As filed with the Securities and Exchange Commission on August 13, 2003
Securities Act Registration No. 811-8066
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. _______ Post-effective Amendment No. ______
(Check appropriate box or boxes)
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
----------------------------------------
(Exact Name of Registrant as Specified in Charter)
4350 South Monaco Street, Denver, Colorado 80237
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (713) 626-1919
Name and Address of Agent for Service: Copy to:
NANCY L. MARTIN, ESQUIRE MARTHA J. HAYS, ESQUIRE
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll, LLP
11 Greenway Plaza 1735 Market Street
Suite 100 51st Floor
Houston, TX 77046 Philadelphia, PA 19103
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective under the Securities Act of
1933.
The title of the securities being registered is INVESCO Total Return
Fund Classes A, B, C, Investor Class and Institutional Class. No filing fee is
due in reliance on Section 24(f) of the Investment Company Act of 1940.
(INVESCO LOGO)
INVESCO BALANCED FUND,
A PORTFOLIO OF
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
August 25, 2003
Dear Shareholder:
As you may be aware, AMVESCAP PLC, the parent company of your Fund's
investment advisor, has undertaken an integration initiative for its North
American mutual fund operations.
In the first phase of the integration initiative, A I M Distributors, Inc.
became the sole distributor for all AMVESCAP PLC mutual funds in the United
States. A I M Distributors, Inc. is now the distributor for all INVESCO Funds
(including your Fund) and the AIM Funds.
AMVESCAP PLC also reviewed all INVESCO Funds and AIM Funds and concluded
that it would be appropriate to reduce the number of smaller and less efficient
funds that compete for limited shareholder assets and to consolidate certain
funds having similar investment objectives and strategies. Your Fund is one of
the funds that AMVESCAP PLC recommended, and your Board of Directors approved,
be consolidated with another fund. The attached proxy statement/prospectus seeks
your approval of this consolidation.
As part of the integration initiative, AMVESCAP PLC has recommended
restructuring the advisory and administrative servicing arrangements so that
A I M Advisors, Inc. is the advisor and administrator for all INVESCO Funds and
AIM Funds. Your Board has approved a new advisory agreement under which A I M
Advisors, Inc. will serve as the investment advisor for your Fund, and a new
sub-advisory agreement under which INVESCO Institutional (N.A.), Inc., an
affiliate of INVESCO Funds Group, Inc., which is currently serving as your
Fund's investment advisor, will serve as sub-advisor. The portfolio management
team for your Fund will not change as a result of this restructuring. The
attached proxy statement/prospectus seeks your approval of these new investment
advisory and sub-advisory agreements. If approved, these new agreements will
become effective only if shareholders do not approve the proposal to consolidate
your Fund.
The integration initiative also calls for changing the organizational
structure of the INVESCO Funds and the AIM Funds. To accomplish this goal,
AMVESCAP PLC has recommended that all INVESCO Funds and AIM Funds organized as
Maryland corporations change their form and state of organization to Delaware
statutory trusts. Your Board has approved redomesticating your Fund as a series
of a Delaware statutory trust. The attached proxy statement/prospectus seeks
your approval of this redomestication. If approved, the redomestication will
occur prior to the consolidation of your Fund.
Finally, the independent directors of your Board believe that your
interests would best be served if the INVESCO Funds and the AIM Funds had a
unified board of directors/trustees. The attached proxy statement/prospectus
seeks your vote in favor of the persons nominated to serve as directors.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote your shares in person. If you
expect to attend the meeting in person, or have questions, please notify us by
calling (800) 952-3502. You may also vote your shares by telephone or through a
website established for that purpose by following the instructions that appear
on the enclosed proxy card. If we do not hear from you after a reasonable amount
of time, you may receive a telephone call from our proxy solicitor, Georgeson
Shareholder Communications Inc., reminding you to vote your shares.
Sincerely,
-s- Raymond R. Cunningham
Raymond R. Cunningham
President
INVESCO BALANCED FUND,
A PORTFOLIO OF
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 2003
To the Shareholders of INVESCO Balanced Fund:
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve a Plan of Reorganization under which all of the assets of your
Fund will be transferred to INVESCO Total Return Fund ("Buying Fund"), each an
investment portfolio of INVESCO Combination Stock & Bond Funds, Inc.
("Company"), Buying Fund will assume the liabilities of your Fund and Company
will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund.
2. Elect 16 directors to the Board of Directors of Company, each of whom
will serve until his or her successor is elected and qualified.
3. Approve a new investment advisory agreement with A I M Advisors, Inc.
("AIM") for your Fund.
4. Approve a new sub-advisory agreement between AIM and INVESCO
Institutional (N.A.), Inc. for your Fund.
5. Approve a Plan of Reorganization which provides for the redomestication
of Company as a Delaware statutory trust and, in connection therewith, the sale
of all of Company's assets and the dissolution of Company as a Maryland
corporation.
6. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas, 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on July 25, 2003 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting.
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
COMPANY. YOU MAY ALSO VOTE YOUR SHARES BY TELEPHONE OR THROUGH A WEBSITE
ESTABLISHED FOR THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
MATERIALS. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE
SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY
EXECUTING AND SUBMITTING A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION
TO THE SECRETARY OF COMPANY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
-s- Glen A. Payne
Glen A. Payne
Secretary
August 25, 2003
INVESCO BALANCED FUND, INVESCO TOTAL RETURN FUND,
EACH A PORTFOLIO OF
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
(800) 525-8085
COMBINED PROXY STATEMENT AND PROSPECTUS
AUGUST 25, 2003
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
INVESCO Balanced Fund (your Fund). The Special Meeting will be held on October
21, 2003. We intend to mail this Proxy Statement/Prospectus, the enclosed Notice
of Special Meeting of Shareholders and the enclosed proxy card on or about
August 25, 2003 to all shareholders entitled to vote.
At the Special Meeting, we are asking shareholders of your Fund to vote on
five Proposals. The first Proposal to be voted on is a Plan of Reorganization
(the "Plan of Reorganization") which provides for the combination of your Fund,
with INVESCO Total Return Fund ("Buying Fund"), each an investment portfolio of
INVESCO Combination Stock & Bond Funds Inc. ("Company") (the "Reorganization").
Under the Plan of Reorganization, all of the assets of your Fund will be
transferred to Buying Fund, Buying Fund will assume the liabilities of your Fund
and Company will issue shares of each class of Buying Fund to shareholders of
the corresponding class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Directors of Company (the "Board") has approved the Plan of
Reorganization and the Reorganization as being advisable and in the best
interests of your Fund.
Company is a registered open-end management investment company that issues
its shares in separate series. Your Fund and Buying Fund are each a series of
Company. INVESCO Funds Group, Inc. ("INVESCO") serves as the investment advisor
to both your Fund and Buying Fund. INVESCO is a wholly owned subsidiary of
AMVESCAP PLC ("AMVESCAP"), an independent global investment management company.
The investment objective of Buying Fund is the same as that of your Fund.
See "Comparison of Investment Objectives and Principal Strategies."
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Plan of Reorganization and the other Proposals
described below. It is both the Proxy Statement of your Fund and the Prospectus
of Buying Fund. You should read and retain this Proxy Statement/ Prospectus for
future reference.
The shared Prospectus of your Fund and Buying Fund dated August 12, 2003,
as supplemented August 14, 2003 (the "Prospectus"), together with the related
Statement of Additional Information dated August 12, 2003, as supplemented
August 14, 2003, and the Statement of Additional Information relating to the
Reorganization, dated August 15, 2003, are on file with the Securities and
Exchange Commission (the "SEC"). The Prospectus is incorporated by reference
into this Proxy Statement/Prospectus and a copy of the Prospectus is attached as
Appendix II to this Proxy Statement/Prospectus. The Statement of Additional
Information relating to the Reorganization dated August 15, 2003 also is
incorporated by
i
reference into this Proxy Statement/Prospectus. The SEC maintains a website at
www.sec.gov that contains the Prospectus and Statements of Additional
Information described above, material incorporated by reference, and other
information about Company.
Copies of the Prospectus and the related Statement of Additional
Information are available without charge by writing to A I M Fund Services,
Inc., P.O. Box 4739, Houston, Texas 77210-4739, or by calling (800) 347-4246.
Additional information about your Fund and Buying Fund may be obtained on the
internet at www.aiminvestments.com.
The remaining four Proposals to be voted on are: the election of 16
directors to the Board of Directors of Company; the approval of a new advisory
agreement with AIM for your Fund; the approval of a new sub-advisory agreement
between AIM and INVESCO Institutional (N.A.), Inc. ("INVESCO Institutional") for
your Fund; and the approval of a Plan of Reorganization (the "Plan of
Redomestication") which provides for the redomestication of Company as a
Delaware statutory trust and, in connection therewith, the sale of all of
Company's assets and the dissolution of Company as a Maryland corporation. The
Board has approved the nomination of the persons set forth in this Proxy
Statement/ Prospectus for election as directors of Company and has approved the
new advisory agreement with AIM and the new sub-advisory agreement between AIM
and INVESCO. Finally, the Board has approved the Plan of Redomestication as
being advisable.
All five Proposals are being submitted to you to implement an integration
initiative undertaken by AMVESCAP with respect to its North American mutual fund
operations, which includes your Fund.
Company has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semiannual
report succeeding the annual report, if any. If you have not received such
report(s) or would like to receive an additional copy, please contact A I M Fund
Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, or call (800)
347-4246. Such report(s) will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
INTRODUCTION................................................ 1
PROPOSAL 1 -- APPROVAL OF THE PLAN TO COMBINE YOUR FUND AND
BUYING FUND............................................... 2
SUMMARY..................................................... 2
The Reorganization........................................ 2
Comparison of Investment Objectives and Principal
Strategies............................................. 3
Comparison of Principal Service Providers................. 5
Comparison of Performance................................. 5
Comparison of Fees and Expenses........................... 5
Comparison of Multiple Class Structures................... 6
Comparison of Sales Charges............................... 6
Comparison of Distribution, Purchase and Redemption
Procedures and Exchange Rights......................... 6
The Board's Recommendation on Proposal 1.................. 7
RISK FACTORS................................................ 8
Risks Associated with Buying Fund......................... 8
Comparison of Risks of Buying Fund and Your Fund.......... 10
INFORMATION ABOUT BUYING FUND............................... 10
Description of Buying Fund Shares......................... 10
Management's Discussion of Fund Performance............... 10
Financial Highlights...................................... 10
ADDITIONAL INFORMATION ABOUT THE PLAN OF REORGANIZATION..... 10
Terms of the Reorganization............................... 10
The Reorganization........................................ 11
Board Considerations...................................... 11
Other Terms............................................... 12
Federal Income Tax Consequences........................... 12
Accounting Treatment...................................... 13
RIGHTS OF SHAREHOLDERS...................................... 13
General................................................... 14
Liability of Shareholders................................. 14
Election of Directors; Terms.............................. 14
Removal of Directors...................................... 14
Meetings of Shareholders.................................. 14
Liability of Directors and Officers; Indemnification...... 14
Dissolution and Termination............................... 14
Voting Rights of Shareholders............................. 15
Dissenters' Rights........................................ 15
Amendments to Organization Documents...................... 15
CAPITALIZATION.............................................. 16
LEGAL MATTERS............................................... 17
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND...... 17
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION................................................ 17
PROPOSAL 2 -- ELECTION OF DIRECTORS......................... 17
Background................................................ 17
Structure of the Board of Directors....................... 18
Nominees for Directors.................................... 18
</Table>
iii
<Table>
<Caption>
PAGE
----
The Board's Recommendation on Proposal 2.................. 22
Current Committees of the Board........................... 22
Board and Committee Meeting Attendance.................... 24
Future Committee Structure................................ 24
Director's Compensation................................... 25
Current Retirement Plan for Directors..................... 25
Current Deferred Compensation Plan........................ 26
New Retirement Plan for Directors......................... 26
New Deferred Compensation Agreements...................... 27
Officers of Company....................................... 27
Security Ownership of Management.......................... 27
Director Ownership of Your Fund's Shares.................. 27
PROPOSAL 3 -- APPROVAL OF A NEW INVESTMENT ADVISORY
AGREEMENT................................................. 27
Background................................................ 27
Your Fund's Current Investment Advisor.................... 28
The Proposed New Investment Advisor for Your Fund......... 29
Positions with AIM Held by Company's Directors or
Executive Officers..................................... 29
Terms of the Current Advisory Agreement................... 29
Additional Services Provided by INVESCO and its
Affiliates............................................. 30
Advisory Fees Charged by AIM for Similar Funds it
Manages................................................ 30
Terms of the Proposed Advisory Agreement.................. 31
Factors the Directors Considered in Approving the Advisory
Agreement.............................................. 34
The Board's Recommendation on Proposal 3.................. 36
PROPOSAL 4 -- APPROVAL OF NEW SUB-ADVISORY AGREEMENT........ 36
Background................................................ 36
The Proposed Sub-Advisor for Your Fund.................... 37
Positions with INVESCO Institutional Held by Company's
Directors or Executive Officers........................ 37
Terms of the Proposed Sub-Advisory Agreement.............. 37
Advisory Fees Charged by INVESCO Institutional for Similar
Funds for which it Serves as Advisor................... 38
Factors the Directors Considered in Approving the Proposed
Sub-Advisory Agreement................................. 38
The Board's Recommendation on Proposal 4.................. 39
PROPOSAL 5 -- APPROVAL OF THE PLAN TO REDOMESTICATE COMPANY
AS A DELAWARE STATUTORY TRUST............................. 39
Background................................................ 39
Reasons for the Proposed Redomestication.................. 40
What the Proposed Redomestication Will Involve............ 40
The Federal Income Tax Consequences of the
Redomestication........................................ 42
Appraisal Rights.......................................... 42
The Trust Compared to Company............................. 42
The Board's Recommendation on Proposal 5.................. 43
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING............ 43
Proxy Statement/Prospectus................................ 43
Time and Place of Special Meeting......................... 44
Voting in Person.......................................... 44
Voting by Proxy........................................... 44
Voting by Telephone or the Internet....................... 44
Quorum Requirement and Adjournment........................ 45
</Table>
iv
<Table>
<Caption>
PAGE
----
Vote Necessary to Approve Each Proposal................... 45
Proxy Solicitation........................................ 45
Other Matters............................................. 46
Shareholder Proposals..................................... 46
Ownership of Shares....................................... 46
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 46
Fees Paid to the Auditor Related to Company............... 46
Fees Paid to the Auditor Not Related to Company........... 47
</Table>
<Table>
EXHIBIT A............... Classes of Shares of Your Fund and Corresponding Classes of
Shares of Buying Fund
EXHIBIT B............... Comparison of Performance of Your Fund and Buying Fund
EXHIBIT C............... Comparison Fee Table and Expense Example
EXHIBIT D............... Director Compensation Table
EXHIBIT E............... Officers of Company
EXHIBIT F............... Security Ownership of Management
EXHIBIT G............... Director Ownership of Fund Shares
EXHIBIT H............... Principal Executive Officer and Directors of A I M Advisors,
Inc.
EXHIBIT I............... Compensation to INVESCO Funds Group, Inc.
EXHIBIT J............... Fees Paid to INVESCO Funds Group, Inc. and Affiliates in
Most Recent Fiscal Year
EXHIBIT K............... Advisory Fee Schedules for Other AIM Funds
EXHIBIT L............... Proposed Compensation to A I M Advisors, Inc.
EXHIBIT M............... Principal Executive Officer and Directors of INVESCO
Institutional (N.A.), Inc.
EXHIBIT N............... Proposed Compensation to INVESCO Institutional (N.A.), Inc.
EXHIBIT O............... Advisory Fee Schedules for Other INVESCO Institutional
(N.A.), Inc. Advised Funds
EXHIBIT P............... Shares Outstanding of Each Class of Your Fund on Record Date
EXHIBIT Q............... Ownership of Shares of Your Fund
EXHIBIT R............... Ownership of Shares of Buying Fund
APPENDIX I.............. Plan of Reorganization for Your Fund (to Effect the
Reorganization)
APPENDIX II............. Prospectus of Buying Fund
APPENDIX III............ Discussion of Performance of Buying Fund
APPENDIX IV............. Form of Investment Advisory Agreement with A I M Advisors,
Inc.
APPENDIX V.............. Form of Sub-Advisory Agreement
APPENDIX VI............. Plan of Redomestication for Your Fund (to Effect the
Redomestication)
</Table>
INVESCO, THE OPEN CIRCLE DESIGN, INVESCO FUNDS, INVESCO FUNDS GROUP,
INVESCO -- YOUR GLOBAL INVESTMENT PARTNER AND YOU SHOULD KNOW WHAT INVESCO KNOWS
ARE REGISTERED SERVICE MARKS OF AMVESCAP PLC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
v
INTRODUCTION
Your Fund and Buying Fund are each one of 46 portfolios advised by INVESCO.
Proposals 1 through 5 that you are being asked to vote on relate to or result
from an integration initiative announced on March 27, 2003, by AMVESCAP, the
parent company of AIM and INVESCO, with respect to its North American mutual
fund operations. The primary components of AMVESCAP's integration initiative
are:
- Using a single distributor for all AMVESCAP mutual funds in the United
States. To that end, A I M Distributors, Inc., the distributor for the
retail mutual funds advised by AIM (the "AIM Funds"), replaced INVESCO
Distributors, Inc. as the distributor for the retail mutual funds advised
by INVESCO (the "INVESCO Funds") effective July 1, 2003.
- Integrating back office support and creating a single platform for back
office support of AMVESCAP's mutual fund operations in the United States,
including such support services as transfer agency and information
technology. One result of this integration will be that shares of the AIM
Funds and shares of the INVESCO Funds generally will be able to be
exchanged for shares of the same or a similar class of each other.
- Rationalizing and streamlining of the various AIM Funds and INVESCO
Funds. In that regard, AMVESCAP has undertaken an extensive review of
these funds and concluded that it would be appropriate to reduce the
number of smaller and less efficient funds that compete for limited
shareholder assets and to consolidate certain funds having similar
investment objectives and strategies. Reducing both the number of AIM
Funds and INVESCO Funds will allow AIM and INVESCO to concentrate on
managing their core products. The Reorganization is one of a number of
fund reorganizations proposed by AMVESCAP as a result of this review
process. AMVESCAP's belief is that the Reorganization will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale. Proposal 1 relates to this
component of AMVESCAP's integration initiative.
- Rationalizing the contractual arrangements for the provision of
investment advisory and administrative services to the AIM Funds and the
INVESCO Funds. The objective of this component is to have AIM assume
primary responsibility for the investment advisory, administrative,
accounting and legal and compliance services for the INVESCO Funds. To
implement this component, each INVESCO Fund is seeking shareholder
approval to enter into a new investment advisory agreement with AIM.
These changes will simplify AMVESCAP's mutual fund operations in the
United States in that there will be a uniform arrangement for investment
management for both the AIM Funds and the INVESCO Funds. Proposals 3 and
4 relate to this component of AMVESCAP's integration initiative.
- Simplifying the organizational structure of the AIM Funds and the INVESCO
Funds so that they are all organized as Delaware statutory trusts, using
as few entities as practicable. To implement this component, each AIM
Fund and each INVESCO Fund that currently is organized as a Maryland
corporation is seeking shareholder approval to redomesticate as a new
Delaware statutory trust, which also should provide these Funds with
greater flexibility in conducting their business operations. In addition,
certain series portfolios of AIM Funds with few portfolios are seeking
shareholder approval to be restructured as new series portfolios of
existing AIM Funds that are organized as Delaware statutory trusts.
Proposal 5 relates to this component of AMVESCAP's integration
initiative.
In considering the integration initiative proposed by AMVESCAP, the
directors of the INVESCO Funds and the directors/trustees of the AIM Funds who
are not "interested persons" (as defined in the Investment Company Act of 1940
(the "1940 Act")) of the Funds or their advisors determined that the
shareholders of both the AIM Funds and the INVESCO Funds would benefit if one
set of directors/trustees was responsible for overseeing the operation of both
the AIM Funds and the INVESCO Funds and the services provided by AIM, INVESCO
and their affiliates. Accordingly, these
1
directors/trustees agreed to combine the separate boards and create a unified
board of directors/trustees. Proposal 2 relates to the election of directors of
your Fund.
You are being asked to approve Proposals 2 through 5 so that, in the event
that Proposal 1 is not approved, your Fund will still be able to take advantage
of these other benefits of AMVESCAP's integration initiative. We will be unable
to determine whether a particular Proposal other than Proposal 1, if approved,
should go forward until we have determined whether Proposal 1 has been approved.
Therefore, even if you vote in favor of Proposal 1, it is still important that
you vote on each remaining Proposal. If Proposal 1 is approved but Proposal 5 is
not approved, your Fund will be combined with Buying Fund but will not be
redomesticated as a new series portfolio of a Delaware statutory trust. For
information about the Special Meeting and voting on Proposals 1 through 5, see
"Information About the Special Meeting and Voting." For a description of the
vote necessary to approve each of Proposals 1 through 5, see "Information About
the Special Meeting and Voting -- Vote Necessary to Approve Each Proposal."
