
Taft-Hartley Plans, insurance companies, charitable institutions and private
individuals. INVESCO NY further serves as investment adviser to several
closed-end investment companies, and as sub-adviser with respect to certain
commingled employee benefit trusts.
A I M Advisors, Inc., Houston, Texas, provides investment advisory and
administrative services for retail and institutional mutual funds.
<PAGE>
A I M Capital Management, Inc., Houston, Texas, provides investment
advisory services to individuals, corporations, pension plans and other
private investment advisory accounts and also serves as a sub-adviser to
certain retail and institutional mutual funds, one Canadian mutual fund and
one portfolio of an open-end registered investment company that is offered
to separate accounts of variable insurance companies.
A I M Distributors, Inc. and Fund Management Company, Houston, Texas, are
registered broker-dealers that act as the principal underwriters for retail
and institutional mutual funds.
The corporate headquarters of AMVESCAP PLC are located at 11 Devonshire Square,
London, EC2M4YR, England.
THE INVESTMENT ADVISORY AGREEMENT
INVESCO serves as investment adviser to the Funds under an investment advisory
agreement dated February 28, 1997 (the "Agreement") with the Company.
The Agreement requires that INVESCO manage the investment portfolio of each Fund
in a way that conforms with the Fund's investment policies. INVESCO may directly
manage a Fund itself, or may hire a sub-adviser, which may be an affiliate of
INVESCO, to do so. Specifically, INVESCO is responsible for:
o managing the investment and reinvestment of all the assets of the Funds,
and executing all purchases and sales of portfolio securities;
o maintaining a continuous investment program for the Funds, consistent with
(i) each Fund's investment policies as set forth in the Company's Articles
of Incorporation, Bylaws and Registration Statement, as from time to time
amended, under the 1940 Act, and in any prospectus and/or statement of
additional information of the Funds, as from time to time amended and in
use under the 1933 Act, and (ii) the Company's status as a regulated
investment company under the Internal Revenue Code of 1986, as amended;
o determining what securities are to be purchased or sold for the Funds,
unless otherwise directed by the directors of the Company, and executing
transactions accordingly;
o providing the Funds the benefit of all of the investment analysis and
research, the reviews of current economic conditions and trends, and the
consideration of a long-range investment policy now or hereafter generally
available to the investment advisory customers of the Adviser or any
Sub-Adviser;
o determining what portion of each Fund's assets should be invested in the
various types of securities authorized for purchase by the Fund; and
o making recommendations as to the manner in which voting rights, rights to
consent to Fund action and any other rights pertaining to a Fund's
portfolio securities shall be exercised.
<PAGE>
INVESCO also performs all of the following services for the Funds:
o administrative
o internal accounting (including computation of net asset value)
o clerical and statistical
o secretarial
o all other services necessary or incidental to the administration of the
affairs of the Funds
o supplying the Company with officers, clerical staff
and other employees
o furnishing office space, facilities, equipment, and supplies; providing
personnel and facilities required to respond to inquiries related to
shareholder accounts
o conducting periodic compliance reviews of the Funds' operations;
preparation and review of required documents, reports and filings by
INVESCO's in-house legal and accounting staff or in conjunction with
independent attorneys and accountants (including the prospectus, statement
of additional information, proxy statements, shareholder reports, tax
returns, reports to the SEC, and other corporate documents of the Funds)
o supplying basic telephone service and other utilities
o preparing and maintaining certain of the books and records required to be
prepared and maintained by the Funds under the 1940 Act.
Expenses not assumed by INVESCO are borne by the Funds. As full compensation for
its advisory services to the Company, INVESCO receives a monthly fee from each
Fund. The fee is calculated at the annual rate of:
Equity Income and Balanced Funds
o 0.60% on the first $350 million of each Fund's average net assets;
o 0.55% on the next $350 million of each Fund's average net assets;
o 0.50% on each Fund's average net assets from $700 million;
o 0.45% on each Fund's average net assets from $2 billion;
o 0.40% on each Fund's average net assets from $4 billion;
o 0.375% on each Fund's average net assets from $6 billion; and
o 0.35% on each Fund's average net assets from $8 billion.
<PAGE>
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. Since the Funds' [Class C] shares and
Balanced Fund's [Class I] shares did not commence operations until December 31,
1999, no advisory fees were paid with respect to [Class C] and [Class I] shares
for the periods shown below. If applicable, the advisory fees were offset by
credits in the amounts shown below, so that INVESCO's fees were not in excess of
the expense limitations shown below, which have been voluntarily agreed to by
the Company and INVESCO.
Advisory Total Expense Total Expense
Fee Dollars Reimbursements Limitations
Equity Income Fund - [Class II]
May 31, 1999(a) $20,935,050 $ 2,813 N/A
June 30, 1998 23,205,917 10,930 N/A
June 30, 1997 21,791,002 1,257,873 N/A
June 30, 1996 21,541,300 1,198,984 N/A
Balanced Fund - [Class II]
May 31, 1999(b) $ 1,282,647 $ 0 1.25%
July 31, 1998 1,115,082 0 1.25%
July 31, 1997 797,409 69,052 1.25%
July 31, 1996 561,473 1,211,381 1.25%
Total Return Fund - [Class II]
May 31, 1999(c) $13,059,957 $ 374,435 N/A
August 31, 1998 13,926,522 197,490 N/A
August 31, 1997 9,140,227 0 N/A
August 31, 1996 6,025,905 0 N/A
(a) For the period July 1, 1998 through May 31, 1999.
(b) For the period August 1, 1998 through May 31, 1999.
(c) For the period September 1, 1998 through May 31, 1999.
<PAGE>
THE SUB-ADVISORY AGREEMENT
INVESCO Capital Management, Inc. ("ICM") serves as sub-adviser to the Total
Return Fund pursuant to a sub-advisory agreement dated February 28, 1997 (the
"Sub-Agreement") with INVESCO.
The Sub-Agreement provides that ICM, subject to the supervision of INVESCO,
shall manage the investment portfolio of the Fund in conformity with the Fund's
investment policies. These management services include: (a) managing the
investment and reinvestment of all the assets, now or hereafter acquired, of the
Fund, and executing all purchases and sales of portfolio securities; (b)
maintaining a continuous investment program for the Fund, consistent with (i)
the Fund's investment policies as set forth in the Company's Articles of
Incorporation, Bylaws and Registration Statement, as from time to time amended,
under the 1940 Act, as amended, and in any prospectus and/or statement of
additional information of the Company, as from time to time amended and in use
under the 1933 Act and (ii) the Company's status as a regulated investment
company under the Internal Revenue Code of 1986, as amended; (c) determining
what securities are to be purchased or sold for the Fund, unless otherwise
directed by the directors of the Company or INVESCO, and executing transactions
accordingly; (d) providing the Fund the benefit of all of the investment
analysis and research, the reviews of current economic conditions and trends,
and the consideration of long-range investment policy now or hereafter generally
available to investment advisory customers of ICM; (e) determining what portion
of the Fund's assets should be invested in the various types of securities
authorized for purchase by the Fund; and (f) making recommendations as to the
manner in which voting rights, rights to consent to Company action and any other
rights pertaining to the portfolio securities of the Fund shall be exercised.