PROPOSAL 1
APPROVAL OF THE PLAN
TO COMBINE YOUR FUND AND BUYING FUND
SUMMARY
The Board, including the independent directors, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. The Board believes that a larger combined fund should be
more viable and have greater market presence and should have greater investment
leverage in that portfolio managers should have broader investment opportunities
and lower trading costs. The Board also believes that a larger combined fund
should result in greater operating efficiencies by providing economies of scale
to the combined fund in that certain fixed costs, such as legal, accounting,
shareholder services and director expenses, will be spread over the greater
assets of the combined fund. For additional information concerning the factors
the Board considered in approving the Plan of Reorganization, see "Additional
Information About the Plan of Reorganization -- Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Plan of
Reorganization. For more complete information, please read this entire Proxy
Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with Buying
Fund. Your Fund and Buying Fund are each a series of Company, a Maryland
corporation.
If shareholders of your Fund approve the Plan of Reorganization and other
closing conditions are satisfied, all of the assets of your Fund will be
transferred to Buying Fund and Buying Fund will assume the liabilities of your
Fund, and Company will issue shares of each class of Buying Fund to shareholders
of the corresponding class of shares of your Fund, as set forth on Exhibit A.
For a description of certain of the closing conditions that must be satisfied,
see "Additional Information About the Agreement -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Plan of Reorganization is attached as Appendix I to this Proxy
Statement/Prospectus. See "Additional Information About the Plan of
Reorganization."
2
Company will receive an opinion of Kirkpatrick & Lockhart LLP to the effect
that the Reorganization will constitute a tax-free reorganization for Federal
income tax purposes. Thus, shareholders will not have to pay additional Federal
income tax as a result of the Reorganization except to the extent your Fund
disposes of securities at a net gain in anticipation of the Reorganization,
which gain would be included in a taxable distribution. See "Additional
Information About the Plan of Reorganization -- Federal Income Tax
Consequences."
No sales charges will be imposed in connection with the Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Your Fund and Buying Fund pursue the same investment objectives and invest
in similar types of securities. As a result, the Reorganization is not expected
to cause significant portfolio turnover or transaction expenses from the sale of
securities that are incompatible with the investment objective of Buying Fund.
The investment objectives or goals of Buying Fund and your Fund are
classified as fundamental, which means that the Board cannot change them without
shareholder approval.
A description of the fundamental and non-fundamental restrictions and
policies applicable to your Fund and Buying Fund can be found in the Statement
of Additional Information. Your Fund and Buying Fund have the same fundamental
investment restrictions and non-fundamental policies.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Prospectus.
3
<Table>
<Caption>
INVESCO BALANCED FUND INVESCO TOTAL RETURN FUND
(YOUR FUND) (BUYING FUND)
- --------------------------------------------- ---------------------------------------------
INVESTMENT OBJECTIVE
- - high total return through both growth and - high total return through both growth and
current income current income
INVESTMENT STRATEGIES
- - invests at least 65% of its assets in a - invests at least 65% of its assets in a
combination of common stocks and combination of common stocks of companies
fixed-income securities, including with a history of paying regular dividends
preferred stocks, convertible securities and in debt securities
and bonds
- - invests at least 25% of its assets in debt - invests 30% of its assets in debt
securities that are investment-grade at the securities that are investment grade at the
time of purchase, which may include time of purchase, which may include
obligations of the U.S. governments, corporate obligations and obligations of
government agencies and investment grade the U.S. government and government agencies
corporate bonds
- - invests in equity securities believed to - The remaining assets of Buying Fund are
have better-than-average earnings growth allocated to other investments at INVESCO's
potential, as well as companies within discretion based upon current business,
industries that are well-positioned for the economic, and market conditions. The
current and expected economic climate portion of Buying Fund's portfolio invested
taking into consideration companies' in equity securities will be primarily
dividend payout records. Although most of invested in large-capitalization stocks
your Fund's holdings are traded on national that possess one of three attributes that
stock exchanges or in the over-the-counter are attractive relative to the Standard &
market, your Fund may also take positions Poor's 500 Composite Stock Price Index: (i)
in securities traded on regional or foreign a low price- to-earnings ratio, (ii) a high
exchanges dividend yield, or (iii) consistent growth
- - no corresponding strategy - the portion of Buying Fund's portfolio
invested in equity securities is managed in
a blend of the growth and value investing
styles
- - may hold securities of any maturity, with - no corresponding strategy
the average maturity of the portfolio
varying depending upon economic and market
conditions
- - invests in a mix of equity securities and - invests in a mix of equity securities and
debt securities, as well as in options and debt securities, as well as in options and
other investments whose value is based upon other investments whose value is based upon
the values of these securities the values of these securities
- - actively managed - actively managed
</Table>
4
COMPARISON OF PRINCIPAL SERVICE PROVIDERS
The following is a list of the current principal service providers for your
Fund and Buying Fund.
<Table>
<Caption>
SERVICE PROVIDERS
--------------------------------------------------------------
INVESCO BALANCED FUND INVESCO TOTAL RETURN FUND
SERVICE (YOUR FUND) (BUYING FUND)
- ----------------------------- ----------------------------- -----------------------------
Investment Advisor INVESCO Funds Group, Inc.* INVESCO Funds Group, Inc.*
4350 South Monaco Street 4350 South Monaco Street
Denver, Colorado 80237 Denver, Colorado 80237
Distributor A I M Distributors, Inc.** A I M Distributors, Inc.**
11 Greenway Plaza, Suite 100 11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 Houston, Texas 77046-1173
Administrator INVESCO Funds Group, Inc.*** INVESCO Funds Group, Inc.***
4350 South Monaco Street 4350 South Monaco Street
Denver, Colorado 80237 Denver, Colorado 80237
Custodian State Street Bank and Trust State Street Bank and Trust
Company Company
Transfer Agent and INVESCO Funds Group, Inc.**** INVESCO Funds Group, Inc.****
Dividend Disbursing Agent
Independent Auditors PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP
</Table>
- ---------------
* If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as investment advisor for your Fund effective
November 5, 2003. If the shareholders of Buying Fund approve a new
investment advisory agreement with AIM, AIM will replace INVESCO as
investment advisor for your Fund effective November 5, 2003.
** A I M Distributors, Inc. replaced INVESCO Distributors, Inc. as distributor
of your Fund and Buying Fund effective July 1, 2003.
*** If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as administrator for your Fund effective
November 5, 2003. If the shareholders of Buying Fund approve a new
investment advisory agreement with AIM, AIM will replace INVESCO as
administrator for Buying Fund effective November 5, 2003.
**** A I M Fund Services, Inc. will replace INVESCO as transfer agent and
dividend disbursing agent for your Fund on or about October 1, 2003.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31 for Investor Class shares of your Fund and Buying Fund can be found
at Exhibit B. Also included as part of Exhibit B is a table showing the average
annual total returns for the periods indicated for your Fund and Buying Fund,
including sales charges. For more information regarding the total return of your
Fund, see the "Financial Highlights" section of the Prospectus, which has been
made a part of this Proxy Statement/Prospectus by reference. For more
information regarding the total return of Buying Fund, see "Information About
Buying Fund -- Financial Highlights." Past performance cannot guarantee
comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund and Buying Fund as of May 31, 2003 expressed as a
percentage of net assets ("Expense Ratio") can be found at Exhibit C. Pro forma
estimated Expense Ratios for each class of shares of Buying Fund after giving
effect to the Reorganization are also provided as of May 31, 2003 as part of
Exhibit C.
5
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are available to
investors and the corresponding share classes of Buying Fund that shareholders
of your Fund will receive in the Reorganization can be found as Exhibit A. For
information regarding the features of the various share classes of your Fund and
Buying Fund, see the Prospectus.
COMPARISON OF SALES CHARGES
No initial sales charges are applicable to shares of Buying Fund received
by holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period for purposes of determining whether to charge
a CDSC upon redemptions of shares of Buying Fund received by holders of your
Fund's shares in connection with the Reorganization will begin at the time your
Fund's shares were originally purchased.
The sales charges of Buying Fund and your Fund are identical. The chart
below provides a summary of the initial sales charges and CDSCs applicable to
each class of shares of your Fund and Buying Fund. The fee tables at Exhibit C
include information about maximum initial sales charges on purchases of Class A
shares of your Fund and Buying Fund and the maximum CDSC on redemptions of
certain classes of shares of your Fund and Buying Fund. For more detailed
information on initial sales charges, including volume purchase breakpoints and
waivers, and reductions of CDSCs over time, see the Prospectus.
<Table>
<Caption>
CLASS A CLASS B CLASS C
- ----------------------------- ----------------------------- -----------------------------
- - subject to an initial sales - not subject to an initial - not subject to an initial
charge* sales charge sales charge
- - may be subject to a CDSC on - subject to a CDSC on - subject to a CDSC on
redemptions made within 18 certain redemptions made certain redemptions made
months from the date of within 6 years from the within 12 months from the
certain large purchases** date of purchase date of purchase***
</Table>
<Table>
<Caption>
CLASS K INVESTOR CLASS INSTITUTIONAL CLASS
- ----------------------------- ----------------------------- -----------------------------
- - not subject to an initial - not subject to an initial - not subject to an initial
sales charge sales charge sales charge
- - may be subject to a CDSC on - not subject to a CDSC - not subject to a CDSC
redemptions made within 12
months from the date of
certain purchases
</Table>
- ---------------
* Both your Fund and Buying Fund waive initial sales charges on Class A shares
for certain categories of investors, including certain of their affiliated
entities and certain of their employees, officers and directors and those of
their investment advisor.
** For qualified plans investing in Class A shares of your Fund, this period is
12 months rather than 18 months.
*** Prior to August 18, 2003, Class C shares of your Fund and Buying Fund are
subject to a CDSC on certain redemptions made within 13 months from the date
of purchase. This 13 month period changes to 12 months effective August 18,
2003.
COMPARISON OF DISTRIBUTION, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE
RIGHTS
Shares of your Fund and Buying Fund are distributed by A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and wholly owned
subsidiary of AIM. AIM Distributors replaced INVESCO Distributors, Inc. as
distributor of your Fund effective July 1, 2003.
Both your Fund and Buying Fund have adopted a distribution plan that allows
the payment of distribution and service fees for the sale, distribution and
exchange of the shares of each of their respective
6
classes other than Institutional Class shares. Both your Fund and Buying Fund
have engaged AIM Distributors to provide such services either directly or
through third parties. The fee tables at Exhibit C include comparative
information about the distribution and service fees payable by each class of
shares of your Fund and Buying Fund. Overall, each class of shares of Buying
Fund has the same aggregate distribution and service fees as the corresponding
class of shares of your Fund.
The purchase, redemption and exchange procedures of your Fund and Buying
Fund are identical. For information regarding the current purchase, redemption
and exchange procedures of your Fund and Buying Fund, see the Prospectus.
As of the date of this Proxy Statement/Prospectus, shares of Buying Fund
and your Fund generally may be exchanged for shares of the same or a similar
class of funds within the INVESCO Family of Funds. It is currently anticipated
that, prior to the consummation of the Reorganization, shares of The AIM Family
of Funds(R) and shares of the INVESCO Family of Funds generally will be able to
be exchanged for shares of the same or a similar class of each other. See
"Additional Information About the Plan of Reorganization -- The Reorganization."
For more detailed information regarding the current exchange rights of your Fund
and Buying Fund, the Prospectus.
THE BOARD'S RECOMMENDATION ON PROPOSAL 1
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
7
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with Buying
Fund.
SECTOR RISK
Buying Fund may be subject to sector risk. Companies that have similar
lines of business (for example, financial services, health, or technology) are
grouped together in broad categories called sectors. Sector risk is the
possibility that a certain sector may underperform other sectors or the market
as a whole. Buying Fund is not limited with respect to sectors in which it can
invest. If the portfolio managers allocate more of Buying Fund's portfolio
holdings to a particular economic sector, Buying Fund's overall performance will
be more susceptible to the economic, business, or other developments which
generally affect that sector. Buying Fund can still be diversified, even if it
is heavily weighted in one or more sectors.
MARKET RISK
Buying Fund's principal risk is market risk -- that is, that the price of
the securities in a portfolio will rise and fall due to price securities
markets, and the securities held in Buying 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 Buying
Fund, there is an additional risk that the portfolio of Buying Fund may not be
allocated in the most advantageous way between equity and debt securities,
particularly in times of significant market movements.
In addition, equity stock prices vary and may fall, thus reducing the value
of Buying Fund's investments. Certain stocks selected for Buying Fund's
portfolio may decline in value more than the overall stock market.
CREDIT RISK
Buying 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 Buying Fund invests. A
decline in interest rates tends to increase the market values of debt securities
in which Buying Fund invests.
Moody's Investors Service, 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. 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.
8
FOREIGN SECURITIES RISKS
Investments in foreign and emerging markets carry special risks, including
currency, political, regulatory, and diplomatic risks. Buying Fund may each
invest up to 25% of their respective assets in securities of non-U.S. issuers.
Securities of Canadian issuers and American Depositary Receipts are not subject
to this 25% limitation.
Currency Risk. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of a Fund's investment in a security
valued in the foreign currency, or based on that currency value.
Political Risk. Political actions, events, or instability may result in
unfavorable changes in the value of a security.
Regulatory Risk. Government regulations may affect the value of a
security. In foreign countries, securities markets that are less regulated than
those in the U.S. may permit trading practices that are not allowed in the U.S.
Diplomatic Risk. A change in diplomatic relations between the U.S. and a
foreign country could affect the value or liquidity of investments.
European Economic and Monetary Union. Austria, Belgium, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, and
Spain are presently members of the European Economic and Monetary Union (the
"EMU"), which has adopted the euro as a common currency. Other European
countries may adopt the euro in the future.
INTEREST RATE RISK
Changes in interest rates will affect the resale value of debt securities
held in Buying 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.
LIQUIDITY RISK
Buying Fund's portfolio is liquid if Buying 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.
PREPAYMENT RISK
Buying Fund may invest in Government Agency mortgage-backed securities. In
the event that a high volume of mortgages are prepaid, thereby reducing income
from interest on the principal of such mortgages, the opportunity for Buying
Fund to earn income may be decreased.
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
Buying Fund.
LACK OF TIMELY INFORMATION
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.
9
GENERAL RISKS
Not Insured. Mutual funds are not insured by the FDIC or any other
government 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 Buying 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 Buying 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. Buying Fund is designed to be only a part
of your personal investment plan.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
Because of the similarities in their investment objectives and strategies,
your Fund and Buying Fund are subject to substantially similar investment risks.
Set forth below, however, is a discussion of one risk that differs between
Buying Fund and your Fund. You can find more detailed descriptions of specific
risks associated with your Fund and Buying Fund in the Prospectus.
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund are redeemable at their net asset value (subject, in
certain circumstances, to a contingent deferred sales charge) at the option of
the shareholder or at the option of Company in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Directors of
Buying Fund. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its annual report
to shareholders for the fiscal year ended May 31, 2003, is set forth in Appendix
III to this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
"Financial Highlights" section of the Prospectus, which is attached to this
Proxy Statement/Prospectus as Appendix II.
ADDITIONAL INFORMATION ABOUT THE PLAN OF REORGANIZATION
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Plan of Reorganization. Significant provisions of the Plan
of Reorganization are summarized below; however, this summary is qualified in
its entirety by reference to the Plan of Reorganization, a copy of which is
attached as Appendix I to this Proxy Statement/Prospectus.
10
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur on
November 3, 2003, at 8:00 a.m., Eastern Time (the "Effective Time") on the basis
of values calculated as of the close of regular trading on the New York Stock
Exchange on October 31, 2003 (the "Valuation Date"). At the Effective Time, all
of the assets of your Fund will be delivered to Company's custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of the
liabilities of your Fund and delivery by Company directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of your Fund of a number of shares of each corresponding class of Buying
Fund (including, if applicable, fractional shares rounded to the nearest
thousandth), having an aggregate net asset value equal to the value of the net
assets of your Fund so transferred, assigned and delivered, all determined and
adjusted as provided in the Plan of Reorganization. Upon delivery of such
assets, Buying Fund will receive good and marketable title to such assets free
and clear of all liens.
In order to ensure continued qualification of your Fund for treatment as a
"regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Company will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended May 31,
2003 and for the short taxable year beginning on June 1, 2003 and ending on the
Closing and (b) all of your Fund's net capital gain recognized in its taxable
year ended May 31, 2003 and in such short taxable year (after reduction for any
capital loss carryover).
Buying Fund will proceed with the Reorganization if the shareholders of
your Fund approve the Plan of Reorganization.
It is anticipated that, prior to the Closing, shares of The AIM Family of
Funds(R) and shares of the INVESCO Family of Funds generally will be able to be
exchanged for shares of the same or a similar class of each other.
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Company will redeem the outstanding
shares of your Fund from shareholders in accordance with its Charter and the
Maryland General Corporation Law.
BOARD CONSIDERATIONS
AMVESCAP initially proposed that the Board consider the Reorganization at a
telephone meeting of the Board held on May 5, 2003. Preliminary discussions of
the Reorganization took place at the May 5, 2003 telephone meeting and at an
in-person meeting of the Board held on May 13-15, 2003. A special task force of
the Board met to consider the Reorganization on June 3, 2003. The Board
determined that the Reorganization is advisable and in the best interests of
your Fund and Buying Fund and will not dilute the interests of your Fund's
shareholders or Buying Fund shareholders, and approved the Plan of
Reorganization and the Reorganization, at an in-person meeting of the Board held
on June 9, 2003.
Over the course of the three Board meetings, the Board received from AIM
and INVESCO written materials that contained information concerning your Fund
and Buying Fund, including comparative total return and fee and expense
information, a comparison of investment objectives and strategies of your Fund
and Buying Fund and pro forma expense ratios for Buying Fund. AIM and INVESCO
also provided the Board with written materials concerning the structure of the
proposed Reorganization and the Federal tax consequences of the Reorganization.
In evaluating the Reorganization, the Board considered a number of factors,
including:
- The investment objective and principal investment strategies of your Fund
and Buying Fund.
- The comparative expenses of your Fund and Buying Fund and the pro forma
expenses of Buying Fund after giving effect to the Reorganization.
11
- The comparative performance of your Fund and Buying Fund.
- The comparative sizes of your Fund and Buying Fund.
- The consequences of the Reorganization for Federal income tax purposes,
including the treatment of capital loss carryforwards, if any, available
to offset future capital gains of both your Fund and Buying Fund.
- Any fees and expenses that will be borne directly or indirectly by your
Fund or Buying Fund in connection with the Reorganization.
The Board noted that AMVESCAP, on behalf of INVESCO, will bear the costs
and expenses incurred in connection with the Reorganization.
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the three Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will not dilute the
interests of your Fund's shareholders. Therefore, the Board recommends the
approval of the Plan of Reorganization by the shareholders of your Fund at the
Special Meeting.
OTHER TERMS
If any amendment is made to the Plan of Reorganization which would have a
material adverse effect on shareholders, such change will be submitted to the
affected shareholders for their approval. However, the Plan of Reorganization
may be amended without shareholder approval.
Company has made representations and warranties in the Plan of
Reorganization that are customary in matters such as the Reorganization. The
obligations of Company pursuant to the Plan of Reorganization are subject to
various conditions, including the following mutual conditions:
- the assets of your Fund to be acquired by Buying Fund shall constitute at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by your Fund immediately
prior to the Reorganization;
- Company's Registration Statement on Form N-14 under the Securities Act of
1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have
been issued, and no proceeding for that purpose shall have been initiated
or threatened by the SEC (and not withdrawn or terminated);
- the shareholders of your Fund shall have approved the Plan of
Reorganization; and
- Company shall have received an opinion from Kirkpatrick & Lockhart LLP
that the consummation of the transactions contemplated by the Plan of
Reorganization will not result in the recognition of gain or loss for
Federal income tax purposes for your Fund, Buying Fund or their
shareholders.
The Plan of Reorganization of Directors of Company may waive without
shareholder approval any default or failure by Company to satisfy any of the
above conditions as long as such a waiver will not have a material adverse
effect on the benefits intended under the Plan of Reorganization for the
shareholders of your Fund. The Plan of Reorganization may be terminated and the
Reorganization may be abandoned at any time by Company if the shareholders of
your Fund do not approve the Plan of Reorganization or if the Closing does not
occur on or before December 31, 2003.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings
12
of the Internal Revenue Service ("IRS") and published judicial decisions, all of
which are subject to change. The principal Federal income tax consequences that
are expected to result from the Reorganization, under currently applicable law,
are as follows:
- the Reorganization will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code;
- no gain or loss will be recognized by your Fund upon the transfer of its
assets to Buying Fund solely in exchange for shares of Buying Fund and
Buying Fund's assumption of the liabilities of your Fund or on the
distribution of those shares to your Fund's shareholders; notwithstanding
the foregoing, no conclusion is expressed as to the effect of the
Reorganization on your Fund or any shareholder of your Fund with respect
to any asset as to which any unrealized gain or loss is required to be
recognized for Federal income tax purposes at the end of a taxable year
(or on the termination or transfer of a taxpayer's rights (or
obligations) with respect to such asset) under a mark-to-market system of
accounting;
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of your Fund in exchange for shares of Buying Fund issued directly
to your Fund's shareholders;
- no gain or loss will be recognized by any shareholder of your Fund upon
the exchange of shares of your Fund for shares of Buying Fund;
- the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax basis
of the shares of your Fund surrendered in exchange therefor;
- the holding period of the shares of Buying Fund to be received by a
shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor, provided
that such shares of your Fund are capital assets in the hands of such
shareholder as of the Closing; and
- the tax year of your Fund will end on the date of the Closing, and Buying
Fund will thereafter succeed to and take into account any capital loss
carryover and certain other tax attributes of your Fund, subject to all
relevant conditions and limitations on the use of such tax benefits.