The Sub-Agreement provides that, as compensation for its services, ICM shall
receive from INVESCO, at the end of each month, a fee based upon the average
daily value of the Fund's net assets. The fee is calculated at the following
annual rates: 0.30% on the first $500 million of the Fund's average net assets;
0.26% on the next $500 million of the Fund's average net assets; 0.20% on the
Fund's average net assets from $1 billion; 0.18% on the Fund's average net
assets from $2 billion; 0.16% of the Fund's average net assets from $4 billion;
0.15% of the Fund's average net assets from $6 billion; and 0.14% of the Fund's
average net assets from $8 billion. The sub-advisory fees are paid by INVESCO,
NOT the Funds.
ADMINISTRATIVE SERVICES AGREEMENT
INVESCO, either directly or through affiliated companies, provides certain
administrative, sub-accounting, and recordkeeping services to the Funds pursuant
to an Administrative Services Agreement.
The Administrative Services Agreement requires INVESCO to provide the following
services to the Funds:
<PAGE>
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% of the average net assets of the Equity
Income and Total Return Funds, and prior to May 13, 1999, the Balanced Fund, and
0.045% per year of the average net assets of the Balanced Fund, effective May
13, 1999.
TRANSFER AGENCY AGREEMENT
INVESCO also performs transfer agent, dividend disbursing agent and registrar
services for the Funds pursuant to a Transfer Agency Agreement.
The Transfer Agency Agreement provides that each Fund pays INVESCO an annual fee
of $20.00 per shareholder account, or, where applicable, per participant in an
omnibus account. This fee is paid monthly at the rate of 1/12 of the annual fee
and is based upon the actual number of shareholder accounts and omnibus account
participants in each Fund at any time during each month.
FEES PAID TO INVESCO
For the periods outlined in the table below for each Fund, the Funds' [Class II]
shares paid the following fees to INVESCO (prior to the absorption of certain
Fund expenses by INVESCO). Since the Funds' [Class C] shares and Balanced Fund's
[Class I] shares did not commence operations until December 31, 1999, no fees
were paid with respect to [Class C] and [Class I] shares for the periods shown
below.
Equity Income Fund - [Class II]
<TABLE>
<CAPTION>
Period Ended Year Ended
May 31 June 30,
Type of Fee 1999(a) 1998 1997 1996
- ----------- ------- ---- ---- ----
<S> <C> <C> <C> <C>
Advisory $20,935,050 $23,205,917 $21,791,002 $21,541,300
Administrative Services 672,908 748,034 648,015 640,468
Transfer Agency 5,936,040 6,122,313 6,785,271 5,698,274
Balanced Fund - [Class II]
Period Ended Year Ended
May 31 July 31,
Type of Fee 1999(b) 1998 1997 1996
- ----------- ------- ---- ---- ----
Advisory $ 1,282,647 $ 1,115,082 $ 797,409 $ 561,473
Administrative Services 45,489 37,877 29,935 24,037
Transfer Agency 474,150 447,515 397,860 203,967
<PAGE>
Total Return Fund - [Class II]
Period Ended Year Ended
May 31 August 31,
Type of Fee 1999(c) 1998 1997 1996
- ----------- ------- ---- ---- ----
Advisory $13,059,957 $13,926,522 $ 9,140,227 $ 6,025,905
Administrative Services 355,556 367,796 224,249 137,623
Transfer Agency 3,425,993 3,767,444 2,332,422 953,383
</TABLE>
(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 four of the directors
who are not affiliated with INVESCO (the "Independent Directors"). The committee
meets quarterly with the Company's independent accountants and officers to
review accounting principles used by the Company, the adequacy of internal
controls, the responsibilities and fees of the independent accountants, and
other matters.
The Company has a management liaison committee which meets quarterly with
various management personnel of INVESCO in order to facilitate better
understanding of management and operations of the Company, and to review legal
and operational matters which have been assigned to the committee by the board
of directors, in furtherance of the board of directors' overall duty of
supervision.
The Company has a soft dollar brokerage committee. The committee meets
periodically to review soft dollar and other brokerage transactions by the
Funds, and to review policies and procedures of INVESCO with respect to
brokerage transactions. It reports on these matters to the Company's board of
directors.
<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 INVESCO to ensure that the use of
such instruments follows the policies on such instruments adopted by the
Company's board of directors. It reports on these matters to the Company's board
of directors.
The officers of the Company, all of whom are officers and employees of INVESCO,
are responsible for the day-to-day administration of the Company and the Funds.
The officers of the Company receive no direct compensation from the Company or
the Funds for their services as officers. INVESCO has the primary responsibility
for making investment decisions on behalf of the Funds. These investment
decisions are reviewed by the investment committee of INVESCO.
All of the officers and directors of the Company hold comparable positions with
the following funds, which, with the Company, are collectively referred to as
the "INVESCO Funds":
INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO Flexible
Funds, Inc.)
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.)
INVESCO Specialty Funds, Inc.
INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
INVESCO Treasurer's Series Funds, Inc. (formerly, INVESCO Treasurer's
Series Trust)
INVESCO Variable Investment Funds, Inc.
The table below provides information about each of the Company's directors and
officers. Their affiliations represent their principal occupations.
<TABLE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
<S> <C> <C>
Charles W. Brady *+ Director and Chairman of the Board of
1315 Peachtree St., N.E. Chairman of the Board INVESCO Global Health Sciences
Atlanta, Georgia Fund; Chief Executive Officer
Age: 64 and Director of AMVESCAP PLC,
London, England and various
subsidiaries of AMVESCAP PLC.
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Fred A. Deering +# Director and Vice Trustee of INVESCO Global
Security Life Center Chairman of the Board Health Sciences Fund;
1290 Broadway formerly, Chairman of the
Denver, Colorado Executive Committee and
Age: 71 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 President, Chief Executive
7800 E. Union Avenue Executive Officer Officer and Director of
Denver, Colorado and Director INVESCO Funds Group, Inc.;
Age: 48 President, Chief Executive
Officer and Director of
INVESCO Distributors, Inc.;
President, Chief Operating
Officer and Trustee of INVESCO
Global Health Sciences Fund;
formerly, Chairman and Chief
Executive Officer of Nations
Banc Advisors, Inc.; formerly,
Chairman of NationsBanc
Investments, Inc.
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Victor L. Andrews, Ph.D. Director Professor Emeritus, Chairman
**! 34 Seawatch Drive Emeritus and Chairman of the
Savannah, Georgia CFO 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 +** AMC Director President and Chief Executive
Cancer Research Center Officer of AMC Cancer Research
1600 Pierce Street Center, Denver, Colorado,
Denver, Colorado since January 1989; until
Age: 62 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 Trust Consultant; prior to
7608 Glen Albens Circle June 30, 1987, Senior Vice
Dallas, Texas President and Senior Trust
Age: 69 Officer of InterFirst Bank,
Dallas, Texas.
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Wendy L. Gramm, Ph.D.**! Director Self-employed (since 1993);
4201 Yuma Street, N.W. Professor of Economics and
Washington, DC Public Administration,
Age: 54 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
Commission's Bureau of
Economics; also, Director of
Chicago Mercantile Exchange,
Enron Corporation, IBP, Inc.,
State Farm Insurance Company,
Independent Women's Forum,
International Republic
Institute, and the Republican
Women's Federal 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>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Kenneth T. King +#@ Director Retired. Formerly, Chairman of
4080 North Circulo the Board of The Capitol Life
Manzanillo Insurance Company, Providence
Tucson, Arizona Washington Insurance Company
Age: 73 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 Board of
Suite 100 Directors of the Citizens and
Atlanta, Georgia Southern Corporation and
Age: 68 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, Employee's
Retirement System of GA, Emory
University and J.M. Tull
Charitable Foundation; Director
of Kaiser Foun dation Health
Plans of Georgia, Inc.
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Larry Soll, Ph.D.!** Director Retired. Formerly, Chairman of
345 Poorman Road the Board (1987 to 1994), Chief
Boulder, Colorado Executive Officer (1982 to 1989
Age: 57 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, General
7800 E. Union Avenue Counsel and Sec retary of
Denver, Colorado INVESCO Funds Group, Inc.;
Age: 51 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 to1998);
formerly, employee of a U.S.
regulatory agency, Washington,
D.C. (1973 to 1989).
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Ronald L. Grooms Chief Accounting Senior Vice President,
7800 E. Union Avenue Officer, Chief Finan Treasurer and Director of
Denver, Colorado cial Officer and INVESCO Funds Group, Inc.;
Age: 52 Treasurer Senior Vice President,
Treasurer and Director 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 and
7800 E. Union Avenue Assistant Secretary of INVESCO
Denver, Colorado Funds Group, Inc.; Senior Vice
Age: 42 President and Assistant
Secretary of INVESCO
Distributors, Inc.; formerly,
Trust Officer of INVESCO Trust
Company.
Pamela J. Piro Assistant Treasurer Vice President and Assistant
7800 E. Union Avenue Treasurer of INVESCO Funds
Denver, Colorado Group, Inc.; Assistant
Age: 39 Treasurer of INVESCO
Distributors Inc.; formerly,
Assistant Vice President (1996
to 1997), Director - Portfolio
Accounting (1994 to 1996),
Portfolio Accounting Manager
(1993 to 1994) and Assistant
Accounting Manager (1990 to
1993).
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Alan I. Watson Assistant Secretary Vice President of INVESCO Funds
7800 E. Union Avenue Group, Inc.; formerly, Trust
Denver, Colorado Officer of INVESCO Trust
Age: 57 Company.
Judy P. Wiese Assistant Secretary Vice President and Assistant
7800 E. Union Avenue Secretary of INVESCO Funds
Denver, Colorado Group, Inc.; Assistant
Age: 51 Secretary of INVESCO
Distributors, Inc.; formerly,
Trust Officer of INVESCO Trust
Company.
<FN>
# 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.
</FN>
</TABLE>
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 or trustees for services rendered in their
capacities as directors or trustees during the year ended December 31, 1998. As
of December 31, 1998, there were 53 funds in the INVESCO Complex.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Name of Person Aggregate Compen- Benefits Accrued As Estimated Annual Total Compensation
and Position sation From Company(1) Part of Company Benefits Upon From INVESCO Complex
Expenses(2) Retirement(3) Paid To Directors(6)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fred A. Deering, Vice $16,432 $22,793 $15,394 $103,700
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)
- --------------------------------------------------------------------------------------------------------------------
<FN>
(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
<PAGE>
these directors has served as a director of one or more of the funds in the
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.
</FN>
</TABLE>
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. A
similar plan has been adopted by INVESCO Global Health Sciences Fund's board of
trustees. All trustees of INVESCO Global Health Sciences Fund are also directors
of INVESCO Funds.
<PAGE>
The Independent Directors have contributed to the 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. Certain
of the deferred amounts have been invested in the shares of all 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 September 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:
<TABLE>
Equity Income Fund
<CAPTION>
- ---------------------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Special Custody Acct For The Record 13.34%
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 25.60%
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
91 Vested Interest Omnibus Asset Record 5.58%
A/C #20-01-302-9912426
PO Box 7780-1888
Philadelphia, PA 19182-0001
- ---------------------------------------------------------------------------------------------
Institutional Trust Co. TTEE
Citizens Banking Corporation Record 5.39%
Preferred Savings Plan
P.O. Box 77405
Atlanta, GA 30357
- ---------------------------------------------------------------------------------------------
Total Return Fund
- ---------------------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
- ---------------------------------------------------------------------------------------------
Charles Schwab & Co Inc. Record 17.59%
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 10.02%
c/o Liz Pezda M-110
PO Box 2975 H 19 B
Hartford, CT 0610492975
- ---------------------------------------------------------------------------------------------
American Express Trust TR Record 7.01%
American Express Trust
Retirement Services Plan
Attn Chris Hunt
4220 Edison Lakes Pkwy, Suite 201
Mishawaka, IN 46545-1420
- ---------------------------------------------------------------------------------------------
Bankers Trust Company
Siemens Savings Plan Record 6.43%
100 Plaza One Ste M53048
Jersey City, NJ 07311-3999
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
As of October 25, 1999, officers and directors of the Company, as a group,
beneficially owned less than 1% of any Fund's outstanding shares.
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 plans of distribution which have
been adopted by each Fund pursuant to Rule 12b-1 under the 1940 Act.
[CLASS II]. The Company has adopted a Plan and Agreement of Distribution (the
"[Class II] Plan") with respect to [Class II] shares which provides that each
Fund will make monthly payments to IDI computed at an annual rate no greater
than 0.25% of average net assets attributable to [Class II] shares. These
payments permit IDI, at its discretion, to engage in certain activities and
provide services in connection with the distribution of a Fund's shares to
investors. Payments by the Fund under the [Class II] Plan, for any month, may be
made to compensate IDI for permissible activities engaged in and services
provided.