Company has not requested nor will request an advance ruling from the IRS
as to the Federal tax consequences of the Reorganization. As a condition to
Closing, Kirkpatrick & Lockhart LLP will render a favorable opinion to Company
as to the foregoing Federal income tax consequences of the Reorganization, which
opinion will be conditioned upon, among other things, the accuracy, as of the
Effective Time, of certain representations of Company upon which Kirkpatrick &
Lockhart LLP will rely in rendering its opinion. The conclusions reached in that
opinion could be jeopardized if the representations of Company are incorrect in
any material respect.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Buying Fund of the assets of your Fund will
be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
The following section outlines the rights of shareholders of your Fund and
Buying Fund. Because your Fund and Buying Fund are each an investment portfolio
of Company, the shareholders of your Fund and Buying Fund have identical rights.
13
GENERAL
Company is a Maryland corporation. The operations of Company, as a Maryland
corporation, are governed by its Articles of Incorporation, and any
restatements, amendments and supplements thereto (the "Articles of
Incorporation"), and applicable Maryland law.
LIABILITY OF SHAREHOLDERS
Shareholders of a Maryland corporation generally do not have personal
liability for the corporation's obligations, except that a shareholder may be
liable to the extent that he or she receives any distribution which exceeds the
amount which he or she could properly receive under Maryland law or where such
liability is necessary to prevent fraud.
ELECTION OF DIRECTORS; TERMS
The shareholders of Company have elected a majority of the directors of
Company. Each director serves until a successor is elected, subject to his or
her earlier death, resignation or removal in the manner provided by law (see
below). In the case of a vacancy on the Board of Directors (other than a vacancy
created by removal by the shareholders), a majority of the directors may appoint
a successor to fill such vacancy. The right of the Board of Directors to appoint
directors to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
REMOVAL OF DIRECTORS
A director of Company may be removed by the holders of a majority of the
outstanding shares of Company.
MEETINGS OF SHAREHOLDERS
Company is not required to hold annual meetings of shareholders and does
not intend to do so unless required the 1940 Act. The bylaws of Company provide
that a special meeting of shareholders may be called by the president or, in his
or her absence, the vice-president or by a majority of the Board of Directors or
holders of shares entitled to cast at least 10% of the votes entitled to be cast
at the special meeting. Requests for special meetings must, among other things,
state the purpose of such meeting and the matters to be voted upon. No special
meeting need be called to consider any matter previously voted upon at a special
meeting called by the shareholders during the preceding twelve months, unless
requested by a majority of all shares entitled to vote at such meeting.
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION
Maryland law permits a corporation to eliminate liability of its directors
and officers to the corporation or its stockholders, except for liability
arising from receipt of an improper benefit or profit and from active and
deliberate dishonesty. The Articles of Incorporation eliminate director and
officer liability to the fullest extent permitted under Maryland law. Under
Maryland law, indemnification of a corporation's directors and officers is
mandatory if a director or officer has been successful on the merits or
otherwise in the defense of certain proceedings. Maryland law permits
indemnification for other matters unless it is established that the act or
omission giving rise to the proceeding was committed in bad faith, a result of
active and deliberate dishonesty, or one in which a director or officer actually
received an improper benefit.
DISSOLUTION AND TERMINATION
Maryland law provides that Company may be dissolved by the vote of a
majority of the Board of Directors and two-thirds of the shares entitled to vote
on the dissolution; however the Articles of Incorporation reduce the required
shareholder vote from two-thirds to a majority of the shares entitled to vote on
the dissolution.
14
VOTING RIGHTS OF SHAREHOLDERS
Shareholders of a Maryland corporation such as Company are entitled to vote
on, among other things, those matters which effect fundamental changes in the
corporate structure (such as a merger, consolidation or sale of substantially
all of the assets of the corporation) as provided by Maryland law.
DISSENTERS' RIGHTS
Under Maryland law, shareholders may not demand the fair value of their
shares from the successor company in a transaction involving the transfer of the
corporation's assets and are, therefore, bound by the terms of the transaction
if the stock is that of an open-end investment company registered with the SEC
under the 1940 Act and the value placed on the stock in the transaction is its
net asset value.
AMENDMENTS TO ORGANIZATION DOCUMENTS
Consistent with Maryland law, Company reserves the right to amend, alter,
change or repeal any provision contained in the Articles of Incorporation in the
manner prescribed by statute, including any amendment that alters the contract
rights, as expressly set forth in the Articles of Incorporation, of any
outstanding stock, and all rights conferred on shareholders are granted subject
to this reservation. The Board of Directors of Company may approve amendments to
the Articles of Incorporation to classify or reclassify unissued shares of a
class of stock without shareholder approval. Other amendments to the Articles of
Incorporation may be adopted if approved by the affirmative vote of a majority
of all the votes entitled to be cast on the matter. The directors shall have the
power to alter, amend or repeal the bylaws of Company or adopt new bylaws at any
time.
15
CAPITALIZATION
The following table sets forth, as of March 31, 2003, (i) the
capitalization of each class of shares of your Fund, (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Plan of Reorganization.
<Table>
<Caption>
PRO FORMA
YOUR FUND YOUR FUND BUYING FUND BUYING FUND
CLASS A SHARES CLASS K SHARES(1) CLASS A SHARES CLASS A SHARES
--------------------- --------------------- --------------------- ---------------------
Net Assets................... $345,676 $8,098,140 $585,599 $9,029,415
Shares Outstanding........... 29,875 691,567 29,650 457,189
Net Asset Value Per Share.... $11.57 $11.71 $19.75 $19.75
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS B SHARES CLASS B SHARES CLASS B SHARES
--------------------- --------------------- ---------------------
Net Assets................... $204,163 $380,235 $584,398
Shares Outstanding........... 17,879 19,385 29,797
Net Asset Value Per Share.... $11.42 $19.61 $19.61
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS C SHARES CLASS C SHARES CLASS C SHARES
--------------------- --------------------- ---------------------
Net Assets................... $2,317,840 $673,298 $2,991,138
Shares Outstanding........... 195,401 34,336 152,513
Net Asset Value Per Share.... $11.86 $19.61 $19.61
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INVESTOR CLASS SHARES INVESTOR CLASS SHARES INVESTOR CLASS SHARES
--------------------- --------------------- ---------------------
Net Assets................... $498,160,647 $760,249,501 $1,258,410,148
Shares Outstanding........... 42,110,347 37,796,643 62,568,667
Net Asset Value Per Share.... $11.83 $20.11 $20.11
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INSTITUTIONAL CLASS INSTITUTIONAL CLASS INSTITUTIONAL CLASS
SHARES SHARES(2) SHARES
--------------------- --------------------- ---------------------
Net Assets................... $227,271,120 $227,271,120
Shares Outstanding........... 19,486,870 11,504,653
Net Asset Value Per Share.... $11.66 $19.75 $19.75
</Table>
- ---------------
(1) Shareholders of Class K shares of your Fund are receiving Class A shares of
Buying Fund in the Reorganization.
(2) As of March 31, 2003, Institutional Class shares of Buying Fund did not
exist. Institutional Class shares were added to Buying Fund in connection
with the Reorganization. Institutional Class shares of Buying Fund will
commence operations at the net asset value per share of Buying Fund's Class
A shares. Therefore, the Net Asset Value Per Share shown for Institutional
Class shares of Buying Fund in the table above is that of Buying Fund's
Class A shares.
16
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the Reorganization
will be passed upon by Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
NW, Washington, DC 20036-1221.
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund and your Fund concerning
the following topics, please refer to the following sections of the Prospectus,
which has been made a part of this Proxy Statement/Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix II: (i) see
"Fund Performance" for more information about the performance of Buying Fund and
your Fund; (ii) see "Fund Management" and "Portfolio Managers" for more
information about the management of Buying Fund and your Fund; (iii) see "Share
Price" for more information about the pricing of shares of Buying Fund and your
Fund; (iv) see "Taxes" for more information about tax consequences to
shareholders of various transactions in shares of Buying Fund and your Fund; (v)
see "Dividends And Capital Gains Distributions" for more information about
Buying Fund and your Fund's policy with respect to dividends and distributions;
and (vi) see "How To Buy Shares", "How To Sell Shares" and "Your Account
Services" for more information about sales charges, including contingent
deferred sales charges, applicable to shares of Buying Fund and your Fund, the
purchase, redemption and repurchase of shares of Buying Fund and your Fund,
distribution arrangements and the multiple class structure of Buying Fund and
your Fund.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual reports which Company
has filed with the SEC pursuant to the requirements of the 1933 Act and the 1940
Act, to which reference is hereby made. The SEC file number of Company's
registration statement containing the Prospectus and related Statement of
Additional Information is Registration No. 811-08066. Such Prospectus is
incorporated herein by reference.
Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith file reports
and other information with the SEC. Reports, proxy material, registration
statements and other information filed by Company (including the Registration
Statement of Company relating to Buying Fund on Form N-14 of which this Proxy
Statement/Prospectus is a part) may be inspected without charge and copied at
the public reference facilities maintained by the SEC at Room 1014, Judiciary
Plaza, 450 Fifth Street, NW, Washington, DC 20549, and at the following regional
office of the SEC: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may also be obtained from the Public Reference Section
of the SEC at 450 Fifth Street, NW, Washington, DC 20549, at the prescribed
rates. The SEC maintains a website at www.sec.gov that contains information
regarding Company and other registrants that file electronically with the SEC.
PROPOSAL 2 --
ELECTION OF DIRECTORS
BACKGROUND
In considering the integration initiative proposed by AMVESCAP, the
independent directors of the INVESCO Funds and the independent
directors/trustees of the AIM Funds determined that the shareholders of all the
AIM Funds and the INVESCO Funds would benefit if a unified board of
directors/trustees was responsible for overseeing the operation of both the AIM
Funds and the INVESCO Funds and the services provided by AIM, INVESCO and their
affiliates. Accordingly, the Boards of
17
Directors of the INVESCO Funds and the Boards of Directors/Trustees of the AIM
Funds agreed to combine the separate boards and create a unified board of
directors/trustees.
You are being asked to approve Proposal 2 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from having
a combined board of directors.
STRUCTURE OF THE BOARD OF DIRECTORS
The Board currently consists of the following 11 persons: Bob R. Baker,
Sueann Ambron, Victor L. Andrews, Lawrence H. Budner, James T. Bunch, Raymond R.
Cunningham, Richard W. Healey, Gerald L. Lewis, John W. McIntyre, Larry Soll,
Ph.D. and Mark H. Williamson. Eight of the current directors are "independent,"
meaning they are not "interested persons" of Company within the meaning of the
1940 Act. Three of the current directors are "interested persons" because of
their business and financial relationships with Company and INVESCO, its
investment advisor, and/or INVESCO's parent, AMVESCAP. Six of the current
directors have declined to stand for re-election as directors of Company.
Therefore, their terms as directors of Company will end upon the election and
qualification of their successor directors at the Special Meeting.
NOMINEES FOR DIRECTORS
Company's nominating committee (which consists solely of independent
directors) has approved the nomination of five of the 11 current directors, as
set forth below, each to serve as director until his successor is elected and
qualified. In addition, the nominating committee has approved the nomination of
11 new nominees, as set forth below, each to serve as director until his or her
successor is elected and qualified. These 11 new nominees were nominated to
effect the proposed combination of the Boards of Directors/Trustees of the AIM
Funds and the Boards of Directors of the INVESCO Funds.
Each nominee who is a current director serves as a director of the ten
registered investment companies comprising the INVESCO Funds. Each nominee who
is a current director oversees 46 portfolios which comprise the INVESCO Funds.
The business address of each nominee who is a current director is 4350 South
Monaco Street, Denver, Colorado 80237.
Each new nominee serves as a director or trustee of the 17 registered
investment companies comprising the AIM Funds. Each new nominee currently
oversees 86 portfolios which comprise the AIM Funds. The business address of
each new nominee is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
If elected, each nominee would oversee a total of 27 registered investment
companies currently comprising 132 portfolios.
18
NOMINEES WHO CURRENTLY ARE INDEPENDENT DIRECTORS
<Table>
<Caption>
PRINCIPAL OCCUPATION(S) DURING
NAME AND YEAR OF BIRTH DIRECTOR SINCE PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------------- ------------------------------ --------------------------
Bob R. Baker -- 1936 1983 Consultant (2000-present); None
formerly, President and Chief
Executive Officer (1988-2000)
of AMC Cancer Research Center,
Denver, Colorado; until
mid-December 1988, Vice
Chairman of the Board of First
Columbia Financial
Corporation, Englewood,
Colorado; formerly, Chairman
of the Board and Chief
Executive Officer of First
Columbia Financial
Corporation.
James T. Bunch -- 1942 2000 Co-President and Founder of None
Green, Manning & Bunch Ltd.,
Denver, Colorado
(1988-present) (investment
banking firm); Director and
Vice President of Western Golf
Association and Evans Scholars
Foundation; Executive
Committee, United States Golf
Association; formerly, General
Counsel and Director of
Boettcher & Co., Denver,
Colorado; and formerly,
Chairman and Managing Partner,
law firm of Davis, Graham &
Stubbs, Denver, Colorado.
Gerald J. Lewis -- 1933 2000 Chairman of Lawsuit Resolution General Chemical Group,
Services, San Diego, Inc., Hampdon, New
California (1987-present); Hampshire (1996-present),
formerly, Associate Justice of Wheelabrator Technologies,
the California Court of Inc. (waste management
Appeals; and Of Counsel, law company), Fisher
firm of Latham & Watkins, San Scientific, Inc.
Diego, California (1987- (laboratory supplies),
1997). Henley Manufacturing,
Inc., and California
Coastal Properties, Inc.
Larry Soll, Ph.D. -- 1942 1997 Retired; formerly, Chairman of Synergen Inc. (since
the Board (1987-1994), Chief incorporation in 1982) and
Executive Officer (1982-1989 Isis Pharmaceuticals, Inc.
and 1993-1994) and President
(1982-1989) of Synergen Inc.
(biotechnology company); and
formerly, trustee of INVESCO
Global Health Sciences Fund.
</Table>
19
NOMINEE WHO CURRENTLY IS AN INTERESTED PERSON
<Table>
<Caption>
PRINCIPAL OCCUPATION(S) DURING
NAME AND YEAR OF BIRTH DIRECTOR SINCE PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------------- ------------------------------ --------------------------
Mark H. Williamson(1) -- 1998 Director, President and Chief Director/trustee of each
1951 Executive Officer, AIM of the 17 AIM Funds
Management Group Inc.;
Director, Chairman and
President, AIM Advisors, Inc.
(registered investment
advisor); Director, AIM
Distributors, Inc. (registered
broker dealer); and Chief
Executive Officer of the AIM
Division of AMVESCAP PLC
(2003-present); formerly,
Chief Executive Officer,
Managed Products Division,
AMVESCAP PLC (2001-2002);
Chairman of the Board
(1998-2002), President
(1998-2002) and Chief
Executive Officer (1998-2002)
of INVESCO Funds Group, Inc.
(registered investment
advisor) and INVESCO
Distributors, Inc. (registered
broker dealer); Chief
Operating Officer and Chairman
of the Board of INVESCO Global
Health Sciences Fund; Chairman
and Chief Executive Officer of
NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
</Table>
- ---------------
(1) Mr. Williamson is considered an interested person of Company because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, Company.
NEW NOMINEES WHO WILL BE INDEPENDENT DIRECTORS
<Table>
<Caption>
PRINCIPAL OCCUPATION(S) DURING PAST 5
NAME AND YEAR OF BIRTH YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ------------------------------------- -----------------------------
Frank S. Bayley -- 1939 Of Counsel, law firm of Baker & Badgley Funds, Inc.
McKenzie (registered investment
company)
Bruce L. Crockett -- 1944 Chairman, Crockett Technology ACE Limited (insurance
Associates (technology consulting company); Captaris, Inc.
company) and Captaris, Inc. (unified (unified messaging provider)
messaging provider)
</Table>
20
<Table>
<Caption>
PRINCIPAL OCCUPATION(S) DURING PAST 5
NAME AND YEAR OF BIRTH YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ------------------------------------- -----------------------------
Albert R. Dowden -- 1941 Director of a number of public and Cortland Trust, Inc.
private business corporations, (Chairman) (registered
including the Boss Group, Ltd. investment company); Annuity
(private investment and management) and Life Re (Holdings), Ltd.
and Magellan Insurance Company; (insurance company)
formerly, President, Chief Executive
Officer and Director, Volvo Group
North America, Inc.; Senior Vice
President, AB Volvo and director of
various affiliated Volvo Group
companies
Edward K. Dunn, Jr. -- 1935 Formerly, Chairman, Mercantile None
Mortgage Corp.; President and Chief
Operating Officer, Mercantile-Safe
Deposit & Trust Co.; and President,
Mercantile Bankshares Corp.
Jack M. Fields -- 1952 Chief Executive Officer, Twenty First Administaff
Century Group, Inc. (government
affairs company) and Texana Timber LP
Carl Frischling -- 1937 Partner, law firm of Kramer Levin Cortland Trust, Inc.
Naftalis & Frankel LLP (registered investment
company)
Prema Mathai-Davis -- 1950 Formerly, Chief Executive Officer, None
YWCA of the USA
Lewis F. Pennock -- 1942 Partner, law firm of Pennock & Cooper None
Ruth H. Quigley -- 1935 Retired None
Louis S. Sklar -- 1939 Executive Vice President, Development None
and Operations, Hines Interests
Limited Partnership (real estate
development company)
</Table>
21
NEW NOMINEE WHO WILL BE AN INTERESTED PERSON
<Table>
<Caption>
OTHER
NAME AND YEAR OF BIRTH PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS DIRECTORSHIP(S) HELD
- ---------------------- ------------------------------------------- --------------------
Robert H. Graham(1) -- 1946 Director and Chairman, AIM Management Group None
Inc. (financial services holding company);
and Director and Vice Chairman, AMVESCAP
PLC (parent of AIM and a global investment
management firm) and Chairman, AMVESCAP
PLC -- AIM Division; formerly, President
and Chief Executive Officer, AIM Management
Group Inc.; Director, Chairman and
President, AIM Advisors, Inc. (registered
investment advisor); Director and Chairman,
AIM Capital Management, Inc. (registered
investment advisor), AIM Distributors, Inc.
(registered broker dealer), A I M Fund
Services, Inc. (registered transfer agent),
and Fund Management Company (registered
broker dealer); and Chief Executive
Officer, AMVESCAP PLC -- Managed Products
</Table>
- ---------------
(1) Mr. Graham will be considered an interested person of Company because he is
a director of AMVESCAP PLC, parent of the advisor to, and principal
underwriter of, Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 2
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" these 16 nominees.
CURRENT COMMITTEES OF THE BOARD
The Board currently has nine standing committees: an audit committee, an
investments and management liaison committee, a brokerage committee, a
derivatives committee, a valuation committee, a legal committee, a compensation
committee, a retirement plan committee and a nominating committee.
AUDIT COMMITTEE
Company has an audit committee established for the purpose of overseeing
the accounting and financial reporting process of Company and audits of the
financial statements of Company. The audit committee is comprised entirely of
independent directors. The committee meets quarterly with Company's independent
accountants and officers to review accounting principles used by Company, the
adequacy of internal controls, the responsibilities and fees of the independent
accountants, and other matters. The current members of the audit committee are
Messrs. Baker, Budner, Lewis and McIntyre.
EXECUTIVE COMMITTEE
Company has an executive committee. On occasion, the committee acts upon
the current and ordinary business of Company between the meetings of the Board.
Except for certain powers which, under applicable law, may only be exercised by
the full Board, the committee may exercise all powers and authority of the Board
in the management of the business of Company. All decisions are subsequently
submitted for ratification by the Board. The current members of the executive
committee are Messrs. Baker, Bunch, McIntyre and Williamson.
22
INVESTMENTS AND MANAGEMENT LIAISON COMMITTEE
Company has an investments and management liaison committee which meets
quarterly with various management personnel of INVESCO in order to facilitate
better understanding of management and operations of Company, and to review
investment, legal and operational matters which have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The current members of the investments and management liaison
committee are Messrs. Andrews, Baker, Bunch, Soll and Dr. Ambron.
BROKERAGE COMMITTEE
Company has a brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by your Fund and to review
policies and procedures of INVESCO with respect to brokerage transactions. It
reports on these matters to the Board. The current members of the brokerage
committee are Messrs. Budner, Bunch and McIntyre.
DERIVATIVES COMMITTEE
Company has a derivatives committee. The committee meets periodically to
review derivatives investments made by your Fund. It monitors the use of
derivatives by your Fund and the procedures utilized by INVESCO to ensure that
the use of such instruments follows the policies adopted by the Board. The
committee reports on these matters to the Board. The current members of the
derivatives committee are Messrs. Andrews, Lewis and Soll.
NOMINATING COMMITTEE
Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors. The nominating committee will consider
nominees recommended by shareholders. If a shareholder desires to nominate a
candidate, the shareholder must submit a request in writing to the Chairman of
the nominating committee. The current members of the nominating committee are
Messrs. Baker, Bunch, Lewis and Soll.
LEGAL COMMITTEE
Company has a legal committee. The committee meets periodically to review
compensation arrangements with counsel to Company and to its independent
directors. The committee reports on these matters to the Board. The current
members of the legal committee are Messrs. Bunch, Lewis and McIntyre.
COMPENSATION COMMITTEE
Company has a compensation committee. The committee meets periodically to
review compensation arrangements of Company's independent directors. The
committee reports on these matters to the Board. The current members of the
compensation committee are Messrs. Andrews, Baker, Budner and Soll.
VALUATION COMMITTEE
Company has a valuation committee. The committee meets periodically to
review valuation issues regarding investments made by your Fund. The committee
reports on these matters to the Board. The current members of the valuation
committee are Messrs. Baker, Bunch, Cunningham and McIntyre.
RETIREMENT PLAN COMMITTEE
Company has a retirement plan committee. The committee meets periodically
to review Company's retirement arrangements for its independent directors. The
committee reports on these matters to the Board. The current members of the
retirement plan committee are Messrs. Andrews, Baker, Budner, Cunningham and
Soll.
23
BOARD AND COMMITTEE MEETING ATTENDANCE
During the fiscal year ended May 31, 2003, the Board met seven times, the
audit committee met four times, the investments and management liaison committee
met four times, the brokerage committee met four times, the derivatives
committee met four times, the nominating committee met four times, the legal
committee met three times, the compensation committee met two times, and the
executive, valuation and retirement plan committees did not meet. All of the
current directors then serving attended at least 75% of the meetings of the
Board or applicable committee during the most recent fiscal year.
FUTURE COMMITTEE STRUCTURE
As a result of the combination of the Boards of Directors of the INVESCO
Funds and the Boards of Directors/Trustees of the AIM Funds, it is expected that
the Board will adopt a committee structure that is the same as that which is in
effect for the AIM Funds, so that the Board will have four committees: an Audit
Committee, a Committee on Directors/Trustees, an Investments Committee and a
Valuation Committee. These committees are described below.
AUDIT COMMITTEE
The Audit Committee will be comprised entirely of independent directors.
The Audit Committee will be responsible for: (i) the appointment, compensation
and oversight of any independent auditors employed by your Fund (including
resolution of disagreement between your Fund's management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work; (ii) overseeing the financial reporting process of your
Fund; (iii) monitoring the process and the resulting financial statements
prepared by management to promote accuracy of financial reporting and asset
valuation; and (iv) pre-approving permissible non-audit services that are
provided to your Fund by its independent auditors.
COMMITTEE ON DIRECTORS/TRUSTEES
The Committee on Directors/Trustees will be comprised entirely of
independent directors. It will be responsible for: (i) nominating persons who
are not interested persons of Company for election or appointment: (a) as
additions to the Board, (b) to fill vacancies which, from time to time, may
occur in the Board and (c) for election by shareholders of Company at meetings
called for the election of directors; (ii) nominating persons who are not
interested persons of Company for selection as members of each committee of the
Board, including, without limitation, the audit committee, the committee on
directors, the investments committee and the valuation committee, and to
nominate persons for selection as chair and vice chair of each such committee;
(iii) reviewing from time to time the compensation payable to the independent
directors and making recommendations to the Board regarding compensation; (iv)
reviewing and evaluating from time to time the functioning of the Board and the
various committees of the Board; (v) selecting independent legal counsel to the
independent trustees and approving the compensation paid to independent legal
counsel; and (vi) approving the compensation paid to independent counsel and
other advisers, if any, to the Audit Committee of Company.
INVESTMENTS COMMITTEE
The Investments Committee will be responsible for: (i) overseeing the
advisor's investment-related compliance systems and procedures to ensure their
continued adequacy; and (ii) considering and acting, on an interim basis between
meetings of the full Board, on investment-related matters requiring Board
consideration, including dividends and distributions, brokerage policies and
pricing matters.
VALUATION COMMITTEE
The Valuation Committee will be responsible for: (i) periodically reviewing
the advisor's procedures for valuing securities ("Procedures"), and making any
recommendations to the advisor with respect thereto; (ii) reviewing proposed
changes to the Procedures recommended by the advisor from time to
24
time; (iii) periodically reviewing information provided by the advisor regarding
industry developments in connection with valuation; (iv) periodically reviewing
information from the advisor regarding fair value and liquidity determinations
made pursuant to the Procedures, and making recommendations to the full Board in
connection therewith (whether such information is provided only to the committee
or to the committee and the full Board simultaneously); and (v) if requested by
the advisor, assisting the advisor's internal valuation committee and/or the
full Board in resolving particular valuation anomalies.
DIRECTOR'S COMPENSATION
Each director who is independent is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director of other INVESCO Funds. Each such director receives a fee,
allocated among the INVESCO Funds for which he or she serves as a director,
which consists of an annual retainer component and a meeting fee component.
Information regarding compensation paid or accrued for each continuing
director of Company who was not affiliated with INVESCO during the year ended
December 31, 2002 is found in Exhibit D.
CURRENT RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds have adopted a Retirement Plan
(the "Retirement Plan") and a Deferred Retirement Plan Account Agreement (the
"Account Agreement"). Certain of the independent directors of Company
participate either in the Retirement Plan or in the Account Agreement. Under the
Retirement Plan and the Account Agreement, each participating director who is
not an interested person of the INVESCO Funds and who has served for at least
five years (a "Participating Qualified Director") is entitled to receive a
benefit upon retirement.
Commencing with attainment of age 72 by a Participating Qualified Director
who has elected to participate in the Retirement Plan and who voluntarily
retires prior to reaching age 72, and commencing with the date of retirement of
a Participating Qualified Director who retires upon reaching age 72 or at any
time subsequent to age 72 up to the mandatory retirement age of 75, a
Participating Qualified Director shall receive quarterly payments at an annual
rate of $34,000 (the "Annual Benefit"). Directors who became Participating
Qualified Directors on or before January 1, 2001 who retire upon reaching age 72
(or at age 73 or 74, if the director extends his retirement date for one to two
years, but less than three years) are entitled to payment for one year of twice
the Annual Benefit. Payment of the Annual Benefit will continue for the
remainder of the Participating Qualified Director's life or ten years, whichever
is longer. If a Participating Qualified Director becomes disabled before the
date upon which his or her Annual Benefit payments would normally commence, such
benefit payments will begin. If a Participating Qualified Director dies prior to
the receipt of the Annual Benefit for ten years, the Annual Benefit will be paid
to his/her beneficiary or estate until an aggregate of ten years of payments has
been received. A Participating Qualified Director who has elected to participate
in the Retirement Plan receives no benefits from the Account Agreement. The cost
of the Retirement Plan will be allocated among the INVESCO Funds in a manner
determined to be fair and equitable by the committee administering the
Retirement Plan.
A Participating Qualified Director who has elected to participate in the
Account Agreement receives no benefits from the Retirement Plan. Pursuant to the
terms of the Account Agreement, a deferred retirement account is established for
a Qualified Participating Director (the "Account"). The dollar amount credited
to the Account is in an amount which, based upon an assumed account appreciation
rate per annum (currently 5.75%), will provide the Participating Qualified
Director with an account value of $340,000 upon reaching age 72. Once the
initial dollar amount of the Account is established, Account proceeds are
invested in shares of one or more of the INVESCO Funds. The value of the Account
fluctuates with the appreciation or depreciation in the shares of the INVESCO
Funds owned by the Account and Account shares are increased by the amount of any
dividends and capital gains distributions paid with respect to the shares. Upon
retirement, a Participating Qualified Director is entitled to receive the value
in the Account either in a lump sum payment or in payments over a stipulated
number of
25
months. The Account value continues to fluctuate as long as monthly payments are
made. If a Participating Qualified Director becomes disabled or dies prior to
his or her retirement and if, at the time of disability or death, the value of a
Participating Qualified Director's Account is less than $340,000, the Director
or the Director's beneficiary or estate will not be paid the value in the
Account but will receive $34,000 per annum for ten years. If, at the time of the
Participating Qualified Director's death or disability prior to retirement, the
value in the director's Account is $340,000 or more, the Participating Qualified
Director or his or her estate or beneficiary will receive the value in the
Account either in a lump sum or in quarterly installments. The cost of providing
the initial dollar amount to be allocated to a Participating Qualified
Director's Account and the cost of payment of any death or disability benefit
that aggregates more than the Account value will be allocated among the INVESCO
Funds in a manner determined to be fair and equitable by a committee appointed
to administer the Account Agreement.
Company has no stock options, pension, or retirement plans for affiliated
directors of the INVESCO Funds or for management or other personnel, and pays no
salary or compensation to any of its officers.
CURRENT DEFERRED COMPENSATION PLAN
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds.
Certain of the deferred amounts have been invested in the shares of all INVESCO
Funds except INVESCO 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. Each of the independent
directors has agreed to invest a minimum of $100,000 of his or her own resources
in shares of the INVESCO Funds. Compensation contributed to a deferred
compensation plan may constitute all or a portion of this $100,000 commitment.
NEW RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds intend to adopt a new
retirement plan (the "New Retirement Plan") for the directors of Company who are
not affiliated with INVESCO, which will be effective as of the date of the
Special Meeting. The New Retirement Plan also will be adopted by the Boards of
Directors/Trustees of the AIM Funds. The reason for adoption of the New
Retirement Plan is to provide for consistency in the retirement plans for the
Boards of Directors of the INVESCO Funds and the Boards of Directors/Trustees of
the AIM Funds. The retirement plan will include a retirement policy as well as
retirement benefits for independent directors.
The retirement policy will permit each independent director to serve until
December 31 of the year in which the director turns 72. A majority of the
directors will be able to extend from time to time the retirement date of a
director.
Annual retirement benefits will be available to each independent director
of Company and/or the other INVESCO Funds and AIM Funds (each, a "Covered Fund")
who has at least five years of credited service as a director (including service
to a predecessor fund) for a Covered Fund. The retirement benefits will equal
75% of the director's annual retainer paid or accrued by any Covered Fund to
such director during the twelve-month period prior to retirement, including the
amount of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the director. The annual retirement benefits will
be payable in quarterly installments for a number of years equal to the lesser
of (i) ten or (ii) the number of such director's credited years of service. A
death benefit will also be available under the New Retirement Plan that will
provide a surviving spouse with a quarterly installment of 50% of a deceased
director's retirement benefits for the same length of time that the director
would have received the benefits based on his or her service. A director must
have attained the age of 65 (55 in the event of death or disability) to receive
any retirement benefit. Payment of benefits under the New Retirement Plan will
not be secured or funded by Company.
26
Upon the effectiveness of the New Retirement Plan, the independent
directors will cease to accrue benefits under the Retirement Plan and the
Account Agreement. Messrs. Baker and Soll will not receive any additional
benefits under the Retirement Plan or the Account Agreement, but will be
entitled to amounts which have been previously funded under the Retirement Plan
or the Account Agreement for their benefit. An affiliate of INVESCO will
reimburse Company for any amounts funded by Company for Messrs. Baker and Soll
under the Retirement Plan and the Account Agreement.
NEW DEFERRED COMPENSATION AGREEMENTS
The Boards of Directors of the INVESCO Funds intend to adopt new deferred
compensation agreements which are consistent with the deferred compensation
agreements adopted by the Boards of Directors/Trustees of the AIM Funds.
Pursuant to the new deferred compensation agreements ("New Compensation
Agreements"), a director will have the option to elect to defer receipt of up to
100% of his or her compensation payable by Company, and such amounts are placed
into a deferral account. The deferring directors will have the option to select
various INVESCO Funds in which all or part of their deferral account will be
deemed to be invested. The list of funds may change from time to time and may
include AIM Funds in addition to INVESCO Funds. Distributions from the deferring
directors' deferral accounts will be paid in cash, generally in equal quarterly
installments over a period of up to ten years (depending on the New Compensation
Agreement) beginning on the date selected under the New Compensation Agreement.
The Board, in its sole discretion, will be able to accelerate or extend the
distribution of such deferral accounts after the deferring directors' retirement
benefits commence under the New Retirement Plan. The Board, in its sole
discretion, also will be able to accelerate or extend the distribution of such
deferral accounts after the deferring directors' termination of service as a
director of Company. If a deferring director dies prior to the distribution of
amounts in his or her deferral account, the balance of the deferral account will
be distributed to his or her designated beneficiary. The New Compensation
Agreements will not be funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring directors will have the status of
unsecured creditors of Company and of each other INVESCO Fund or AIM Fund from
which they will be deferring compensation.
OFFICERS OF COMPANY
Information regarding the current officers of Company can be found in
Exhibit E.
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of each class of your Fund's shares by
the directors, nominees and current executive officers of Company can be found
in Exhibit F.
DIRECTOR OWNERSHIP OF YOUR FUND'S SHARES
The dollar range of equity securities beneficially owned by each continuing
director and nominee as of December 31, 2002 (i) in your Fund and (ii) on an
aggregate basis, in all registered investment companies overseen by the director
within the INVESCO Funds complex can be found in Exhibit G.
PROPOSAL 3 --
APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT
BACKGROUND
INVESCO currently serves as the investment advisor to your Fund. AMVESCAP
has recommended restructuring the advisory and administrative servicing
arrangements so that AIM is the advisor and administrator for all INVESCO Funds
and AIM Funds. Your Board has approved a new advisory agreement under which AIM
will serve as the investment advisor for your Fund, and a new sub-advisory
27
agreement under which INVESCO Institutional, an affiliate of INVESCO, which is
currently serving as your Fund's investment advisor, will serve as sub-advisor.
The portfolio management team for your Fund will not change as a result of this
restructuring.
You are being asked to approve Proposal 3 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from a new
investment advisory agreement between AIM and Company.
The Board recommends that you approve the new advisory agreement between
AIM and Company for your Fund. The Board is asking you to vote on this new
agreement because Company may enter into a new advisory agreement for your Fund
only with shareholder approval. If approved, this new agreement would replace
the current advisory agreement between INVESCO and Company for your Fund. The
form of Company's proposed Master Investment Advisory Agreement with AIM is at
Appendix IV.
Under the new arrangements, the advisory fees paid by your Fund will not
change. If shareholders of your Fund approve Proposal 3, Company will also enter
into a new Master Administrative Services Agreement with AIM that will replace
the current Administrative Services Agreement between Company and INVESCO, and
move the provision of certain administrative services currently provided by
INVESCO pursuant to the current advisory agreement between Company and INVESCO
to the Master Administrative Services Agreement with AIM. If the proposed
advisory agreement is approved and these new arrangements are implemented, the
aggregate fees paid by your Fund for advisory and administrative services will
not increase.
Any voluntary or contractual expense limitations and fee waivers that have
been agreed to by INVESCO and Company with respect to your Fund will not be
terminated if the proposed new advisory agreement with AIM is approved. Instead,
AIM will assume INVESCO's obligations with respect to these voluntary and
contractual expense limitations and fee waivers, on the same terms and
conditions.
If INVESCO and Company have entered into voluntary or contractual expense
limitations or fee waivers with respect to your Fund, INVESCO currently is
entitled to reimbursement from a share class of your Fund that has fees and
expenses absorbed pursuant to this arrangement if such reimbursement does not
cause such share class to exceed the expense limitation and the reimbursement is
made within three years after INVESCO incurred the expense. If the proposed new
advisory agreement with AIM is approved, INVESCO will assign to AIM its right to
be reimbursed with respect to fees and expenses absorbed by it. Other than
substituting AIM for INVESCO as the party having the right to be reimbursed,
this assignment will not alter in any way the rights or obligations of your Fund
or its shareholders.
A description of how the proposed advisory agreement differs from the
current advisory agreement is set forth below under "Terms of the Proposed
Advisory Agreement." At an in-person meeting of the Board held on August 12-13,
2003, the Board, including a majority of the independent directors, voted to
recommend that shareholders approve a proposal to adopt the proposed advisory
agreement for your Fund.
YOUR FUND'S CURRENT INVESTMENT ADVISOR
INVESCO, the current investment advisor for your Fund, became the
investment advisor for your Fund under the current advisory agreement on
February 28, 1997. Your Fund's shareholders last voted on the agreement on
January 31, 1997, for the purpose of approving a new investment advisory
agreement for your Fund, with the same parties and on terms substantially
identical to your Fund's then-existing investment advisory agreement. Such
approval was necessary because your Fund's then-existing investment advisory
agreement terminated automatically by operation of law upon the consummation on
February 28, 1997, of the merger of AIM Management Group Inc. and INVESCO PLC,
which at that time was the ultimate parent company of your Fund's investment
advisor. The Board, including a majority of the independent directors, last
approved the current advisory agreement on May 15, 2003.
28
THE PROPOSED NEW INVESTMENT ADVISOR FOR YOUR FUND
AIM is a wholly owned subsidiary of AIM Management Group Inc. ("AIM
Management"), a holding company with its principal offices at 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP, 30 Finsbury Square, London EC2A 1AG, United Kingdom.
AMVESCAP and its subsidiaries are an independent investment management group. A
list of the names, addresses and principal occupations of the principal
executive officer and directors of AIM is in Exhibit H.
POSITIONS WITH AIM HELD BY COMPANY'S DIRECTORS OR EXECUTIVE OFFICERS
Mark H. Williamson, who is a director and/or executive officer of Company,
also is a director and/or officer of AIM. He also beneficially owns shares of
AMVESCAP and/or options to purchase shares of AMVESCAP.
TERMS OF THE CURRENT ADVISORY AGREEMENT
Under the terms of the current advisory agreement with INVESCO for your
Fund, INVESCO acts as investment manager and administrator for your Fund. As
investment manager, INVESCO provides a continuous investment program for your
Fund, including investment research and management, with respect to all
securities, investments and cash equivalents of your Fund. INVESCO also makes
recommendations as to the manner in which voting rights, rights to consent to
actions of your Fund and any other rights pertaining to your Fund's securities
shall be exercised. INVESCO provides sub-accounting, recordkeeping and
administrative services to your Fund under an administrative services agreement.
Under the advisory agreement, as administrator, INVESCO also provides, at its
expense and at the request of your Fund, executive, statistical, administrative,
internal accounting and clerical services and office space, equipment and
facilities.
The current advisory agreement for your Fund continues in effect from year
to year only if such continuance is specifically approved at least annually by
(i) the Board or the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of your Fund and each other series portfolio of
Company, and (ii) the vote of a majority of the directors of Company who are not
interested persons of INVESCO or Company by votes cast in person at a meeting
called for such purpose. The current advisory agreement provides that the Board,
a majority of the outstanding voting securities of your Fund and each other
series portfolio of Company or INVESCO may terminate the agreement with respect
to your Fund on 60 days' written notice without penalty. The agreement
terminates automatically in the event of its assignment, unless an order is
issued by the SEC conditionally or unconditionally exempting such assignment
from the applicable provisions of the 1940 Act.
The current advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of its expenses not assumed by INVESCO, including
without limitation:
- brokerage commissions, issue and transfer taxes and other costs related
to securities transactions;
- fees, charges and expenses related to accounting, custodian, depository,
dividend disbursing agent, dividend reinvestment agent, transfer agent,
registrar, independent pricing services and legal services performed for
your Fund;
- interest on indebtedness incurred by Company or your Fund;
- taxes;
- fees for maintaining the registration and qualification of your Fund or
its shares under federal and state law;
- compensation and expenses of the independent directors;
29
- costs of printing and distributing reports, notices of shareholders'
meetings, proxy statements, dividend notices, prospectuses, statements of
additional information and other communications to your Fund's
shareholders, including expenses relating to Board and shareholder
meetings;
- costs, fees and other expenses arising in connection with the
organization and filing of Company's Articles of Incorporation,
determinations of tax status of your Fund, initial registration and
qualification of your Fund's securities under federal and state
securities laws and approval of Company's operations by any other federal
or state authority;
- expenses of repurchasing and redeeming shares of your Fund;
- insurance premiums;
- costs of designing, printing and issuing certificates representing shares
of your Fund;
- extraordinary expenses, including fees and disbursements of Company's
counsel, in connection with litigation by or against Company or your
Fund;
- premiums for the fidelity bond maintained by your Fund pursuant to the
1940 Act (except those premiums that may be allocated to INVESCO as an
insured);
- association and institute dues;
- expenses, if any, of distributing shares of your Fund pursuant to a 12b-1
plan of distribution;
- fees under the administrative services agreement; and
- all other costs and expenses of your Fund's operations and organization
unless otherwise explicitly provided.
The current advisory agreement requires INVESCO to reimburse your Fund
monthly for any salaries paid by your Fund to officers, directors and full-time
employees of your Fund who are also officers, general partners or employees of
INVESCO or its affiliates. Although INVESCO has this obligation under the
current advisory agreement, your Fund does not pay salaries to its officers,
non-independent directors or employees for services rendered to your Fund.
If, in any given year, the sum of your Fund's expenses exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
promptly reimburse such excess expenses to your Fund pursuant to the current
advisory agreement. Interest, taxes, extraordinary expenses and expenses which
are capitalized are not deemed expenses for purposes of this reimbursement
obligation.
The annual rates at which INVESCO receives fees from your Fund under the
current advisory agreement, the total net assets of your Fund, the dollar
amounts of advisory fees paid to INVESCO by your Fund net of any expense
limitations and the reimbursement, if any, made by INVESCO to your Fund for the
most recent fiscal year are in Exhibit I.
ADDITIONAL SERVICES PROVIDED BY INVESCO AND ITS AFFILIATES
INVESCO and its affiliates also provide additional services to Company and
your Fund. INVESCO currently provides or arranges for others to provide
accounting and administrative services to your Fund. INVESCO currently serves as
your Fund's transfer agent. Prior to July 1, 2003, INVESCO Distributors, Inc.
served as the principal underwriter for your Fund. This company is an indirect
wholly owned subsidiary of AMVESCAP, the parent company of INVESCO. Information
concerning fees paid to INVESCO and its affiliates for these services is in
Exhibit J.