[CLASS C]. The Company has adopted a Master Distribution Plan pursuant to Rule
12b-1 under the 1940 Act relating to the [Class C] shares of the Funds. (the
"[Class C] Plan"). Under the [Class C] Plan, [Class C] shares of the Funds pay
compensation to IDI at an annual rate of 1.00% per annum of the average daily
net assets attributable to [Class C] shares for the purpose of financing any
activity which is primarily intended to result in the sale of [Class C] shares.
The [Class C] Plan is designed to compensate IDI, on a quarterly basis, for
certain promotional and other sales-related costs, and to implement a dealer
incentive program which provides for periodic payments to selected dealers who
furnish continuing personal shareholder services to their customers who purchase
and own [Class C] shares of a Fund. Payments can also be directed by IDI to
selected institutions who have entered into service agreements with respect to
[Class C] shares of each Fund and who provide continuing personal services to
their customers who own such [Class C] shares of a Fund. The service fees
payable to selected institutions are calculated at the annual rate of 0.25% of
the average daily net assets value of those Fund shares that are held in such
institution's customers' accounts. Activities appropriate for financing under
the [Class C] Plan include, but are not limited to, the following: printing of
prospectuses and statements of additional information and reports for other than
existing shareholders; overhead; preparation and distribution of advertising
material and sales literature; expenses of organizing and conducting sales
seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the [Class C] Plan.
<PAGE>
Of the aggregate amount payable under the [Class C] Plan, payments to dealers
and other financial institutions that provide continuing personal shareholder
services to their customers who purchase and own [Class C] shares of a Fund, in
amounts of up to 0.25% of the average daily net assets of the [Class C] shares
of the Fund attributable to the customers of such dealers or financial
institutions are characterized as a service fee, and payments to dealers and
other financial institutions in excess of such amount and payments to IDI would
be characterized as an asset-based sales charge pursuant to the [Class C] Plan.
Payments pursuant to the [Class C] Plan are subject to any applicable
limitations imposed by rules of the National Association of Securities Dealers,
Inc. ("NASD"). The [Class C] Plan conforms to rules of the NASD by limiting
payments made to dealers and other financial institutions who provide continuing
personal shareholder services to their customers who purchase and own [Class C]
shares of the Funds to no more than 0.25% per annum of the average daily net
assets of the [Class C] shares of the funds attributable to the customers of
such dealers or financial institutions, and by imposing a cap on the total sales
charges, including asset-based sales charges, that may be paid by the Funds.
IDI may pay sales commissions to dealers and institutions who sell [Class C]
shares of the Funds at the time of such sales. Payments with respect to [Class
C] shares will equal 1.00% of the purchase price of the [Class C] shares sold by
the dealer or institution, and will consist of a sales commission of 0.75% of
the purchase price of [Class C] shares sold plus an advance of the first year
service fee of 0.25% with respect to such shares. IDI will retain all payments
received by it relating to [Class C] shares for the first thirteen months after
they are purchased. The portion of the payments to IDI under the [Class C] Plan
attributable to [Class C] shares which constitutes an asset-based sales charge
(0.75%) is intended in part to permit IDI to recoup a portion of on-going sales
commissions to dealers plus financing costs, if any. After the first thirteen
months, IDI will make such payments quarterly to dealers and institutions based
on the average net asset value of [Class C] shares which are attributable to
shareholders for whom the dealers and institutions are designated as dealers of
record.
A significant expenditure under the [Class II and Class C] Plans (collectively,
the "Plans") 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 a 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. Financial institutions and any other person entitled to receive
compensation for selling Fund shares may receive different compensation for
selling shares of one particular class over another.
<PAGE>
During the period ended May 31, 1999, the Funds made payments to IDI under the
Plans in the amounts of $11,115,878, $516,187 and $1,542,554 for Equity Income -
[Class II], Balanced - [Class II] and Total Return - [Class II] 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 - [Class
II], Balanced - [Class II] and Total Return - [Class II] Funds, respectively,
and will be paid during the fiscal year ended May 31, 2000. Since the Funds'
[Class C] shares and Balanced Fund's [Class I] shares did not commence
operations until December 31, 1999, the Funds' - [Class C] shares made no
payments to IDI under the Plans during the period ended May 31, 1999. For the
period ended May 31, 1999, and in the full fiscal year preceding that period for
each Fund, allocation of 12b-1 amounts paid by the Funds for the following
categories of expenses were:
Equity Income Fund - [Class II]
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 securities
dealers and other
organizations 4,150,563.39 5,381,075
Marketing personnel 1,323,599.04 1,383,127
Balanced Fund - [Class II](a)
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 - [Class II](a)
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
(a) For the period July 31, 1998 through May 31, 1999.
<PAGE>
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 Plans provide that they 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. A Plan can also be terminated at any time by a Fund,
without penalty, if a majority of the Independent Directors, or shareholders of
the relevant class of shares of the Fund, vote to terminate a 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 Plans may continue in effect and payments may be made under a 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 Fund's shares would
not, of course, affect a shareholder's ability to redeem his or her shares.
So long as the Plans are 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 Plans may not be amended to increase the amount of a Fund's
payments under a Plan without approval of the shareholders of that Fund, and all
material amendments to a Plan must be approved by the board of directors of the
Company, including a majority of the Independent Directors. Under the agreement
implementing the Plans, 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 a Plan in the event of its termination.
To the extent that a 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,
<PAGE>
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 a
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 Plans 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;
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 schedule and allocating fixed expenses over
a larger asset base), thereby partially offsetting the costs of a 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, Suite 2500, Denver,
Colorado, are the independent accountants of the Company. The independent
accountants are responsible for auditing the financial statements of the Funds.
<PAGE>
CUSTODIAN
State 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, 7800 E. Union Avenue, Denver, Colorado is the Company's transfer 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.
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 broker-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 broker's
consistent 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 favorable 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.
<PAGE>
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 favorable execution of a Fund's
transactions.
Portfolio transactions also may be effected through broker-dealers that
recommend the Funds to their clients, or that act as agent in the purchase of a
Fund's shares for their clients. When a number of broker-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-dealer in selecting among
qualified broker-dealers.
Certain of the INVESCO Funds utilize fund brokerage commissions to pay custody
fees for each respective fund. This program requires that the participating
funds receive favorable execution.