ADVISORY FEES CHARGED BY AIM FOR SIMILAR FUNDS IT MANAGES
The advisory fee schedules for other funds advised by AIM with similar
investment objectives as your Fund are in Exhibit K.
30
TERMS OF THE PROPOSED ADVISORY AGREEMENT
Under the terms of the proposed advisory agreement, AIM would act as
investment manager and administrator for your Fund. As investment manager, AIM
would provide a continuous investment program for your Fund, including
supervision of all aspects of your Funds' operations, including the investment
and reinvestment of cash, securities or other properties comprising your Funds'
assets and investment research and management, subject at all times to the
policies and control of the Board. AIM would also provide administrative
services pursuant to a Master Administrative Services Agreement.
The proposed advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties under the agreement on the part of AIM or any of its officers,
directors, or employees, AIM would not be subject to liability to Company or
your Fund or to any shareholders of your Fund for any act or omission in the
course of, or connected with, rendering services under the agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
The proposed advisory agreement for your Fund would continue in effect from
year to year only if such continuance is specifically approved at least annually
by (i) the Board or the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of your Fund, and (ii) the affirmative vote of a
majority of the directors of Company who are not interested persons of AIM or
Company by votes cast in person at a meeting called for such purpose. The
proposed advisory agreement provides that the Board, a majority of the
outstanding voting securities of your Fund or AIM may terminate the agreement
with respect to your Fund on 60 days' written notice without penalty. The
proposed agreement terminates automatically in the event of its "assignment" (as
defined in the 1940 Act).
The proposed advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of the ordinary business expenses incurred in the
operations of your Fund and the offering of its shares. These expenses borne by
your Fund would include, without limitation, brokerage commissions, taxes,
legal, accounting, auditing, or governmental fees, the cost of preparing share
certificates, custodian, transfer and shareholder service agent costs, expenses
of issue, sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, expenses relating to trustees and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by Company on behalf of your
Fund in connection with membership in investment company organizations and the
cost of printing copies of prospectuses and statements of additional information
distributed to your Fund's shareholders.
The compensation to be paid to AIM under the proposed advisory agreement
would be calculated by applying annual rates to the average daily net assets of
your Fund for each calendar year. The annual rates at which AIM will receive
advisory fees from your Fund under the proposed advisory agreement are in
Exhibit L.
If Proposal 3 is approved, Company will be able to take advantage of an
exemptive order obtained from the SEC by AIM and certain of the AIM Funds. This
exemptive order will allow your Fund and each other series portfolio of Company
(each, an "Investing Fund") to invest their uninvested cash in money market
funds that have AIM or an affiliate of AIM as an investment advisor (the
"Affiliated Money Market Funds"), provided that investments in Affiliated Money
Market Funds do not exceed 25% of the total assets of the Investing Fund. AIM
will receive advisory fees from the Affiliated Money Market Fund to the extent
an Investing Fund invests uninvested cash in such Affiliated Money Market Fund.
If the Board approves AIM's use of the exemptive order for Company, AIM intends
to waive a portion of the advisory fees payable by each Investing Fund in an
amount equal to 25% of the advisory fee AIM receives from the Affiliated Money
Market Fund as a result of such Investing Fund's investment of uninvested cash
in such Affiliated Money Market Fund.
31
The primary differences between the current advisory agreement with INVESCO
and the proposed advisory agreement with AIM that the Board approved are to:
- replace INVESCO with AIM as the investment advisor for your Fund;
- move certain administrative services to an administrative services
agreement with AIM;
- add provisions relating to certain functions to be performed by AIM in
connection with your Fund's securities lending program;
- change certain obligations regarding payment of expenses of your Fund;
- simplify certain rights applicable to your Fund's right to terminate
advisory services or amend the proposed advisory agreement;
- revise non-exclusivity provisions that are set forth in the current
advisory agreement;
- amend delegation provisions that are set forth in the current advisory
agreement;
- add to the limitation of liability provisions that are set forth in the
current advisory agreement to, among other things, specifically state the
limitation of liability of Company's shareholders; and
- change the governing state law set forth in the current advisory
agreement.
Although certain terms and provisions in the current advisory agreement
with INVESCO and the proposed advisory agreement with AIM are described slightly
differently, there are few substantive differences between these agreements. The
substantive differences are discussed below.
Administrative Services
For your Fund, the Board, in approving the proposed advisory agreement with
AIM, has approved removing the provision of certain administrative services that
are covered under the current advisory agreement with INVESCO, and consolidating
those administrative services with your Fund's accounting and recordkeeping
services in a new Master Administrative Services Agreement with AIM. The primary
reason for this change is to make your Fund's agreements consistent with similar
agreements for the AIM Funds. If shareholders approve the proposed advisory
agreement, your Fund will continue to receive substantially the same accounting
and administrative services it currently receives and at the same or lower costs
pursuant to the new Master Administrative Services Agreement. As a result, there
would be no loss of services nor would there by any increase in costs borne by
your Fund as a result of the transfer of administrative duties from the advisory
agreement to the Master Administrative Services Agreement.
Securities Lending
If your Fund engages in securities lending, AIM will provide it with
investment advisory services and related administrative services. The proposed
advisory agreement includes a new provision that specifies the administrative
services to be rendered by AIM if your Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Administrative services to be provided include: (a) overseeing
participation in the securities lending program to ensure compliance with all
applicable regulatory and investment guidelines; (b) assisting the securities
lending agent or principal (the "agent") in determining which specific
securities are available for loans; (c) monitoring the agent to ensure that
securities loans are effected in accordance with AIM's instructions and with
procedures adopted by the Board; (d) preparing appropriate periodic reports for,
and seeking appropriate approvals from, the Board with respect to securities
lending activities; (e) responding to agent inquiries; and (f) performing such
other duties as may be necessary.
In accordance with an exemptive order issued by the SEC, before your Fund
may participate in a securities lending program, the Board must approve such
participation. In addition, the Board must evaluate the securities lending
arrangements annually, and must determine that it is in the best interests of
the shareholders of your Fund to invest in AIM-advised money market funds any
cash collateral your
32
Fund receives as security for the borrower's obligation to return the loaned
securities. If your Fund invests the cash collateral in AIM-advised money market
funds, AIM will receive additional advisory fees from these money market funds,
because the invested cash collateral will increase the assets of these funds and
AIM receives advisory fees based upon the assets of these funds.
AIM does not receive any additional compensation for advisory services
rendered in connection with securities lending activities. As compensation for
the related administrative services AIM will provide, your Fund will pay AIM a
fee equal to 25% of the net monthly interest or fee income retained or paid to
your Fund from such activities. AIM intends to waive this fee, and has agreed to
seek Board approval prior to its receipt of all or a portion of such fee.
Payment of Expenses and Restrictions on Fees Received
Under the current advisory agreement with INVESCO, INVESCO has the
obligation to reimburse your Fund for any salaries paid by your Fund to
officers, non-independent directors and employees of your Fund. Your Fund does
not currently pay any such salaries. Such provision is not included in the
proposed advisory agreement with AIM.
The current advisory agreement provides that if annual fees exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
reimburse any such excess to your Fund. Such state-imposed limitations are no
longer applicable because the National Securities Market Improvements Act of
1996 (NSMIA) preempted state laws under which mutual funds such as your Fund
previously were regulated. Accordingly, under the proposed advisory agreement,
such annual expense limitation has been removed. Removing this state-imposed
annual expense limitation will not result in an increase in fees paid by your
Fund.
Termination/Amendment Rights
The current advisory agreement with INVESCO provides that Company can
terminate the agreement with INVESCO or amend the terms of the agreement with
respect to your Fund upon receipt of the affirmative vote of a majority of the
outstanding securities (as defined in the 1940 Act) of your Fund. Under the 1940
Act and the regulations thereunder, as interpreted by the SEC, advisory services
provided to your Fund cannot be terminated or amended without the approval by a
majority of the outstanding securities of your Fund, unless, in the case of an
amendment, the Board may approve the changes. The proposed advisory agreement
simplifies the language regarding termination and amendment of the agreement to
be consistent with the 1940 Act and the regulations thereunder, as interpreted
by the SEC.
Non-Exclusivity Provisions
The current advisory agreement with INVESCO provides that the services
furnished by INVESCO are not deemed to be exclusive and that INVESCO shall be
entitled to furnish similar services to others, including other investment
companies with similar objectives, and that INVESCO may aggregate orders for its
other customers together with any securities of the same type to be sold or
purchased for your Fund in order to obtain best execution and lower brokerage
commissions. In such event, INVESCO must allocate the securities purchased or
sold and the expenses incurred in the transaction in a manner it considers most
equitable.
AIM has proposed and the Board has agreed that the non-exclusivity
provisions in the proposed advisory agreement with AIM should be divided into
two separate provisions: one dealing with services provided by AIM to other
investment accounts and the other dealing with employees of AIM. Under the new
provisions, AIM will act as investment manager or advisor to fiduciary and other
managed accounts and to other investment companies and accounts, including
off-shore entities or accounts. The proposed advisory agreement states that
whenever your Fund and one or more other investment companies or accounts
advised by AIM have moneys available for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to your Fund and such other companies and accounts. Such allocation
procedure may adversely affect the size of the positions
33
obtainable and the prices realized by your Fund. The non-exclusivity provisions
of the proposed advisory agreement also explicitly recognize that officers and
directors of AIM may serve as officers or directors of Company, and that
officers and directors of Company may serve as officers or directors of AIM to
the extent permitted by law; and that officers and directors of AIM do not owe
an exclusive duty to Company. As described above, unlike the current advisory
agreement, the proposed advisory agreement does not require AIM to reimburse
Company for any salaries paid by Company to officers, directors and full-time
employees of Company who are also officers, directors or employees of AIM or its
affiliates. Your Fund does not currently pay any such salaries.
Delegation
The current advisory agreement provides that INVESCO may, in compliance
with applicable law and with the prior written approval of your Fund, make use
of affiliated companies and their employees in connection with rendering of the
services required of INVESCO. INVESCO must supervise all such services and
remain fully responsible for the services provided.
The proposed advisory agreement expands the extent to which AIM can
delegate its rights, duties and obligations by expressly providing that AIM may
delegate any or all of its rights, duties or obligations under the agreement to
one or more sub-advisors rather than solely certain specified advisory services.
The proposed advisory agreement also provides that AIM may replace sub-advisors
from time to time, in accordance with applicable federal securities laws, rules
and regulations in effect or interpreted from time to time by the SEC or with
exemptive orders or other similar relief. Any such delegation shall require
approval by the applicable Board and the shareholders unless, in accordance with
applicable federal securities laws, rules, interpretations and exemptions, AIM
is not required to seek shareholder approval of the appointment of a
sub-advisor. AIM currently intends to appoint INVESCO Institutional as the sub-
advisor to your Fund if the shareholders approve the proposed sub-advisory
agreement described under Proposal 4.
Limitation of Liability of AIM, Company and Shareholders
The current advisory agreement does not explicitly state the limitation of
liability for INVESCO for acts or omissions in the course of, or connected with,
rendering advisory services under the current advisory agreement. The limitation
of liability provisions of the 1940 Act apply to both INVESCO and AIM in their
capacity as advisor. In addition, the proposed advisory agreement states that no
series of Company shall be liable for the obligations of other series of Company
and the liability of AIM to one series of Company shall not automatically render
AIM liable to any other series of Company. Consistent with applicable law, the
proposed advisory agreement would also include a provision stating that AIM's
obligations under the agreement are not binding on any shareholders of Company
individually and that shareholders are entitled to the same limitation on
personal liability as shareholders of private corporations for profit. The
primary reason for this change is to make your Fund's agreement consistent with
similar agreements for the AIM Funds.
State Law Governing the Agreement
Questions of state law under the current advisory agreement with INVESCO
are governed by the laws of Colorado. Under the proposed advisory agreement with
AIM, Texas law would apply. The Board determined that, because the services
under the proposed advisory agreement with AIM will primarily be provided in
Texas, it was more appropriate to apply Texas law to the proposed advisory
agreement.
FACTORS THE DIRECTORS CONSIDERED IN APPROVING THE ADVISORY AGREEMENT
At the request of AIM, the Board discussed the approval of the proposed
advisory agreement at an in-person meeting held on August 12-13, 2003. The
independent directors also discussed the approval of the proposed advisory
agreement with independent counsel prior to that meeting. In evaluating the
34
proposed advisory agreement, the Board requested and received information from
AIM to assist in its deliberations.
The Board considered the following factors in determining reasonableness
and fairness of the proposed changes between the current advisory agreement with
INVESCO and the proposed advisory agreement with AIM:
- The qualifications of AIM to provide investment advisory services. The
Board reviewed the credentials and experience of the officers and
employees of AIM who will provide investment advisory services to your
Fund and the proposal, if approved by shareholders, to appoint INVESCO
Institutional as sub-advisor to your Fund, and noted that the persons
providing portfolio management services to your Fund would not change if
Proposals 3 and 4 are approved by shareholders.
- The range of advisory services provided by AIM. The Board reviewed the
services to be provided by AIM under the proposed advisory agreement, and
noted that no material changes in the level or type of services provided
under the current advisory agreement with INVESCO would occur if the
proposed advisory agreement is approved by the shareholders, other than
the provision by AIM of certain administrative services if your Fund
engages in securities lending.
- Qualifications of AIM to provide a range of management and administrative
services. The Board reviewed the general nature of the non-investment
advisory services performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the Board also considered the
organizational structure employed by AIM and its affiliates to provide
those services. The Board reviewed the proposed elimination from the
proposed advisory agreement of the provision of administrative services
to your Fund. The Board also reviewed the proposed form of Master
Administrative Services Agreement, noted that the overall services to be
provided under the existing arrangements and under the proposed Master
Administrative Services Agreements are the same, and concluded that the
overall accounting and administrative services to be provided by AIM
would not change under the combination of the proposed advisory agreement
and the Master Administrative Services Agreement.
- The performance record of your Fund. The Board reviewed your Fund's
performance record and determined that AIM has developed the expertise
and resources for managing funds with an investment objective and
strategies similar to those of your Fund and is able, therefore, to
provide advisory and administrative services to your Fund.
- Advisory fees and expenses. The Board examined the expense ratio and the
level of advisory fees for your Fund under the current advisory agreement
and compared them with the advisory fees expected to be incurred under
the proposed advisory agreement. The Board concluded that your Fund's
projected expense ratio and advisory fees under the proposed advisory
agreement were fair and reasonable in comparison with those of other
similar funds (including similar funds advised by AIM) and in light of
the investment management services to be provided by AIM under the
proposed advisory agreement. The advisory fees that are being proposed
under the proposed advisory agreement are the same as the advisory fees
paid to INVESCO under the current advisory agreement, other than the
removal of the reimbursement obligation related to services provided to
both your Fund and AIM by officers and directors which is not currently
applicable, and the provisions that permit AIM's receipt of fees for
providing administrative services in connection with securities lending
activities. Such fees would be paid only to the extent that your Fund
engages in securities lending. The Board noted that AIM intends to waive
its right to receive any fees under the proposed investment advisory
agreement for the administrative services it provides in connection with
securities lending activities. The Board also noted that AIM has agreed
to seek the Board's approval prior to its receipt of all or a portion of
such fees.
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- The profitability of AIM. The Board reviewed information concerning the
profitability of AIM's (and its affiliates') investment advisory and
other activities and its financial condition. The Board noted that,
except as described above, no changes to the advisory fees were being
proposed, other than to permit AIM's receipt of fees for providing
services in connection with securities lending, and further noted that
AIM intends to waive its right to receive any such fees and has agreed to
seek the Board's approval prior to its receipt of all or a portion of
such fees. The Board also noted that, in accordance with an exemptive
order issued by the SEC, before your Fund may participate in a securities
lending program, the Board must approve such participation. In addition,
the Board must evaluate the securities lending arrangements annually and
determine that it is in the best interests of the shareholders of your
Fund to invest in AIM-advised money market funds any cash collateral your
Fund receives as security for the borrower's obligation to return the
loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees
from these money market funds, because the invested cash collateral will
increase the assets of these funds and AIM receives advisory fees based
upon the assets of these funds. The Board noted that the cash collateral
relates to assets of your Fund that have already been invested, and the
investment of the cash collateral is intended to benefit your Fund by
providing it with additional income. The Board also noted that an
investment of the cash collateral in an AIM-advised money market fund
would have a positive effect on the profitability of AIM.
- The terms of the proposed advisory agreement. The Board reviewed the
terms of the proposed advisory agreement, including changes being made to
clarify or expand non-exclusivity, delegation and liability provisions,
to separate administrative services from advisory services and to have
AIM assist your Fund if it engages in securities lending. The Board
determined that these changes reflect the current environment in which
your Fund operates, and that AIM should have the flexibility to operate
in that environment.
After considering the above factors, the Board concluded that it is in the
best interests of your Fund and its shareholders to approve the proposed
advisory agreement between Company and AIM for your Fund.
The Board reached this conclusion after careful discussion and analysis.
The Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed advisory
agreement, the independent directors have taken the action which they believe to
be in your best interests. In so doing, they were advised by independent
counsel, retained by the independent directors and paid for by Company, as to
the nature of the matters to be considered and the standards to be used in
reaching their decision.
If approved, the proposed advisory agreement will become effective on
November 5, 2003, and will expire, unless renewed, on or before June 30, 2005.
If shareholders of your Fund do not approve both Proposals 3 and 4, the current
advisory agreement with INVESCO will continue in effect for your Fund.
THE BOARD'S RECOMMENDATION ON PROPOSAL 3
The Board, including the independent directors, unanimously recommends that
you vote "FOR" this Proposal.
PROPOSAL 4
APPROVAL OF NEW SUB-ADVISORY AGREEMENT
BACKGROUND
INVESCO currently serves as the investment advisor to your Fund. AMVESCAP
has recommended restructuring the advisory and administrative servicing
arrangements so that AIM is the advisor and administrator for all INVESCO Funds
and AIM Funds. Your Board has approved a proposed advisory agreement under which
AIM will serve as the investment advisor for your Fund, and a proposed sub-
36
advisory agreement under which INVESCO Institutional, an affiliate of INVESCO,
will serve as sub-advisor. The portfolio management team for your Fund will not
change as a result of this restructuring.
You are being asked to approve Proposal 4 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from the
proposed sub-advisory agreement between AIM and INVESCO Institutional.
The Board recommends that you approve the proposed sub-advisory agreement
between AIM and INVESCO Institutional for your Fund. The Board is asking you to
vote on this proposed sub-advisory agreement because the proposed sub-advisory
agreement for your Fund may only be entered into with shareholder approval. The
form of the proposed Master Intergroup Sub-Advisory Contract for Mutual Funds
between AIM and INVESCO Institutional for your Fund is at Appendix V.
At an in-person meeting of the Board held on August 12-13, 2003, the Board,
including a majority of the independent directors, voted to recommend that
shareholders approve a proposal to adopt the proposed sub-advisory agreement for
your Fund.
THE PROPOSED SUB-ADVISOR FOR YOUR FUND
INVESCO Institutional is an indirect wholly owned subsidiary of AMVESCAP. A
list of the names, addresses and principal occupations of the principal
executive officer and directors of INVESCO Institutional is in Exhibit M.
POSITIONS WITH INVESCO INSTITUTIONAL HELD BY COMPANY'S DIRECTORS OR EXECUTIVE
OFFICERS
None of the directors or executive officers of Company also are directors
and/or officers of INVESCO Institutional.
TERMS OF THE PROPOSED SUB-ADVISORY AGREEMENT
Under the proposed sub-advisory agreement between AIM and INVESCO
Institutional, INVESCO Institutional will provide general investment advice and
portfolio management to your Fund and, subject to the supervision of the
directors of Company and AIM and in conformance with the stated policies of your
Fund, INVESCO Institutional will manage the investment operations of your Fund.
INVESCO Institutional will not only make investment decisions for your Fund, but
will also place the purchase and sale orders for the portfolio transactions of
your Fund. INVESCO Institutional may purchase and sell portfolio securities from
and to brokers and dealers who sell shares of your Fund or provide your Fund,
AIM's other clients or INVESCO Institutional's other clients with research,
analysis, advice and similar services. INVESCO Institutional may pay to brokers
and dealers, in return for such research and analysis, a higher commission or
spread than may be charged by other brokers and dealers, subject to INVESCO
Institutional determining in good faith that such commission or spread is
reasonable in terms either of the particular transaction or of the overall
responsibility of AIM and INVESCO Institutional to your Fund and their other
clients and that that the total commissions or spreads paid by each fund will be
reasonable in relation to the benefits to the fund over the long term.
Specifically, INVESCO Institutional will be required to perform the
following services under the proposed sub-advisory agreement:
- To provide a continuous investment program for your Fund, including
investment research and management, with respect to all of your Fund's
assets in conformity with (i) Company's Articles of Incorporation, bylaws
and registration statement, and (ii) the requirements of the 1940 Act,
the rules thereunder, and all other applicable federal and state laws and
regulations;
- To determine what securities and other investments are to be purchased or
sold for your Fund and the brokers and dealers through whom trades will
be executed;
- Whenever INVESCO Institutional simultaneously places orders to purchase
or sell the same security on behalf of your Fund and one or more accounts
advised by INVESCO Institutional, to
37
allocate as to price and amount among all such accounts in a manner
believed to be equitable to each account; and
- To maintain all books and records with respect to the securities
transactions of your Fund in compliance with the requirements of the 1940
Act and to furnish the Board and AIM with periodic and special reports as
the Board or AIM reasonably may request.