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, 1998 $6,092,269
Year Ended June 30, 1997 $4,594,928
Year Ended June 30, 1996 $4,668,604
Balanced Fund
Period Ended May 31, 1999(a) $1,103,175
Year Ended July 31, 1998 $1,318,035
Year Ended July 31, 1997 $1,382,425
Year Ended July 30, 1996 $1,262,695
Total Return Fund
Period Ended May 31, 1999(c) $ 0
Year Ended August 31, 1998 $ 330,263
Year Ended August 31, 1997 $ 484,776
Year Ended August 31, 1996 $ 396,975
(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.
<PAGE>
For the period ended May 31, 1999, brokers providing research services received
$2,948,981 in commissions on portfolio transactions effected for the Funds. The
aggregate dollar amount of such portfolio transactions was $2,502,180,989.
Commissions totaling $469,128 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.
At 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 America $ 40,000,000.00
- --------------------------------------------------------------------------------
General Electric Services $166,940,625.00
- --------------------------------------------------------------------------------
American Express Credit $ 40,000,000.00
- --------------------------------------------------------------------------------
Hertz Corp $ 34,734,000.00
- --------------------------------------------------------------------------------
Morgan (JP) & Co $ 83,587,500.00
- --------------------------------------------------------------------------------
Balanced State Street Bank and Trust $ 1,398,000.00
- --------------------------------------------------------------------------------
Associates Corp of North America $ 17,068,872.00
- --------------------------------------------------------------------------------
General Electric $ 4,474,250.00
- --------------------------------------------------------------------------------
Morgan (J P) and Company $ 5,795,400.00
- --------------------------------------------------------------------------------
Total Return State Street Bank and Trust $ 49,437,000.00
- --------------------------------------------------------------------------------
Associates Corp of North America $ 19,423,019.40
- --------------------------------------------------------------------------------
General Electric $ 30,506,250.00
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter $ 38,600,000.00
- --------------------------------------------------------------------------------
<PAGE>
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.
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 September 30, 1999,
the following shares of each Fund were outstanding:
Equity Income Fund - [Class II] 297,246,225
Equity Income Fund - [Class C] 0
Balanced Fund - [Class I] 0
Balanced Fund - [Class II] 22,987,182
Balanced Fund - [Class C] 0
Total Return Fund - [Class II] 112,190,652
Total Return Fund - [Class C] 0
A share of each class of a Fund represents an identical interest in that Fund's
investment portfolio and has the same rights, privileges and preferences.
However, each class may differ with respect to sales charges, if any,
distribution and/or service fees, if any, other expenses allocable exclusively
to each class, voting rights on matters exclusively affecting that class, and
its exchange privilege, if any. The different sales charges and other expenses
applicable to the different classes of shares of the Funds will affect the
performance of those classes. Each share of a Fund is entitled to participate
equally in dividends, other distributions and the proceeds of any liquidation of
that Fund. However, due to the differing expenses of the classes, dividends and
liquidation proceeds on [Class I, II and C] shares will differ. All shares of a
Fund will be voted together, except that only the shareholders of a particular
class of a Fund may vote on matters exclusively affecting that class, such as
the terms of a Rule 12b-1 Plan as it related to the class. 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.
<PAGE>
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 1940 Act.
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 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
<PAGE>
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 gains 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.
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 Fund's adjusted 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 Fund's adjusted 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.
<PAGE>
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.
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 Company's Annual 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.
<PAGE>
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:
<TABLE>
<CAPTION>
Name of Fund 1 Year 5 Year 10 Year or Since Inception
- ------------ ------ ------ --------------------------
<S> <C> <C> <C>
Equity Income Fund - [Class II] 10.31%(a) 17.36% 15.74%
Balanced Fund - [Class II] 13.12%(b) 20.08% 18.66%(c)
Total Return Fund - [Class II] 20.27%(d) 17.22% 13.88%
</TABLE>
(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 is not provided for each Fund's [Class
C] shares or Balanced Fund's [Class I] shares since they did not commence
operations until December 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 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.
<PAGE>
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, S&P,
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 Funds in performance reports will be drawn from the following 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
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
<PAGE>
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's Annual Report to
Shareholders dated May 31, 1999.
<PAGE>
APPENDIX A
BOND RATINGS
The following is a description of Moody's and S&P's 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.
S&P Corporate Bond Ratings
<PAGE>
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)
(3) Articles of Amendment to Articles of Incorporation
filed July 30, 1999.(6)
(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) Amendment dated May 13, 1999 to Advisory Agreement.(6)
(2) Sub-advisory Agreement between INVESCO Funds Group, Inc.
and INVESCO Capital Management, Inc. dated May 28, 1999.(6)
(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.(6)
(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)
<PAGE>
(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.(6)
(b) Amendment dated May 28, 1999 to Administrative
Services Agreement.(6)
(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)
(2) Opinon and Consent of Counsel with respect to INVESCO
industrial Income Fund as to the legality of the
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) 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) (1) Form of Plan pursuant to Rule18f-3 under the Investment
Company Act of 1940 with respect to INVESCO Balanced Fund
adopted November __, 1999.
(2) Form of Plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 with respect to INVESCO
Equity Income Fund adopted November __, 1999.
(3) Form of Plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 with respect to INVESCO
Total Return Fund adopted November __, 1999.
(1) Previously filed with Post-Effective Amendment No. 3 to the Registration
Statement on September 21, 1995, and incorporated by reference herein.
(2) Previously filed with Post-Effective Amendment No. 4 to the Registration
Statement on November 27, 1996 and incorporated by reference herein.
(3) Previously filed with Post-Effective Amendment No. 5 to the Registration
Statement on November 24, 1997, and incorporated by reference herein.
<PAGE>
(4) Previously filed with Post-Effective Amendment No. 6 to the Registration
Statement on September 29, 1998, and incorporated by reference herein.
(5) Previously filed with Post-Effective Amendment No. 7 to the Registration
Statement on May 28, 1999, and incorporated by reference herein.
(6) Previously filed with Post-Effective Amendment No. 9 to the Registration
Statement on September 28, 1999, and incorporated by reference herein.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH INVESCO
COMBINATION STOCK & BOND FUNDS, INC. (THE "COMPANY")
No person is presently controlled by or under common control with the Company.