The proposed sub-advisory agreement will continue from year to year for
your Fund only if such continuance is specifically approved at least annually by
(i) the Board or the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of your Fund, and (ii) the vote of a majority of
independent directors cast at a meeting called for such purpose. The proposed
sub-advisory agreement is terminable on 60 days' written notice by either party
thereto, by the Board, or by a vote of a majority of the outstanding voting
securities of your Fund, and will terminate automatically if assigned.
For the services to be rendered and the expenses to be assumed by INVESCO
Institutional under the proposed sub-advisory agreement, AIM will pay to INVESCO
Institutional a fee that is computed daily and paid on or before the last day of
the next succeeding calendar month on the basis of AIM's compensation on the
sub-advised assets per year. The annual rate at which INVESCO Institutional will
receive fees from AIM under the proposed sub-advisory agreement is in Exhibit N.
ADVISORY FEES CHARGED BY INVESCO INSTITUTIONAL FOR SIMILAR TYPES OF ACCOUNTS FOR
WHICH IT SERVES AS ADVISOR
The annual advisory fee rates paid to INVESCO Institutional by certain
types of accounts with similar investment objectives as your Fund are in Exhibit
O.
FACTORS THE DIRECTORS CONSIDERED IN APPROVING THE PROPOSED SUB-ADVISORY
AGREEMENT
At the request of AIM and INVESCO Institutional, the Board discussed the
approval of the proposed sub-advisory agreement at an in-person meeting held on
August 12-13, 2003. The independent directors also discussed the approval of the
proposed sub-advisory agreement with independent counsel prior to that meeting.
In evaluating the proposed sub-advisory agreement, the Board requested and
received information from AIM to assist in its deliberations.
The Board considered the following factors in determining the
reasonableness and fairness of the proposed sub-advisory agreement between AIM
and INVESCO Institutional for your Fund:
- The range of sub-advisory services provided by INVESCO
Institutional. The Board reviewed the services to be provided by INVESCO
Institutional under the proposed sub-advisory agreement, and noted that,
if the proposed sub-advisory agreement is approved by shareholders, the
level and type of investment advisory services under the proposed
sub-advisory agreement will be comparable to those currently provided by
INVESCO under Company's current advisory agreement with INVESCO.
- The fees payable to INVESCO Institutional for its services. The Board
noted that if the proposed sub-advisory agreement is approved, INVESCO
Institutional will receive compensation based on that portion of the
assets of your Fund that it manages (the sub-advised assets). In
addition, the fees paid would be a percentage of the advisory fees that
AIM receives on the sub-advised assets. The Board noted that these fees
had been agreed to by AIM and INVESCO Institutional, as well as by
AMVESCAP, the indirect parent of AIM and INVESCO Institutional. The Board
also noted that the proposed changes to the compensation to INVESCO
Institutional would have no effect on your Fund, since the fees are
payable by AIM.
- The performance record of your Fund. The Board reviewed the performance
record of your Fund and noted that the same portfolio management team
will be providing investment advisory services to your Fund under the
proposed sub-advisory agreement. The Board determined that such portfolio
38
management team had provided satisfactory services with respect to your
Fund, after considering performance information that it received during
the past year from INVESCO.
- The profitability of INVESCO Institutional. The Board considered
information concerning the profitability of INVESCO Institutional's (and
its affiliates') investment advisory and other activities and its
financial condition. The Board noted that INVESCO Institutional would
receive an annual fee equal to a percentage of AIM's compensation on the
sub-advised assets. The Board noted that the proposed sub-advisory fees
are less than the advisory fees currently received by INVESCO under the
current advisory agreement, but that INVESCO Institutional assured the
Board that such reduction would not affect the nature or quality of the
services provided by it to your Fund.
- The terms of the proposed agreement. The Board reviewed the terms of the
proposed agreement. The Board determined that this new agreement reflects
the current environment in which your Fund operates, and that INVESCO
Institutional should have the flexibility to operate in that environment.
After considering the above factors, the Board concluded that it is in the
best interests of your Fund and its shareholders to approve the proposed
sub-advisory agreement between AIM and INVESCO Institutional for your Fund.
The Board reached this conclusion after careful discussion and analysis.
The Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed
sub-advisory agreement, the independent directors have taken the action which
they believe to be in your best interests. In so doing, they were advised by
independent counsel, retained by the independent directors and paid for by
Company, as to the nature of the matters to be considered and the standards to
be used in reaching their decision.
If approved, the proposed sub-advisory agreement will become effective on
November 5, 2003, and will expire, unless renewed, on or before June 30, 2005.
If shareholders of your Fund do not approve both Proposals 3 and 4, the current
advisory agreement with INVESCO will continue in effect for your Fund and AIM
and INVESCO Institutional will not enter into the proposed sub-advisory
agreement for your Fund.
THE BOARD'S RECOMMENDATION ON PROPOSAL 4
The Board, including the independent directors, unanimously recommends that
you vote "FOR" this Proposal.
PROPOSAL 5
APPROVAL OF THE PLAN
TO REDOMESTICATE COMPANY AS A DELAWARE STATUTORY TRUST
BACKGROUND
Company currently is organized as a Maryland corporation. AMVESCAP has
identified each series portfolio of Company as appropriate to be redomesticated
as a new series portfolio of a newly created open-end management investment
company organized as a statutory trust under the Delaware Statutory Trust Act
(the "Trust").
If both Proposals 1 and 5 are approved by the shareholders of your Fund,
your Fund will first be redomesticated as a new series portfolio of the Trust
and, after such redomestication has occurred, your Fund will be combined with
Buying Fund.
The Board has approved the Plan of Redomestication, which provides for a
series of transactions to convert your Fund and each other series portfolio of
Company (each, a "Current Fund") to a corresponding series (a "New Fund") of the
Trust. Under the Plan of Redomestication, each Current Fund will transfer all
its assets to a corresponding New Fund in exchange solely for voting shares of
39
beneficial interest in the New Fund and the New Fund's assumption of all the
Current Fund's liabilities (collectively, the "Redomestication"). A form of the
Plan of Redomestication relating to the proposed Redomestication is set forth in
Appendix VI.
Approval of the Plan of Redomestication requires the affirmative vote of a
majority of the issued and outstanding shares of Company. The Board is
soliciting the proxies of the shareholders of your Fund to vote on the Plan of
Redomestication with this Proxy Statement/Prospectus. The Board is soliciting
the proxies of the shareholders of Company's other series portfolios to vote on
the Plan of Redomestication with a separate proxy statement.
The Redomestication is being proposed primarily to provide Company with
greater flexibility in conducting its business operations. The operations of
each New Fund following the Redomestication will be substantially similar to
those of its predecessor Current Fund. As described below, the Trust's
Declaration of Trust differs from Company's Articles of Incorporation in certain
respects that are expected to improve Company's and each Current Fund's
operations. The Trust, like Company, will operate as an open-end management
investment company registered with the SEC under the 1940 Act.
REASONS FOR THE PROPOSED REDOMESTICATION
The Redomestication is being proposed because, as noted above, INVESCO and
the Board believe that the Delaware statutory trust organizational form offers a
number of advantages over the Maryland corporate organizational form. As a
result of these advantages, the Delaware statutory trust organizational form has
been increasingly used by mutual funds, including the majority of the AIM Funds.
The Delaware statutory trust organizational form offers greater flexibility
than the Maryland corporate form. A Maryland corporation is governed by the
detailed requirements imposed by Maryland corporate law and by the terms of its
Articles of Incorporation. A Delaware statutory trust is subject to fewer
statutory requirements. The Trust will be governed primarily by the terms of its
Declaration of Trust. In particular, the Trust will have greater flexibility to
conduct business without the necessity of engaging in expensive proxy
solicitations to shareholders. For example, under Maryland corporate law,
amendments to Company's Articles of Incorporation would typically require
shareholder approval. Under Delaware law, unless the Declaration of Trust of a
Delaware statutory trust provides otherwise, amendments to it may be made
without first obtaining shareholder approval. In addition, unlike Maryland
corporate law, which restricts the delegation of a board of directors'
functions, Delaware law permits the board of trustees of a Delaware statutory
trust to delegate certain of its responsibilities. For example, the board of
trustees of a Delaware statutory trust may delegate the responsibility of
declaring dividends to duly empowered committees of the board or to appropriate
officers. Finally, Delaware law permits the trustees to adapt a Delaware
statutory trust to future contingencies. For example, the trustees may, without
a shareholder vote, change a Delaware statutory trust's domicile or
organizational form. In contrast, under Maryland corporate law, a company's
board of directors would be required to obtain shareholder approval prior to
changing domicile or organizational form.
The Redomestication will also have certain other effects on Company, its
shareholders and management, which are described below under the heading "The
Trust Compared to Company."
WHAT THE PROPOSED REDOMESTICATION WILL INVOLVE
To accomplish the Redomestication, the Trust has been formed as a Delaware
statutory trust pursuant to its Declaration of Trust, and each New Fund has been
established as a series portfolio of the Trust. On the closing date, each
Current Fund will transfer all of its assets to the corresponding classes of the
corresponding New Fund in exchange solely for a number of full and fractional
classes of shares of the New Fund equal to the number of full and fractional
shares of common stock of the corresponding classes of the Current Fund then
outstanding and the New Fund's assumption of the Current Fund's liabilities.
Immediately thereafter, each Current Fund will distribute those New Fund shares
to its shareholders in complete liquidation of such Current Fund. Upon
completion of the Redomestication, each shareholder of each Current Fund will be
the owner of full and fractional shares of the corresponding New Fund equal in
40
number and aggregate net asset value to the shares he or she held in the Current
Fund. As soon as practicable after the consummation of the Redomestication, each
Current Fund will be terminated and Company will be dissolved as a Maryland
corporation.
The obligations of Company and the Trust under the Plan of Redomestication
are subject to various conditions stated therein. To provide against unforeseen
events, the Plan of Redomestication may be terminated or amended at any time
prior to the closing of the Redomestication by action of the Board,
notwithstanding the approval of the Plan of Redomestication by the shareholders
of any Current Fund. However, no amendments may be made that would materially
adversely affect the interests of shareholders of any Current Fund. Company and
the Trust may at any time waive compliance with any condition contained in the
Plan of Redomestication, provided that the waiver does not materially adversely
affect the interests of shareholders of any Current Fund.
The Plan of Redomestication authorizes Company to acquire one share of each
class of each New Fund and, as the sole shareholder of the Trust prior to the
Redomestication, to do each of the following:
- Approve with respect to each New Fund a new investment advisory agreement
with AIM with an effective date of November 5, 2003 that will be
substantially identical to that described in Proposal 3 and a new
investment advisory agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing investment
advisory agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. Information on
the new advisory agreement, including a description of the differences
between it and Company's current advisory agreement, is set forth above
under Proposal 3. If Proposal 3 is not approved by shareholders of a
Current Fund, Company will approve for the corresponding New Fund an
investment advisory agreement with INVESCO that is substantially
identical to such Current Fund's existing investment advisory agreement
with INVESCO.
- Approve with respect to each New Fund a new sub-advisory agreement
between AIM and INVESCO that will be substantially identical to that
described in Proposal 4. Information on the new sub-advisory agreement is
set forth above under Proposal 4. If Proposal 3 is not approved by
shareholders of a Current Fund, Company will not approve a sub-advisory
agreement between AIM and INVESCO for the corresponding New Fund.
- Assuming that Proposal 3 is approved by shareholders, approve with
respect to each New Fund a new administrative services agreement with AIM
with an effective date of November 5, 2003 that will be substantially
identical to the new administrative services agreement with AIM that will
be entered into by Company if shareholders approve Proposal 3 and a new
administrative services agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing administrative
services agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. If Proposal 3
is not approved by shareholders of a Current Fund, Company will approve
for the corresponding New Fund an administrative services agreement with
AIM that is substantially identical to such Current Fund's existing
administrative services agreement with INVESCO.
- Approve with respect to each New Fund a distribution agreement with AIM
Distributors. The proposed distribution agreement will provide for
substantially identical distribution services as currently provided to
each corresponding Current Fund by AIM Distributors.
- Approve a distribution plan pursuant to Rule 12b-1 under the 1940 Act
with respect to each class of each New Fund that will be substantially
identical to the corresponding Current Fund's existing distribution plan
for that class.
- Approve with respect to each New Fund a custodian agreement with State
Street Bank and Trust Company and a transfer agency and servicing
agreement with A I M Fund Services, Inc., each of which currently
provides such services to the corresponding Current Fund, and a multiple
class plan pursuant to Rule 18f-3 of the 1940 Act which will be
substantially identical to the multiple class
41
plan that has been approved by the Board for the corresponding Current
Fund and which is expected to become effective prior to consummation of
the Redomestication.
- Elect the directors of Company as the trustees of the Trust to serve
without limit in time, except as they may resign or be removed by action
of the Trust's trustees or shareholders, and except as they retire in
accordance with the Trust's retirement policy for trustees. The Trust's
retirement policy for trustees will replace Company's retirement policy
for directors.
- Ratify the selection of PricewaterhouseCoopers LLP, the accountants for
each Current Fund, as the independent public accountants for each New
Fund.
- Approve such other agreements and plans as are necessary for each New
Fund's operation as a series of an open-end management investment
company.
The Trust's transfer agent will establish for each shareholder an account
containing the appropriate number of shares of each class of each New Fund. Such
accounts will be identical in all respects to the accounts currently maintained
by Company's transfer agent for each shareholder of the Current Funds. Shares
held in the Current Fund accounts will automatically be designated as shares of
the New Funds. Certificates for Current Fund shares issued before the
Redomestication will represent shares of the corresponding New Fund after the
Redomestication. Shareholders of the New Funds will not have the right to demand
or require the Trust to issue share certificates. Any account options or
privileges on accounts of shareholders under the Current Funds will be
replicated on the New Fund account. No sales charges will be imposed in
connection with the Redomestication.
Assuming your approval of Proposal 5, Company currently contemplates that
the Redomestication will be consummated on October 28, 2003.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE REDOMESTICATION
Company and the Trust will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Redomestication will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. Accordingly,
the Current Funds, the New Funds and the shareholders of the New Funds will
recognize no gain or loss for Federal income tax purposes as a result of the
Redomestication. Shareholders of the Current Funds should consult their tax
advisers regarding the effect, if any, of the Redomestication in light of their
individual circumstances and as to state and local consequences, if any, of the
Redomestication.
APPRAISAL RIGHTS
Appraisal rights are not available to shareholders. However, shareholders
retain the right to redeem their shares of the Current Funds or the New Funds,
as the case may be, at any time before or after the Redomestication.
THE TRUST COMPARED TO COMPANY
Structure of the Trust
The Trust has been established under the laws of the State of Delaware by
the filing of a certificate of trust in the office of the Secretary of State of
Delaware. The Trust has established series corresponding to and having identical
designations as the series portfolios of Company. The Trust has also established
classes with respect to each New Fund corresponding to and having identical
designations as the classes of each Current Fund. Each New Fund will have the
same investment objectives, policies, and restrictions as its predecessor
Current Fund. The Trust's fiscal year is the same as that of Company. The Trust
will not have any operations prior to the Redomestication. Initially, Company
will be the sole shareholder of the Trust.
As a Delaware statutory trust, the Trust's operations are governed by its
Declaration of Trust and Amended and Restated Bylaws and applicable Delaware law
rather than by Company's Articles of
42
Incorporation and Amended and Restated Bylaws and applicable Maryland law.
Certain differences between the two domiciles and organizational forms are
summarized below. The operations of the Trust will continue to be subject to the
provisions of the 1940 Act and the rules and regulations thereunder.
Trustees of the Trust
Subject to the provisions of the Declaration of Trust, the business of the
Trust will be managed by its trustees, who have all powers necessary or
convenient to carry out their responsibilities. The responsibilities, powers,
and fiduciary duties of the trustees of the Trust are substantially the same as
those of the directors of Company.
The trustees of the Trust would be those persons elected at this Special
Meeting to serve as directors of Company. Information concerning the nominees
for election as directors of Company is set forth above under Proposal 2.
Shares of the Trust
The beneficial interests in the New Funds will be represented by
transferable shares, par value $0.01 per share. Shareholders do not have the
right to demand or require the Trust to issue share certificates. The trustees
have the power under the Declaration of Trust to establish new series and
classes of shares; Company's directors currently have a similar right. The
Declaration of Trust permits the trustees to issue an unlimited number of shares
of each class and series. Company is authorized to issue only the number of
shares specified in the Articles of Incorporation and may issue additional
shares only with Board approval and after payment of a fee to the State of
Maryland on any additional shares authorized.
Your Fund currently has the classes of shares set forth in Exhibit A. The
Trust has established for each New Fund the classes that currently exist for its
predecessor Current Fund. Except as discussed in this Proxy
Statement/Prospectus, shares of each class of each New Fund will have rights,
privileges, and terms substantially similar to those of the corresponding class
of the Current Fund.
For a discussion of certain differences between and among Company's
Articles of Incorporation and Amended and Restated Bylaws and Maryland law and
the Trust's Declaration of Trust and Amended and Restated Bylaws and Delaware
law, see "Rights of Shareholders" in Proposal 1 above. The foregoing discussion
and the discussion under the caption "Rights of Shareholders" in Proposal 1
above is only a summary of certain differences and is not a complete description
of all the differences. Shareholders should refer to the provisions of the
governing documents of Company and Trust and state law directly for a more
thorough comparison. Copies of the Articles of Incorporation and Amended and
Restated Bylaws of Company and of the Declaration of Trust and the Trust's
Amended and Restated Bylaws are available to shareholders without charge upon
written request to Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 5
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However, you do not need to attend the Special Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card or
vote by telephone or through a website established for that purpose.
43
Company intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about August 25, 2003 to all shareholders entitled to vote. Shareholders of
record as of the close of business on July 25, 2003 (the "Record Date") are
entitled to vote at the Special Meeting. The number of shares outstanding of
each class of shares of your Fund on the Record Date can be found at Exhibit P.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas, 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call Company at (800) 952-3502 if you
plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meeting, your "proxy" (the individual named on your proxy
card) will vote your shares as you have directed. If you sign your proxy card
but do not make specific choices, your proxy will vote your shares as
recommended by the Board as follows and in accordance with management's
recommendation on other matters:
- FOR the proposal to approve the Plan of Reorganization.
- FOR the election of all 16 nominees for director.
- FOR the proposal to approve a new investment advisory agreement with AIM
for your Fund.
- FOR the proposal to approve a new sub-advisory agreement between AIM and
INVESCO for your Fund.
- FOR the proposal to approve the Plan of Redomestication.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Company in writing to the address of Company set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meeting that you have
revoked your proxy. In addition, although merely attending the Special Meeting
will not revoke your proxy, if you are present at the Special Meeting you may
withdraw your proxy and vote in person. Shareholders may also transact any other
business not currently contemplated that may properly come before the Special
Meeting in the discretion of the proxies or their substitutes.
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
44
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist for Proposals 1, 3 and 4 if shareholders entitled to vote one-third
of the issued and outstanding shares of your Fund on the Record Date are present
at the Special Meeting in person or by proxy. A quorum will exist for Proposals
2 and 5 if shareholders entitled to vote one-third of the issued and outstanding
shares of Company on the Record Date are present at the Special Meeting in
person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve a Proposal are not received, the persons named
as proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR a Proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST such
Proposal against such adjournment. A shareholder vote may be taken on a Proposal
in this Proxy Statement/ Prospectus prior to any such adjournment if sufficient
votes have been received and it is otherwise appropriate.
VOTE NECESSARY TO APPROVE EACH PROPOSAL
PROPOSALS 1, 3 AND 4. Approval of Proposals 1, 3 and 4 requires the lesser
of (a) the affirmative vote of 67% or more of the voting securities of your Fund
present or represented by proxy at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of your Fund are present or
represented by proxy, or (b) the affirmative vote of more than 50% of the
outstanding voting securities of your Fund. Abstentions and broker non-votes are
counted as present but are not considered votes cast at the Special Meeting. As
a result, they have the same effect as a vote against Proposals 1, 3 and 4
because approval of Proposals 1, 3 and 4 requires the affirmative vote of a
percentage of the voting securities present or represented by proxy or a
percentage of the outstanding voting securities.
PROPOSAL 2. The affirmative vote of a plurality of votes cast at the
Special Meeting is necessary to elect directors, meaning that the director
nominee with the most affirmative votes for a particular slot is elected for
that slot. In an uncontested election for directors, the plurality requirement
is not a factor. Abstentions will not count as votes cast and will have no
effect on the outcome of this proposal. We expect that brokers will be entitled
to vote on this proposal, but any broker non-vote will have no effect on the
outcome of this proposal.
PROPOSAL 5. Approval of Proposal 5 requires the affirmative vote of a
majority of the issued and outstanding shares of Company. Abstentions and broker
non-votes are counted as present but are not considered votes cast at the
Special Meeting. As a result, they have the same effect as a vote against the
Plan of Redomestication because approval of the Plan of Redomestication requires
the affirmative vote of a percentage of the outstanding voting securities.
PROXY SOLICITATION
Company has engaged the services of Georgeson Shareholder Communications
Inc. ("Solicitor") to assist in the solicitation of proxies for the Special
Meeting. Solicitor's costs are estimated to be approximately $19,700. Company
expects to solicit proxies principally by mail, but Company or Solicitor may
also solicit proxies by telephone, facsimile or personal interview. Company's
officers will not receive
45
any additional or special compensation for any such solicitation. AMVESCAP, on
behalf of INVESCO, will bear the costs and expenses incurred in connection with
the Reorganization, including Solicitor's costs.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
SHAREHOLDER PROPOSALS
As a general matter, your Fund does not hold regular meetings of
shareholders. If you wish to submit a proposal for consideration at a meeting of
shareholders of your Fund, you should send such proposal to Company at the
address set forth on the first page of this Proxy Statement/Prospectus. To be
considered for presentation at a meeting of shareholders, Company must receive
proposals a reasonable time before proxy materials are prepared for the meeting.
Your proposal also must comply with applicable law.
For a discussion of how to propose an individual for nomination as a
director, please refer to the section of this Proxy Statement/Prospectus
entitled "Proposal 2 -- Current Committees of the Board -- Nominating
Committee."
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Company owned 5% or more of any class of the
outstanding shares of your Fund can be found at Exhibit Q.
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Company owned 5% or more of any class of the
outstanding shares of Buying Fund can be found at Exhibit R.
INDEPENDENT PUBLIC ACCOUNTANTS
Effective August 13, 2003, the fiscal year end of Company was changed from
May 31 to August 31. The audit committee of the Board has appointed
PricewaterhouseCoopers LLP (the "Auditor") as Company's independent public
accountants for the fiscal year ending August 31, 2003 and August 31, 2004. A
representative of the Auditor is expected to be available at the Special Meeting
and to have the opportunity to make a statement and respond to appropriate
questions from the shareholders. The audit committee of the Board has considered
whether the provision of the services below is compatible with maintaining the
Auditor's independence.
FEES PAID TO THE AUDITOR RELATED TO COMPANY
The Auditor billed Company (consisting of three separate series portfolios)
aggregate fees for professional services rendered for the fiscal year ended May
31, 2003 as follows:
<Table>
Audit Fees.................................................. $ 94,200
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees*............................................. $ 12,052
--------
Total Fees.................................................. $106,252
</Table>
- ---------------
* All Other Fees includes fees billed for all other non-audit services,
including fees for tax-related services rendered to Company.
46
FEES PAID TO THE AUDITOR NOT RELATED TO COMPANY
The Auditor billed INVESCO aggregate fees for professional services
rendered for the fiscal year ended May 31, 2003 to INVESCO, or any affiliate
that provided services to Company, as follows:
<Table>
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees**............................................ $31,500
-------
Total Fees.................................................. $31,500
</Table>
- ---------------
** As required by SEC rules, All Other Fees includes amounts paid to the Auditor
by your Fund's advisor and other related entities that provide support for
the operations of Company. All Other Fees include services relating to tax
services, controls review on the transfer agency, research on accounting
consultations, a CRM project and other agreed upon procedures. The services
performed for your Fund's advisor and related entities benefit many legal
entities of INVESCO, including many sister funds within the investment
company complex.
47
EXHIBIT A
<Table>
<Caption>
CLASSES OF SHARES OF YOUR FUND CORRESPONDING CLASSES OF SHARES OF BUYING FUND
- ------------------------------ ----------------------------------------------
Class A shares Class A shares
Class B shares Class B shares
Class C shares Class C shares
Class K shares Class A shares
Investor Class shares Investor Class shares
Institutional Class shares Institutional Class shares
</Table>
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
INVESCO BALANCED FUND (YOUR FUND)
INVESCO TOTAL RETURN FUND (BUYING FUND)
Performance information in the bar charts below is that of the Funds'
Investor Class shares, which has the longest operating history of the Funds'
classes.
The bar charts below show the Funds' Investor Class actual yearly
performance (commonly known as their "total return") for the years ended
December 31 over the past decade or since inception. The table below shows the
pre-tax and after-tax average annual total returns of Investor Class for various
periods ended December 31, 2002 compared to the S&P 500 and Lehman
Government/Credit Bond Indexes.
After-tax returns are provided on a pre-redemption and post-redemption
basis. Pre-redemption returns assume you continue to hold your shares and pay
taxes on Fund distributions (i.e., dividends and capital gains) but do not
reflect taxes that may be incurred upon selling or exchanging shares.
Post-redemption returns assume payment of taxes on fund distributions and also
that you close your account and pay remaining federal taxes. After-tax returns
are calculated using the highest individual federal income tax rates in effect
at the time the distribution is paid. State and local taxes are not considered.
Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. For investors holding their shares in tax-deferred
arrangements such as 401(k) plans or individual retirement accounts, the
after-tax return shown is not relevant.
The information in the bar charts and table illustrates the variability of
each Fund's total return and how its performance compared to a broad measure of
market performance. Remember, past performance (before and after taxes) does not
indicate how the Fund will perform in the future.
BALANCED FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1)(2)(3)(4)
<Table>
'94......................................................... 9.44%
'95......................................................... 36.46%
'96......................................................... 14.66%
'97......................................................... 19.53%
'98......................................................... 17.33%
'99......................................................... 16.83%
'00......................................................... (1.85)%
'01......................................................... (11.54)%
'02......................................................... (17.04)%
</Table>
Best Calendar Qtr. 12/98 13.67%
Worst Calendar Qtr. 9/01 (12.52%)
TOTAL RETURN FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1)(2)(3)
<Table>
'93......................................................... 12.34%
'94......................................................... 2.52%
'95......................................................... 28.64%
'96......................................................... 13.07%
'97......................................................... 25.04%
'98......................................................... 13.62%
'99......................................................... (1.36)%
'00......................................................... (3.65)%
'01......................................................... (0.93)%
'02......................................................... (12.44)%
</Table>
Best Calendar Qtr. 6/97 11.86%
Worst Calendar Qtr. 9/02 (11.31%)
B-1
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/02
----------------------------------
10 YEARS OR
1 YEAR 5 YEARS SINCE INCEPTION
------ ------- ---------------
Investor Class
Balanced Fund(1)(3)
Return Before Taxes.................................... (17.04)% (0.25)% 8.14%(4)
Return After Taxes on Distributions.................... (17.43)% (1.38)% 5.87%(4)
Return After Taxes on Distributions and Sale of Fund
Shares............................................... (10.45)% (0.52)% 5.74%(4)
S&P 500 Index(6)
(reflects no deduction for fees, expenses, or taxes)... (22.09)% (0.58)% 9.32%(4)
Lehman Government/Credit Bond Index(6)
(reflects no deduction for fees, expenses, or taxes)... 11.04% 7.62% 7.22%(4)
Total Return Fund(1)(3)
Return Before Taxes.................................... (12.44)% (1.30)% 6.97%
Return After Taxes on Distributions.................... (13.63)% (2.82)% 5.31%
Return After Taxes on Distributions and Sale of Fund
Shares............................................... (7.24)% (1.41)% 5.15%
S&P 500 Index(6)
(reflects no deduction for fees, expenses, or taxes)... (22.09)% (0.58)% 9.35%(4)
Lehman Government/Credit Bond Index(6)
(reflects no deduction for fees, expenses, or taxes)... 11.04% 7.62% 7.61%
</Table>
- ---------------
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of each class' expenses.
(2) The year-by-year returns are for Investor Class only.
(3) Return before taxes for Investor Class shares of Balanced, and Total Return
Funds' year-to-date as of the calendar quarter ended June 30, 2003 were
9.83%, and 7.42%, respectively.
(4) The Fund (Investor Class shares) commenced investment operations on December
1, 1993. Index comparison begins on November 30, 1993.
(5) The S&P 500 Index is an unmanaged index considered representative of the
performance of the broad U.S. stock market. The Lehman Government/Credit
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 classes and are reflected in its annual returns. Index
returns also do not include sales charges or CDSCs that may be paid by the
shareholder.
B-2
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLE
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C, Class K, Investor Class and Institutional shares of INVESCO Balanced
Fund ("Selling Fund"), and of Class A, Class B, Class C, and Investor shares of
INVESCO Total Return Fund ("Buying Fund"). Pro Forma Combined Expense Ratios of
Buying Fund giving effect to the reorganization of Selling Fund into Buying Fund
are also provided.
<Table>
<Caption>
SELLING FUND BUYING FUND
(AS OF 5/31/03) (AS OF 5/31/03)
------------------------------------------------------------------- --------------------
INVESTOR INSTITUTIONAL
CLASS A CLASS B CLASS C CLASS K CLASS CLASS CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------- ------------- ------- -------
SHAREHOLDER FEES (fees paid directly
from your investment)
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of
offering price)..................... 5.50% None None None None None 5.50% None
Maximum Deferred Sales Charge
(Load)(1)........................... None(2)(3) 5.00% 1.00% None(4) None None None(2)(3) 5.00%
ANNUAL FUND OPERATING EXPENSES(5)
(expenses that are deducted from
fund assets)
Management Fees...................... 0.56% 0.56% 0.56% 0.56% 0.56% 0.56% 0.71% 0.71%
Distribution and/or Service (12b-1)
Fees(6)............................. 0.35% 1.00% 1.00% 0.45% 0.25% None 0.35% 1.00%
Other Expenses....................... 1.60% 2.89% 1.18% 0.51% 0.50% 0.41% 0.88% 1.62%
Total Annual Fund Operating
Expenses(7)(8)(9)................... 2.51% 4.45% 2.74% 1.52% 1.31% 0.97% 1.94% 3.33%
Fee Waivers/Reimbursements........... 0.41% 1.70% 0.00% 0.00% 0.00% 0.00% 0.00% 0.58%
Net Expenses......................... 2.10% 2.75% 2.74% 1.52% 1.31% 0.97% 1.94% 2.75%
<Caption>
BUYING FUND
BUYING FUND PRO FORMA COMBINED
(AS OF 5/31/03) (AS OF 5/31/03)
------------------ ---------------------------------------------------------
INVESTOR INVESTOR INSTITUTIONAL
CLASS C CLASS CLASS A CLASS B CLASS C CLASS CLASS
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- -------- ------- ------- ------- -------- -------------
SHAREHOLDER FEES (fees paid directly
from your investment)
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of
offering price)..................... None None 5.50% None None None None
Maximum Deferred Sales Charge
(Load)(1)........................... 1.00% None None(2)(3) 5.00% 1.00% None None
ANNUAL FUND OPERATING EXPENSES(5)
(expenses that are deducted from
fund assets)
Management Fees...................... 0.71% 0.71% 0.62% 0.62% 0.62% 0.62% 0.62%
Distribution and/or Service (12b-1)
Fees(6)............................. 1.00% 0.25% 0.35% 1.00% 1.00% 0.25% None
Other Expenses....................... 1.78% 0.54% 0.52% 1.15% 1.29% 0.52% 0.40%
Total Annual Fund Operating
Expenses(7)(8)(9)................... 3.49% 1.50% 1.49% 2.77% 2.91% 1.39% 1.02%
Fee Waivers/Reimbursements........... 0.74% 0.00% 0.00% 0.02% 0.16% 0.00% 0.00%
Net Expenses......................... 2.75% 1.50% 1.49% 2.75% 2.75% 1.39% 1.02%
</Table>
- ---------------
(1) For Selling Fund, calculated as a percentage of original purchase price or
redemption proceeds, whichever is less. For Buying Fund and Buying Fund Pro
Forma Combined, calculated as a percentage of original purchase price.
(2) If you buy $1,000,000 or more of Class A shares and redeem those shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(3) For qualified plans investing in Class A shares, you may pay a CDSC of 1% on
your Class A shares if the plan is redeemed within 12 months from the
initial deposit in the plan's INVESCO account.
(4) For qualified plans investing in Class K shares, you may pay a CDSC of 0.70%
on your Class K shares if the plan is redeemed within 12 months from initial
deposit in the plan's INVESCO account.
(5) There is no guarantee that actual expenses will be the same as those shown
in the table.
C-1
(6) Because each class pays a 12b-1 distribution and service fee which is based
upon each class's assets, if you own shares 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.
(7) INVESCO has contractually agreed to waive fees and bear any expenses on
Selling Fund through April 30, 2004 to limit Total Annual Operating Expenses
(excluding interest, taxes, brokerage commissions, extraordinary expenses
and increases in expenses due to expense offset arrangements, if any) to
2.10%, 2.75%, 2.75% and 2.20% on Class A, Class B, Class C and Class K
shares, respectively. INVESCO has also voluntarily agreed to limit Total
Annual Operating Expenses (excluding interest, taxes, brokerage commissions,
extraordinary expenses and increases in expenses due to expense offset
arrangements, if any) to 1.35%, 2.00%, 2.00%, 1.45%, 1.25% and 1.00% on
Class A, Class B, Class C, Class K, Investor Class and Institutional Class
shares, respectively. The voluntary expense limitations cannot be revoked by
INVESCO prior to May 2004.
(8) INVESCO has contractually agreed to waive fees and bear any expenses on
Buying Fund through April 30, 2004 to limit Total Annual Operating Expenses
(excluding interest, taxes, brokerage commissions, extraordinary expenses
and increases in expenses due to expense offset arrangements, if any) to
2.10%, 2.75% and 2.75% on Class A, Class B and Class C shares, respectively.
INVESCO has also voluntarily agreed to limit Total Annual Operating Expenses
(excluding interest, taxes, brokerage commissions, extraordinary expenses
and increases in expenses due to expense offset arrangements, if any) to
1.34%, 1.99%, 1.99% and 1.24% on Class A, Class B, Class C and Investor
Class shares, respectively. Further, the voluntary expense limitation for
Institutional Class shares will be 0.99% upon the closing of the
reorganization. The voluntary expense limitations cannot be revoked by
INVESCO prior to May 2004.
(9) INVESCO is entitled to reimbursement from the classes for fees and expenses
absorbed pursuant to voluntary and contractual limitation commitments
between INVESCO and both Selling Fund and Buying Fund if such reimbursement
does not cause a class to exceed expense limitations and the reimbursement
is made within three years after INVESCO incurred the expense.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Selling Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Selling Fund into Buying
Fund are also provided. All costs are based upon the information set forth in
the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ------ ------ ------
SELLING FUND
Class A shares(1)
Assuming complete redemption at end of period............. $751 $1,213 $1,740 $3,179
Assuming no redemption.................................... $751 $1,213 $1,740 $3,179
Class B shares
Assuming complete redemption at end of period(2)(3)....... $778 $1,329 $2,170 $3,956
Assuming no redemption(3)................................. $278 $1,029 $1,970 $3,956
Class C shares
Assuming complete redemption at end of period(2).......... $377 $ 850 $1,450 $3,070
Assuming no redemption.................................... $277 $ 850 $1,450 $3,070
Class K shares
Assuming complete redemption at end of period............. $155 $ 480 $ 829 $1,813
Assuming no redemption.................................... $155 $ 480 $ 829 $1,813
Investor Class shares
Assuming complete redemption at end of period............. $133 $ 415 $ 718 $1,579
Assuming no redemption.................................... $133 $ 415 $ 718 $1,579
Institutional Class shares
Assuming complete redemption at end of period............. $ 99 $ 309 $ 536 $1,190
Assuming no redemption.................................... $ 99 $ 309 $ 536 $1,190
BUYING FUND
Class A shares(1)
Assuming complete redemption at end of period............. $736 $1,126 $1,539 $2,690
Assuming no redemption.................................... $736 $1,126 $1,539 $2,690
Class B shares
Assuming complete redemption at end of period(2)(3)....... $778 $1,214 $1,833 $3,221
Assuming no redemption(3)................................. $278 $ 914 $1,633 $3,221
Class C shares
Assuming complete redemption at end of period(2).......... $378 $ 930 $1,682 $3,664
Assuming no redemption.................................... $278 $ 930 $1,682 $3,664
Investor Class Shares
Assuming complete redemption at end of period............. $153 $ 474 $ 818 $1,791
Assuming no redemption.................................... $153 $ 474 $ 818 $1,791
BUYING FUND -- PRO FORMA COMBINED
Class A shares(1)
Assuming complete redemption at end of period............. $693 $ 995 $1,318 $2,232
Assuming no redemption.................................... $693 $ 995 $1,318 $2,232
</Table>
C-3
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ------ ------ ------
Class B shares
Assuming complete redemption at end of period(2)(3)....... $778 $1,155 $1,661 $2,789
Assuming no redemption(3)................................. $278 $ 855 $1,461 $2,789
Class C shares
Assuming complete redemption at end of period(2).......... $378 $ 870 $1,504 $3,209
Assuming no redemption.................................... $278 $ 870 $1,504 $3,209
Investor Class shares
Assuming complete redemption at end of period............. $142 $ 440 $ 761 $1,669
Assuming no redemption.................................... $142 $ 440 $ 761 $1,669
Institutional Class shares
Assuming complete redemption at end of period............. $104 $ 325 $ 563 $1,248
Assuming no redemption.................................... $104 $ 325 $ 563 $1,248
</Table>
- ---------------
(1) Assumes payment of maximum sales charge by the investor.
(2) Assumes payment of the applicable CDSC.
(3) Assumes conversion of Class B shares to Class A shares at the end of the
eighth year.
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. SELLING
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT SELLING FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
DIRECTOR COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each continuing director of Company who was not affiliated with INVESCO during
the year ended December 31, 2002.
<Table>
<Caption>
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION ACCRUED BY BENEFITS UPON FROM ALL INVESCO
NAME OF DIRECTOR FROM COMPANY(1) COMPANY(2) RETIREMENT(3) FUNDS(4)
- ---------------- --------------- ------------------- ---------------- ------------------
Bob R. Baker................ $27,113 $0 $34,000 $138,000
James T. Bunch.............. 23,063 0 0 $124,625
Gerald J. Lewis............. 22,363 0 0 $116,500
Larry Soll, Ph.D............ 23,529 0 0 $126,000
</Table>
- ---------------
(1) The vice chairman of the Board, the chairs of certain of your Fund's
committees who are independent directors, and the members of your Fund's
committees who are independent directors each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors. Amounts shown are based on the fiscal year ended May
31, 2003.
(2) Represents estimated benefits accrued with respect to the current Retirement
Plan and Deferred Retirement Plan Account Agreement, and not compensation
deferred at the election of the directors. Amounts shown are based on the
fiscal year ended May 31, 2003.
(3) These amounts represent the estimated annual benefits payable by the ten
INVESCO Funds upon the directors' retirement under the current Retirement
Plan and Deferred Retirement Plan Account Agreement, calculated using the
current method of allocating director compensation among the INVESCO Funds.
These estimated benefits assume retirement at age 72. With the exception of
Messrs. Bunch and Lewis, each of these directors has served as a director of
one or more of the INVESCO Funds for the minimum five-year period required
to be eligible to participate in the current Retirement Plan.
(4) All continuing directors currently serve as directors of ten registered
investment companies advised by INVESCO.
D-1
EXHIBIT E
OFFICERS OF COMPANY
The following table provides information with respect to the current
officers of Company. Each officer is elected by the Board and serves until his
or her successor is chosen and qualified or until his or her resignation or
removal by the Board. The business address of all officers of Company is 4350
South Monaco Street, Denver, Colorado 80237.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND POSITION(S) HELD OFFICER
WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ---------------------------------------- ------- ---------------------------------------------------
Mark H. Williamson - 1951 1998 Director, President and Chief Executive Officer,
Chairman of the Board A I M Management Group Inc.; Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Distributors,
Inc. (registered broker dealer); and Chief
Executive Officer of the AIM Division of AMVESCAP
PLC (2003-present); formerly, Chief Executive
Officer, Managed Products Division, AMVESCAP PLC
(2001-2002); Chairman of the Board (1998-2002),
President (1998-2002) and Chief Executive Officer
(1998-2002) of INVESCO Funds Group, Inc.
(registered investment advisor) and INVESCO
Distributors, Inc. (registered broker dealer);
Chief Operating Officer and Chairman of the Board
of INVESCO Global Health Sciences Fund; Chairman
and Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
Raymond R. Cunningham - 1951 2001 President (2001-present) and Chief Executive
President and Chief Executive Officer Officer (2003-present) of INVESCO Funds Group,
Inc.; Chairman of the Board (2003-present) and
President (2003-present) of INVESCO Distributors,
Inc.; formerly, Chief Operating Officer (2001-2003)
and Senior Vice President (1999-2002) of INVESCO
Funds Group, Inc. and INVESCO Distributors, Inc.;
and Senior Vice President of GT Global -- North
America (1992-1998).
Glen A. Payne - 1947 1989 Senior Vice President, General Counsel and
Secretary Secretary of INVESCO Funds Group, Inc.; Senior Vice
President, Secretary and General Counsel of INVESCO
Distributors, Inc.; formerly, Secretary of INVESCO
Global Health Sciences Fund; General Counsel of
INVESCO Trust Company (1989-1998); and employee of
the Securities and Exchange Commission, Washington,
DC (1973-1989).
Ronald L. Grooms - 1946 1988 Senior Vice President and Treasurer of INVESCO
Chief Accounting Officer, Chief Funds Group, Inc.; and Senior Vice President and
Financial Officer and Treasurer Treasurer of INVESCO Distributors, Inc.; formerly,
Treasurer and Principal Financial and Accounting
Officer of INVESCO Global Health Sciences Fund; and
Senior Vice President and Treasurer of INVESCO
Trust Company (1988-1998).
William J. Galvin, Jr. - 1956 1992 Senior Vice President and Assistant Secretary
Assistant Secretary INVESCO Funds Group, Inc.; and Senior Vice
President and Assistant Secretary of INVESCO
Distributors, Inc.; formerly, Trust Officer of
INVESCO Trust Company (1995-1998).