ITEM 25. INDEMNIFICATION
Indemnification provisions for officers, directors and employees of Company 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,
directors and officers of the Company 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Name Position with Adviser Principal Occupation and Company Affiliation
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mark H. Williamson Chairman, Director and President & Chief Executive Officer
Officer INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Raymond R.Cunningham Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
William J. Galvin, Jr. Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------
Ronald L. Grooms Officer & Director Senior Vice President & Treasurer
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- ------------------------------------------------------------------------------------------------------
Richard W. Healey Officer & Director Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- ------------------------------------------------------------------------------------------------------
William R. Keithler Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- ------------------------------------------------------------------------------------------------------
Charles P. Mayer Officer & Director Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- ------------------------------------------------------------------------------------------------------
Timothy J. Miller Officer & Director 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
- ------------------------------------------------------------------------------------------------------
James F. Lummanick Officer Vice President & Assistant
General Counsel
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- ------------------------------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------
Anthony R. Rogers Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- ------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------
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 &
Assistant General Counsel
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
- ------------------------------------------------------------------------------------------------------
Michael D. Legoski Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- ------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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 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 Assistant 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
Charles P. Mayer Director
7800 E. Union Avenue
Denver, CO 80237
Timothy J. Miller Director
7800 E. Union Avenue
Denver, CO 80237
<PAGE>
Glen A. Payne Senior Vice Secretary
7800 E. Union Avenue President,
Denver, CO 80237 Secretary &
General Counsel
Pamela J. Piro Assistant Treasurer Assistant Treasurer
Assistant Treasurer
7800 E. Union Avenue
Denver, CO 80237
Judy P. Wiese Assistant Secretary Assistant Secretary
7800 E. Union Avenue
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 Company certifies that it 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 1st day of November, 1999.
INVESCO Combination Stock & Bond Funds, Inc.
Attest:
/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
- -------------- ----------------------
j 123
o(1) 125
o(2) 127
o(3) 129
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. 10 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 headings "Independent Accountants" in the Statement of Additional
Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Denver, Colorado
November 1, 1999.
FORM OF
INVESCO BALANCED FUND PLAN PURSUANT TO RULE 18F-3
January __, 2000
1. The Plan. This Plan is the written multiple class plan for the INVESCO
Balanced Fund (the "Fund") for INVESCO Distributors, Inc. ("IDI"), the
general distributor of shares of the Fund and INVESCO Funds Group, Inc.
("INVESCO"), the investment adviser of the Fund. It is the written
plan contemplated by Rule 18f-3 (the "Rule") under the Investment
Company Act of 1940 (the "1940 Act"), pursuant to which the Fund may
issue multiple classes of shares. The terms and provisions of this
Plan shall be interpreted and defined in a manner consistent with the
provisions and definitions contained in the Rule.
2. Similarities and Differences Among Classes. The Fund agrees that one or
more classes of that Fund:
(1) may have a separate service plan or distribution and service
plan ("12b-1 Plan"), and shall pay all of the expenses incurred
pursuant to that arrangement, and may pay a different share of
expenses ("Class Expenses") if such expenses are actually incurred
in a different amount by that class, or if the class receives
services of a different kind or to a different degree than that of
other classes. Class Expenses are those expenses specifically
attributable to the particular class of shares, namely (a) 12b-1
Plan fees, (b) transfer and shareholder servicing agent fees and
administrative service fees, (c) shareholder meeting expenses, (d)
blue sky and SEC registration fees and (e) any other incremental
expenses subsequently identified that should be allocated to one
class which shall be approved by a vote of that Fund's Board of
Directors (the "Directors"). Expenses identified in Items (c)
through (e) may involve issues relating either to a specific class
or to the entire Fund; such expenses constitute Class Expenses only
when they are attributable to a specific class. Because Class
Expenses may be accrued at different rates for each class of the
Fund, dividends distributable to shareholders and net asset values
per share may differ for shares of different classes of the Fund.
(2) shall have exclusive voting rights on any matters that relate
solely to that class's arrangements, including without limitation
voting with respect to a 12b-1 Plan for that class;
(3) shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the
interests of any other class;
(4) may have a different arrangement for shareholder services,
including different sales charges, sales charge waivers,
purchase and redemption features, exchange privileges, loan
privileges, the availability of certificated shares and/or
conversion features; and
(5) shall have in all other respects the same rights and
obligations as each other class.
3. Allocations of Income, Capital Gains and Losses and Expenses. Income,
realized and unrealized capital gains and losses, and expenses of the Fund
other than Class Expenses allocated to a particular class shall be
allocated to each class on the basis of the net asset value of that class
in relation to the net asset value of the Fund.
4. Expense Waivers and Reimbursements. From time to time the Adviser may
voluntarily undertake to (i) waive any portion of the management fee
charged to the Fund, and/or (ii) reimburse any portion of the expenses
of the Fund or of one or more of its classes, but is not required to do
so or to continue to do so for any period of time. The quarterly
report by the Advisor to the Directors of Fund expense reimbursements
shall disclose any reimbursements that are not equal for all classes of
the Fund.
5. Disclosure. The classes of shares to be offered by the Fund, and other
material distribution arrangements with respect to such classes, shall be
disclosed in the prospectus and/or statement of additional information
used to offer that class of shares. Such prospectus or statement of
additional information shall be supplemented or amended to reflect any
change(s) in classes of shares to be offered or in the material
distribution arrangements with respect to such classes.
<PAGE>
6. Independent Audit. The methodology and procedures for calculating the net
asset value, dividends and distributions of each class shall be reviewed
by an independent auditing firm (the "Expert"). At least annually, the
Expert, or an appropriate substitute expert, will render a report to the
Funds on policies and procedures placed in operation and tests of
operating effectiveness as defined and described in SAS 70 of the AICPA.
7. Offers and Sales of Shares. INVESCO will maintain compliance standards as
to when each class of shares may appropriately be sold to particular
investors, and will require all persons selling shares of the Fund to
agree to conform to such standards.
8. Rule 12b-1 Payments. The Treasurer of INVESCO Combination Stock & Bond
Funds, Inc. (the "Company") shall provide to the Directors of the
Company, and the Directors shall review, at least quarterly, the
written report required by the Company's 12b-1 Plan. The report shall
include information on (i) the amounts expended pursuant to the 12b-1
Plan, (ii) the purposes for which such expenditures were made and (iii)
the amount of INVESCO's unpaid distribution costs (if recovery of such
costs in future periods is permitted by that 12b-1 Plan), taking into
account 12b-1 Plan payments paid to INVESCO.
9. Conflicts. On an ongoing basis, the Directors of the Company, pursuant to
their fiduciary responsibilities under the 1940 Act and otherwise, will
monitor the Fund for the existence of any material conflicts among the
interests of the classes. INVESCO will be responsible for reporting any
potential or existing conflicts to the Directors. In the event a conflict
arises, the Directors shall take such action as they deem appropriate.
10. Effectiveness and Amendment. This Plan takes effect for the Fund as of
the date of adoption shown below. This Plan has been approved by a
majority vote of the Board of the Company and of the Company's Board
members who are not "interested persons" (as defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation
of the Plan or any agreements relating to the Plan (the "Independent
Directors") of the Fund at meetings called on this Plan. Prior to that
vote, (i) the Board was furnished by the methodology used for net asset
value and dividend and distribution determinations for the Fund, and
(ii) a majority of the Board and its Independent Directors determined
that the Plan as proposed to be adopted, including the expenses
allocation, is in the best interests of the Fund as a whole and to each
class of the Fund individually. Prior to any material amendment to the
Plan, the Board shall request and evaluate, and INVESCO shall furnish,
such information as may be reasonably necessary to evaluate such
amendment, and a majority of the Board and its Independent Directors
shall find that the Plan as proposed to be amended, including the
expense allocation, is in the best interest of each class, the Fund as
a whole and each class of the Fund individually. No material amendment
to the Plan shall be made by any Fund's Prospectus or Statement of
Additional Information or any supplement to either of the foregoing,
unless such amendment has first been approved by a majority of the
Fund's Board and its Independent Directors.
Adopted by the Board of INVESCO Combination Stock & Bond Funds, Inc. on
January __, 2000.
--------------------------------------
Glen A. Payne, Secretary
FORM OF
INVESCO EQUITY INCOME FUND PLAN PURSUANT TO RULE 18F-3
January __, 2000
1. The Plan. This Plan is the written multiple class plan for the INVESCO
Equity Income Fund (the "Fund")for INVESCO Distributors, Inc. ("IDI"), the
general distributor of shares of the Fund and INVESCO Funds Group, Inc.
("INVESCO"), the investment adviser of the Fund. It is the written
plan contemplated by Rule 18f-3 (the "Rule") under the Investment
Company Act of 1940 (the "1940 Act"), pursuant to which the Fund may
issue multiple classes of shares. The terms and provisions of this
Plan shall be interpreted and defined in a manner consistent with the
provisions and definitions contained in the Rule.
2. Similarities and Differences Among Classes. The Fund agrees that one or
more classes of that Fund:
(1) may have a separate service plan or distribution and service
plan ("12b-1 Plan"), and shall pay all of the expenses incurred
pursuant to that arrangement, and may pay a different share of
expenses ("Class Expenses") if such expenses are actually incurred
in a different amount by that class, or if the class receives
services of a different kind or to a different degree than that of
other classes. Class Expenses are those expenses specifically
attributable to the particular class of shares, namely (a) 12b-1
Plan fees, (b) transfer and shareholder servicing agent fees and
administrative service fees, (c) shareholder meeting expenses, (d)
blue sky and SEC registration fees and (e) any other incremental
expenses subsequently identified that should be allocated to one
class which shall be approved by a vote of that Fund's Board of
Directors (the "Directors"). Expenses identified in Items (c)
through (e) may involve issues relating either to a specific class
or to the entire Fund; such expenses constitute Class Expenses only
when they are attributable to a specific class. Because Class
Expenses may be accrued at different rates for each class of the
Fund, dividends distributable to shareholders and net asset values
per share may differ for shares of different classes of the Fund.
(2) shall have exclusive voting rights on any matters that relate
solely to that class's arrangements, including without limitation
voting with respect to a 12b-1 Plan for that class;
(3) shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the
interests of any other class;
(4) may have a different arrangement for shareholder services,
including different sales charges, sales charge waivers,
purchase and redemption features, exchange privileges, loan
privileges, the availability of certificated shares and/or
conversion features; and
(5) shall have in all other respects the same rights and
obligations as each other class.
3. Allocations of Income, Capital Gains and Losses and Expenses. Income,
realized and unrealized capital gains and losses, and expenses of the Fund
other than Class Expenses allocated to a particular class shall be
allocated to each class on the basis of the net asset value of that class
in relation to the net asset value of the Fund.
4. Expense Waivers and Reimbursements. From time to time the Adviser may
voluntarily undertake to (i) waive any portion of the management fee
charged to the Fund, and/or (ii) reimburse any portion of the expenses
of the Fund or of one or more of its classes, but is not required to do
so or to continue to do so for any period of time. The quarterly
report by the Advisor to the Directors of Fund expense reimbursements
shall disclose any reimbursements that are not equal for all classes of
the Fund.
5. Disclosure. The classes of shares to be offered by the Fund, and other
material distribution arrangements with respect to such classes, shall be
disclosed in the prospectus and/or statement of additional information
used to offer that class of shares. Such prospectus or statement of
additional information shall be supplemented or amended to reflect any
change(s) in classes of shares to be offered or in the material
distribution arrangements with respect to such classes.
<PAGE>
6. Independent Audit. The methodology and procedures for calculating the net
asset value, dividends and distributions of each class shall be reviewed
by an independent auditing firm (the "Expert"). At least annually, the
Expert, or an appropriate substitute expert, will render a report to the
Funds on policies and procedures placed in operation and tests of
operating effectiveness as defined and described in SAS 70 of the AICPA.
7. Offers and Sales of Shares. INVESCO will maintain compliance standards as
to when each class of shares may appropriately be sold to particular
investors, and will require all persons selling shares of the Fund to
agree to conform to such standards.
8. Rule 12b-1 Payments. The Treasurer of INVESCO Combination Stock & Bond
Funds, Inc. (the "Company") shall provide to the Directors of the
Company, and the Directors shall review, at least quarterly, the
written report required by the Company's 12b-1 Plan. The report shall
include information on (i) the amounts expended pursuant to the 12b-1
Plan, (ii) the purposes for which such expenditures were made and (iii)
the amount of INVESCO's unpaid distribution costs (if recovery of such
costs in future periods is permitted by that 12b-1 Plan), taking into
account 12b-1 Plan payments paid to INVESCO.
9. Conflicts. On an ongoing basis, the Directors of the Company, pursuant to
their fiduciary responsibilities under the 1940 Act and otherwise, will
monitor the Fund for the existence of any material conflicts among the
interests of the classes. INVESCO will be responsible for reporting any
potential or existing conflicts to the Directors. In the event a conflict
arises, the Directors shall take such action as they deem appropriate.
10. Effectiveness and Amendment. This Plan takes effect for the Fund as of
the date of adoption shown below. This Plan has been approved by a
majority vote of the Board of the Company and of the Company's Board
members who are not "interested persons" (as defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation
of the Plan or any agreements relating to the Plan (the "Independent
Directors") of the Fund at meetings called on this Plan. Prior to that
vote, (i) the Board was furnished by the methodology used for net asset
value and dividend and distribution determinations for the Fund, and
(ii) a majority of the Board and its Independent Directors determined
that the Plan as proposed to be adopted, including the expenses
allocation, is in the best interests of the Fund as a whole and to each
class of the Fund individually. Prior to any material amendment to the
Plan, the Board shall request and evaluate, and INVESCO shall furnish,
such information as may be reasonably necessary to evaluate such
amendment, and a majority of the Board and its Independent Directors
shall find that the Plan as proposed to be amended, including the
expense allocation, is in the best interest of each class, the Fund as
a whole and each class of the Fund individually. No material amendment
to the Plan shall be made by any Fund's Prospectus or Statement of
Additional Information or any supplement to either of the foregoing,
unless such amendment has first been approved by a majority of the
Fund's Board and its Independent Directors.
Adopted by the Board of INVESCO Combination Stock & Bond Funds, Inc. on
January __, 2000.
--------------------------------------
Glen A. Payne, Secretary
FORM OF
INVESCO TOTAL RETURN FUND PLAN PURSUANT TO RULE 18F-3
January __, 2000
1. The Plan. This Plan is the written multiple class plan for the INVESCO
Total Return Fund (the "Fund")for INVESCO Distributors, Inc. ("IDI"), the
general distributor of shares of the Fund and INVESCO Funds Group, Inc.
("INVESCO"), the investment adviser of the Fund. It is the written
plan contemplated by Rule 18f-3 (the "Rule") under the Investment
Company Act of 1940 (the "1940 Act"), pursuant to which the Fund may
issue multiple classes of shares. The terms and provisions of this
Plan shall be interpreted and defined in a manner consistent with the
provisions and definitions contained in the Rule.
2. Similarities and Differences Among Classes. The Fund agrees that one or
more classes of that Fund:
(1) may have a separate service plan or distribution and service
plan ("12b-1 Plan"), and shall pay all of the expenses incurred
pursuant to that arrangement, and may pay a different share of
expenses ("Class Expenses") if such expenses are actually incurred
in a different amount by that class, or if the class receives
services of a different kind or to a different degree than that of
other classes. Class Expenses are those expenses specifically
attributable to the particular class of shares, namely (a) 12b-1
Plan fees, (b) transfer and shareholder servicing agent fees and
administrative service fees, (c) shareholder meeting expenses, (d)
blue sky and SEC registration fees and (e) any other incremental
expenses subsequently identified that should be allocated to one
class which shall be approved by a vote of that Fund's Board of
Directors (the "Directors"). Expenses identified in Items (c)
through (e) may involve issues relating either to a specific class
or to the entire Fund; such expenses constitute Class Expenses only
when they are attributable to a specific class. Because Class
Expenses may be accrued at different rates for each class of the
Fund, dividends distributable to shareholders and net asset values
per share may differ for shares of different classes of the Fund.
(2) shall have exclusive voting rights on any matters that relate
solely to that class's arrangements, including without limitation
voting with respect to a 12b-1 Plan for that class;
(3) shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the
interests of any other class;
(4) may have a different arrangement for shareholder services,
including different sales charges, sales charge waivers,
purchase and redemption features, exchange privileges, loan
privileges, the availability of certificated shares and/or
conversion features; and
(5) shall have in all other respects the same rights and
obligations as each other class.
3. Allocations of Income, Capital Gains and Losses and Expenses. Income,
realized and unrealized capital gains and losses, and expenses of the Fund
other than Class Expenses allocated to a particular class shall be
allocated to each class on the basis of the net asset value of that class
in relation to the net asset value of the Fund.
4. Expense Waivers and Reimbursements. From time to time the Adviser may
voluntarily undertake to (i) waive any portion of the management fee
charged to the Fund, and/or (ii) reimburse any portion of the expenses
of the Fund or of one or more of its classes, but is not required to do
so or to continue to do so for any period of time. The quarterly
report by the Advisor to the Directors of Fund expense reimbursements
shall disclose any reimbursements that are not equal for all classes of
the Fund.
5. Disclosure. The classes of shares to be offered by the Fund, and other
material distribution arrangements with respect to such classes, shall be
disclosed in the prospectus and/or statement of additional information
used to offer that class of shares. Such prospectus or statement of
additional information shall be supplemented or amended to reflect any
change(s) in classes of shares to be offered or in the material
distribution arrangements with respect to such classes.
<PAGE>
6. Independent Audit. The methodology and procedures for calculating the net
asset value, dividends and distributions of each class shall be reviewed
by an independent auditing firm (the "Expert"). At least annually, the
Expert, or an appropriate substitute expert, will render a report to the
Funds on policies and procedures placed in operation and tests of
operating effectiveness as defined and described in SAS 70 of the AICPA.
7. Offers and Sales of Shares. INVESCO will maintain compliance standards as
to when each class of shares may appropriately be sold to particular
investors, and will require all persons selling shares of the Fund to
agree to conform to such standards.
8. Rule 12b-1 Payments. The Treasurer of INVESCO Combination Stock & Bond
Funds, Inc. (the "Company") shall provide to the Directors of the
Company, and the Directors shall review, at least quarterly, the
written report required by the Company's 12b-1 Plan. The report shall
include information on (i) the amounts expended pursuant to the 12b-1
Plan, (ii) the purposes for which such expenditures were made and (iii)
the amount of INVESCO's unpaid distribution costs (if recovery of such
costs in future periods is permitted by that 12b-1 Plan), taking into
account 12b-1 Plan payments paid to INVESCO.
9. Conflicts. On an ongoing basis, the Directors of the Company, pursuant to
their fiduciary responsibilities under the 1940 Act and otherwise, will
monitor the Fund for the existence of any material conflicts among the
interests of the classes. INVESCO will be responsible for reporting any
potential or existing conflicts to the Directors. In the event a conflict
arises, the Directors shall take such action as they deem appropriate.
10. Effectiveness and Amendment. This Plan takes effect for the Fund as of
the date of adoption shown below. This Plan has been approved by a
majority vote of the Board of the Company and of the Company's Board
members who are not "interested persons" (as defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation
of the Plan or any agreements relating to the Plan (the "Independent
Directors") of the Fund at meetings called on this Plan. Prior to that
vote, (i) the Board was furnished by the methodology used for net asset
value and dividend and distribution determinations for the Fund, and
(ii) a majority of the Board and its Independent Directors determined
that the Plan as proposed to be adopted, including the expenses
allocation, is in the best interests of the Fund as a whole and to each
class of the Fund individually. Prior to any material amendment to the
Plan, the Board shall request and evaluate, and INVESCO shall furnish,
such information as may be reasonably necessary to evaluate such
amendment, and a majority of the Board and its Independent Directors
shall find that the Plan as proposed to be amended, including the
expense allocation, is in the best interest of each class, the Fund as
a whole and each class of the Fund individually. No material amendment
to the Plan shall be made by any Fund's Prospectus or Statement of
Additional Information or any supplement to either of the foregoing,
unless such amendment has first been approved by a majority of the
Fund's Board and its Independent Directors.
Adopted by the Board of INVESCO Combination Stock & Bond Funds, Inc. on
January __, 2000.
--------------------------------------
Glen A. Payne, Secretary