</Table>
E-1
<Table>
<Caption>
NAME, YEAR OF BIRTH AND POSITION(S) HELD OFFICER
WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ---------------------------------------- ------- ---------------------------------------------------
Pamela J. Piro - 1960 1999 Vice President and Assistant Treasurer of INVESCO
Assistant Treasurer Funds Group, Inc.; and Assistant Treasurer of
INVESCO Distributors, Inc.; formerly, Assistant
Vice President (1996-1997).
Tane T. Tyler -- 1965 2002 Vice President and Assistant General Counsel of
Assistant Secretary INVESCO Funds Group, Inc.
</Table>
E-2
EXHIBIT F
SECURITY OWNERSHIP OF MANAGEMENT
To the best knowledge of Company, the following table sets forth certain
information regarding the ownership as of July 25, 2003 of the shares of common
stock of each class of each series portfolio of Company by the directors,
nominees, and current executive officers of Company:
<Table>
<Caption>
NUMBER OF SHARES
OWNED BENEFICIALLY AND
SERIES AND CLASS PERCENTAGE OF CLASS*
---------------- ------------------------
Bob R. Baker..............................................
Sueann Ambron.............................................
Victor L. Andrews.........................................
Lawrence H. Budner........................................
James T. Bunch............................................
Raymond R. Cunningham.....................................
Richard W. Healey.........................................
Gerald J. Lewis...........................................
John W. McIntyre..........................................
Larry Soll, Ph.D. ........................................
Mark H. Williamson........................................
Frank S. Bayley...........................................
Bruce L. Crockett.........................................
Albert R. Dowden..........................................
Edward K. Dunn, Jr. ......................................
Jack M. Fields............................................
Carl Frischling...........................................
Robert H. Graham..........................................
Prema Mathai-Davis........................................
Lewis F. Pennock..........................................
Ruth H. Quigley...........................................
Louis S. Sklar............................................
Glen A. Payne.............................................
Ronald L. Grooms..........................................
William J. Galvin, Jr. ...................................
Pamela J. Piro............................................
Tane T. Tyler.............................................
</Table>
- ---------------
* To the best knowledge of Company, the ownership of shares of each series
portfolio of Company by current directors, nominees, and current executive
officers of Company as a group constituted less than 1% of each class of each
series portfolio of Company as of July 25, 2003.
F-1
EXHIBIT G
DIRECTOR OWNERSHIP OF FUND SHARES
Set forth below is the dollar range of equity securities beneficially owned
by each continuing director and nominee as of December 31, 2002 (i) in your Fund
and (ii) on an aggregate basis, in all registered investment companies overseen
by the director within the INVESCO Funds complex:
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY DIRECTOR IN THE INVESCO
NAME OF DIRECTOR SECURITIES IN YOUR FUND FUNDS COMPLEX
---------------- ----------------------- --------------------------
INDEPENDENT DIRECTORS
Bob R. Baker.................... $1 - $10,000 $10,001-$ 50,000
James T. Bunch.................. $1 - $10,000 $50,001-$100,000
Gerald J. Lewis................. $1 - $10,000 $50,001-$100,000
Larry Soll, Ph.D................ $1 - $10,000 Over $100,000
INTERESTED DIRECTOR
Mark H. Williamson.............. None Over $100,000
INDEPENDENT NOMINEES
Frank S. Bayley................. None None
Bruce L. Crockett............... None None
Albert R. Dowden................ None None
Edward K. Dunn.................. None None
Jack M. Fields.................. None None
Carl Frischling................. None None
Prema Mathai-Davis.............. None None
Lewis F. Pennock................ None None
Ruth H. Quigley................. None None
Louis S. Sklar.................. None None
NOMINEE WHO WILL BE INTERESTED
Robert H. Graham................ None None
</Table>
G-1
EXHIBIT H
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
A I M ADVISORS, INC.
The following table provides information with respect to the principal
executive officer and the directors of A I M Advisors, Inc. ("AIM"). The
business address of the principal executive officer and the directors of AIM is
11 Greenway Plaza, Suite 100, Houston, TX 77046.
<Table>
<Caption>
NAME AND ADDRESS POSITION WITH AIM PRINCIPAL OCCUPATION
- ---------------- --------------------------- ----------------------------------------
Mark H. Williamson Director, Chairman and See director table under Proposal 2
President
Kevin M. Carome Director, Senior Vice Director, Senior Vice President,
President, General Counsel Secretary and General Counsel, A I M
and Secretary Management Group Inc.; Vice President,
A I M Capital Management, Inc., A I M
Distributors, Inc. and A I M Fund
Services, Inc., and Director, Vice
President and General Counsel, Fund
Management Company
Gary T. Crum Director and Senior Vice Chairman, Director and Director of
President Investments, A I M Capital Management,
Inc.; Director and Executive Vice
President, A I M Management Group Inc.;
Director, A I M Distributors, Inc. and
AMVESCAP PLC
Dawn M. Hawley Director, Senior Vice Director, Senior Vice President and
President and Chief Chief Financial Officer, A I M
Financial Officer Management Group Inc.; Vice President
and Treasurer, A I M Capital Management,
Inc. and A I M Distributors, Inc.;
Director, Vice President and Chief
Financial Officer, A I M Fund Services,
Inc.; and Vice President and Chief
Financial Officer, Fund Management
Company
</Table>
H-1
EXHIBIT I
COMPENSATION TO INVESCO FUNDS GROUP, INC.
Company pays INVESCO Funds Group, Inc., out of the assets of your Fund, as
full compensation for all services rendered, an advisory fee for your Fund set
forth below. Such fee shall be calculated by applying the following annual rate
to the average daily net assets of your Fund for the calendar year, computed in
the manner used for the determination of the net asset value of shares of your
Fund.
<Table>
<Caption>
NET FEES PAID TO
TOTAL NET ASSETS INVESCO FUNDS FEE WAIVERS OR EXPENSE
FOR THE MOST GROUP, INC. FOR THE REIMBURSEMENTS FOR THE
RECENTLY COMPLETED MOST RECENTLY MOST RECENTLY
ANNUAL RATE FISCAL PERIOD OR COMPLETED FISCAL COMPLETED FISCAL
(BASED ON AVERAGE DAILY NET ASSETS) YEAR PERIOD OR YEAR PERIOD OR YEAR
- ----------------------------------- ------------------ ------------------- ----------------------
0.60% of the first $350 million; $811,095,776 $4,312,404 $352,585
0.55% of the next $350 million;
0.50% from $700 million;
0.45% from $2 billion;
0.40% from $4 billion;
0.375% from $6 billion;
0.35% from $8 billion
</Table>
I-1
EXHIBIT J
FEES PAID TO INVESCO FUNDS GROUP, INC. AND AFFILIATES IN MOST RECENT FISCAL YEAR
The following chart sets forth the non-advisory fees paid by your Fund
during its most recently completed fiscal year to INVESCO Funds Group, Inc. and
to affiliates of INVESCO Funds Group, Inc.
<Table>
<Caption>
INVESCO INVESCO
NAME OF FUND (ADMINISTRATIVE SERVICES)* DISTRIBUTORS, INC.** (TRANSFER AGENCY)
------------ -------------------------- -------------------- -----------------
INVESCO Balanced Fund.................. $382,599 $592,443 $3,057,647
</Table>
- ---------------
* Fees paid to INVESCO for administrative services for the prior fiscal year
were paid pursuant to an agreement other than the advisory agreement.
** Net amount received from Rule 12b-1 fees. Excluded are amounts reallowed to
broker-dealers, agents and other service providers.
J-1
EXHIBIT K
ADVISORY FEE SCHEDULES FOR OTHER AIM FUNDS
The following table provides information with respect to the annual
advisory fee rates paid to A I M Advisors, Inc. by certain funds that have a
similar investment objective as your Fund.
<Table>
<Caption>
TOTAL NET
ASSETS FOR THE
MOST RECENTLY FEE WAIVER, EXPENSE LIMITATIONS
COMPLETED AND/OR EXPENSE REIMBURSEMENTS
ANNUAL RATE FISCAL PERIOD FOR THE MOST RECENTLY COMPLETED
NAME OF FUND (BASED ON AVERAGE DAILY NET ASSETS) OR YEAR FISCAL PERIOD OR YEAR
- ------------ ----------------------------------- -------------- -------------------------------
AIM Global Utilities Fund 0.60% of the first $200 million; $157,083,619 Waive 0.02% of advisory fee on
0.50% of the next $300 million; average net assets
0.40% of the next $500 million;
0.30% of the excess over $1 billion
AIM International Core 1.00% $ 90,235,884 N/A
Equity Fund
AIM Real Estate Fund 0.90% $193,700,806 N/A
AIM V.I. Global Utilities 0.65% of the first $250 million; $ 21,034,499 Waive advisory fees to extent
Fund 0.60% of the excess over $250 necessary to limit expenses
million (excluding Rule 12b-1 plan
fees, if any, interest, taxes,
dividend expense on short
sales, extraordinary items and
increases in expenses due to
expense offset arrangements, if
any) of each Series to 1.30%
</Table>
K-1
EXHIBIT L
PROPOSED COMPENSATION TO A I M ADVISORS, INC.
The following table provides information with respect to the annual
advisory fee rates proposed to be paid to A I M Advisors, Inc. by your Fund
under the proposed advisory agreement.
<Table>
<Caption>
ANNUAL RATE
NET ASSETS (BASED ON AVERAGE DAILY NET ASSETS)
- ---------- -----------------------------------
First $350 Million 0.60%
Next $350 Million 0.55%
From $700 Million 0.50%
From $2 Billion 0.45%
From $4 Billion 0.40%
From $6 Billion 0.375%
From $8 Billion 0.35%
</Table>
L-1
EXHIBIT M
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
INVESCO INSTITUTIONAL (N.A.), INC.
The following table provides information with respect to the principal
executive officer and the directors of INVESCO Institutional (N.A.), Inc., all
of whose business address is 1360 Peachtree Street, Atlanta, Georgia 30309.
<Table>
<Caption>
NAME AND ADDRESS POSITION WITH INVESCO INSTITUTIONAL (N.A.), INC. PRINCIPAL OCCUPATION
- ---------------- ------------------------------------------------ --------------------
John D. Rogers Director, Chairman, President and Chief Chief Executive Officer, AMVESCAP
Executive Officer PLC -- INVESCO Division
David A. Hartley Director and Chief Financial Officer Chief Financial Officer, INVESCO
Division
</Table>
M-1
EXHIBIT N
PROPOSED COMPENSATION TO INVESCO INSTITUTIONAL (N.A.), INC.
AIM proposes to pay INVESCO Institutional (N.A.), Inc., as full
compensation for all investment advisory services rendered to your Fund, a
sub-advisory fee. Such fee shall be computed daily and paid monthly, at the rate
of 40% of AIM's compensation on the sub-advised assets per year, on or before
the last day of the next succeeding calendar month.
N-1
EXHIBIT O
ADVISORY FEE RATES FOR OTHER INVESCO INSTITUTIONAL (N.A.), INC. ADVISED FUNDS
The following table provides information with respect to the annual
advisory fee rates paid to INVESCO Institutional (N.A.), Inc. by certain funds
that have a similar investment objective as your Fund.
O-1
EXHIBIT P
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of July 25, 2003, there were the following number of shares outstanding
of each class of your Fund:
CLASS A SHARES
30,938.05
CLASS B SHARES
20,909.12
CLASS C SHARES
191,999.72
CLASS K SHARES
582,602.23
INVESTOR CLASS SHARES
40,713,671.77
P-1
EXHIBIT Q
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Company owned 5% or more of any
class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" your Fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- ----------------
Charles Schwab & Co. Inc........................ Investor 4,611,596.56 11.33%
Special Custody Acct. for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
State Street Bank & Trust Co. Cust.............. Investor 3,761,230.85 9.24%
State of Michigan 401K Plan
105 Rosemont Rd.
Westwood, MA 02090-2318
FIIOC Agent..................................... Investor 2,143,512.08 5.26%
Employee Benefit Plans
100 Magellan Way KW1C
Covington, KY 41015-1987
Charles Schwab & Co. Inc. ...................... Class A 7,341.80 23.73%
Special Custody Acct. for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Raymond James & Assoc. Inc. .................... Class A 3,408.53 11.02%
FBO Parker P/S
880 Carillon Pkwy.
St. Petersburg, FL 33716-1100
Raymond James & Assoc. Inc. .................... Class A 1,681.97 5.44%
FBO Balmer IRA
880 Carillon Pkwy.
St. Petersburg, FL 33716-1100
UBS Financial Services Inc. .................... Class B 3,244.64 15.52%
UBS PaineWebber CDN FBO
Eugene L. Goldberg, M.D.
P.O. Box 3321
Weehawken, NJ 07086-8154
Merrill Lynch................................... Class B 2,014.88 9.64%
4800 Deer Lake Drive East
Jacksonville, FL 32246-6486
A.G. Edwards & Sons Inc. C/F.................... Class B 1,659.44 7.94%
Richard C. Fichter R/O
12009 Avery Ln.
Bridgeton, MO 63044-3530
</Table>
Q-1
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- ----------------
A.G. Edwards & Sons Inc. C/F.................... Class B 1,562.59 7.47%
Sandra L. Babor IRA R/O
10440 Decker Ave.
Overland, MO 63114-1433
Elements/Jill Schwartz Inc...................... Class B 1,492.34 7.14%
401K Plan Employee
Jill Schwartz
P.O. Box 461
S. Egremont, MA 01258-0461
Dean Witter for the Benefit of Baltimore Fire
Officers Assoc. .............................. Class B 1,094.72 5.24%
P.O. Box 250
Church Street Station
New York, NY 10008-0250
Saxon & Co. .................................... Class K 553,878.72 95.07%
P.O. Box 7780-1888
Philadelphia, PA 19182-0001
</Table>
- ---------------
* Company has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
Q-2
EXHIBIT R
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Company owned 5% or more of any
class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- ----------------
Charles Schwab & Co. Inc........................ Investor 4,762,107.92 13.16%
Special Custody Acct. for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Minnesota State................................. Investor 3,915,916.24 10.82%
Deferred Compensation Plan TR
State of Minnesota
c/o Great West Recordkeeper
8515 E. Orchard Rd. #2T2
Englewood, CO 80111-5037
American Express Trust TR....................... Investor 3,781,341.33 10.45%
American Express Trust
Retirement Services Plans
Attn. Chris Hunt
P.O. Box 534
Minneapolis, MN 55440-0534
FIIOC Agent..................................... Investor 2,778,020.85 7.68%
Employee Benefit Plans
100 Magellan Way KW1C
Covington, KY 41015-1987
Prudential Securities Inc. ..................... Class A 5,040.48 22.71%
Attn: Mutual Funds
1 New York Plaza
New York, NY 10004-1901
American Enterprise Investment Svcs............. Class A 1,621.05 7.30%
FBO 216410711
P.O. Box 9446
Minneapolis, MN 55440-9446
UBS Financial Services Inc. FBO................. Class A 1,485.25 6.69%
UBS-FINSVC CDN FBO
Emilio Alonso
P.O. Box 3321
Weehawken, NJ 07086-8154
Charles Schwab & Co. Inc. ...................... Class A 1,443.66 6.50%
Special Custody Acct. for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
</Table>
R-1
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- ----------------
American Enterprise Investment Svcs............. Class A 1,297.46 5.85%
FBO 220542661
P.O. Box 9446
Minneapolis, MN 55440-9446
Raymond James & Assoc. Inc. .................... Class A 1,283.57 5.78%
FBO Dharte Jr. IRA
880 Carillon Pkwy.
St. Petersburg, FL 33716-1100
American Enterprise Investment Svcs............. Class A 1,191.56 5.37%
FBO 198056391
P.O. Box 9446
Minneapolis, MN 55440-9446
American Enterprise Investment Svcs............. Class A 1,138.43 5.13%
FBO 222200321
P.O. Box 9446
Minneapolis, MN 55440-9446
Merrill Lynch................................... Class B 3,891.50 14.27%
4800 Deer Lake Drive East
Jacksonville, FL 32246-6486
American Enterprise Investment Svcs............. Class B 2,918.03 10.70%
FBO 209998841
P.O. Box 9446
Minneapolis, MN 55440-9446
Juneau Volunteer Fire Department................ Class B 2,395.78 8.79%
820 Glacier Ave.
Juneau, AK 99801-1845
American Enterprise Investment Svcs............. Class B 1,517.99 5.57%
FBO 187786881
P.O. Box 9446
Minneapolis, MN 55440-9446
UBS Financial Services Inc. FBO................. Class C 5,063.13 10.26%
Sacred Heart Church
Father Paul Manderfield
P.O. Box 546
Calumet, MI 49913-0546
AMVESCAP Natl TC Cust. Roth..................... Class C 5,002.84 10.14%
David E. Robertson
2100 White River Blvd. #130
Muncie, IN 47303-5241
</Table>
- ---------------
* Company has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
R-2
APPENDIX I
PLAN OF REORGANIZATION
FOR
INVESCO BALANCED FUND,
A SEPARATE PORTFOLIO OF
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
AUGUST 13, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1 DEFINITIONS......................................................... I-1
SECTION 1.1. Definitions................................................. I-1
ARTICLE 2 TRANSFER OF ASSETS.................................................. I-3
SECTION 2.1. Reorganization of Selling Fund.............................. I-3
SECTION 2.2. Computation of Net Asset Value.............................. I-4
SECTION 2.3. Valuation Date.............................................. I-4
SECTION 2.4. Delivery.................................................... I-4
SECTION 2.5. Termination of Series....................................... I-4
SECTION 2.6. Issuance of Buying Fund Shares.............................. I-5
SECTION 2.7. Investment Securities....................................... I-5
SECTION 2.8. Liabilities................................................. I-5
ARTICLE 3 CONDITIONS PRECEDENT WITH RESPECT TO BUYING FUND.................... I-5
SECTION 3.1. Registration and Regulation of Selling Fund................. I-5
SECTION 3.2. Selling Fund Financial Statements........................... I-5
SECTION 3.3. No Material Adverse Changes; Contingent Liabilities......... I-6
SECTION 3.4. Selling Fund Shares; Business Operations.................... I-6
SECTION 3.5. Accountants................................................. I-6
SECTION 3.6. Binding Obligation.......................................... I-7
SECTION 3.7. No Breaches or Defaults..................................... I-7
SECTION 3.8. Permits..................................................... I-7
SECTION 3.9. No Actions, Suits or Proceedings............................ I-7
SECTION 3.10. Contracts................................................... I-7
SECTION 3.11. Properties and Assets....................................... I-8
SECTION 3.12. Taxes....................................................... I-8
SECTION 3.13. Benefit and Employment Obligations.......................... I-8
SECTION 3.14. Voting Requirements......................................... I-8
SECTION 3.15. State Takeover Statutes..................................... I-8
SECTION 3.16. Books and Records........................................... I-8
SECTION 3.17. Prospectus and Statement of Additional Information.......... I-8
SECTION 3.18. No Distribution............................................. I-9
SECTION 3.19. Liabilities of Selling Fund................................. I-9
SECTION 3.20. Shareholder Expenses........................................ I-9
ARTICLE 4 CONDITIONS PRECEDENT WITH RESPECT TO SELLING FUND................... I-9
SECTION 4.1. Registration and Regulation of Buying Fund.................. I-9
SECTION 4.2. Buying Fund Financial Statements............................ I-9
SECTION 4.3. No Material Adverse Changes; Contingent Liabilities......... I-9
SECTION 4.4. Registration of Buying Fund Shares.......................... I-10
SECTION 4.5. Accountants................................................. I-10
SECTION 4.6. Binding Obligation.......................................... I-10
SECTION 4.7. No Breaches or Defaults..................................... I-10
SECTION 4.8. Permits..................................................... I-11
</Table>
I-i
<Table>
<Caption>
PAGE
----
SECTION 4.9. No Actions, Suits or Proceedings............................ I-11
SECTION 4.10. Taxes....................................................... I-11
SECTION 4.11. Representations Concerning the Reorganization............... I-11
SECTION 4.12. Prospectus and Statement of Additional Information.......... I-12
ARTICLE 4A CONDITIONS PRECEDENT WITH RESPECT TO EACH FUND..................... I-12
SECTION 4A.1 No Governmental Actions..................................... I-12
SECTION 4A.2 No Brokers.................................................. I-12
SECTION 4A.3 Value of Shares............................................. I-12
SECTION 4A.4 Intercompany Indebtedness; Consideration.................... I-12
SECTION 4A.5 Authorizations or Consents.................................. I-13
SECTION 4A.6 No Bankruptcy Proceedings................................... I-13
ARTICLE 5 COVENANTS........................................................... I-13
SECTION 5.1. Conduct of Business......................................... I-13
SECTION 5.2. Expenses.................................................... I-13
SECTION 5.3. Consents, Approvals and Filings............................. I-13
SECTION 5.4. Submission of Plan to Shareholders.......................... I-13
ARTICLE 6 FURTHER CONDITIONS PRECEDENT TO THE REORGANIZATION.................. I-14
SECTION 6.1. Further Conditions Precedent with respect to Both Funds..... I-14
ARTICLE 7 TERMINATION OF AGREEMENT............................................ I-15
SECTION 7.1. Termination................................................. I-15
SECTION 7.2. Survival After Termination.................................. I-15
ARTICLE 8 MISCELLANEOUS....................................................... I-15
SECTION 8.1. Governing Law............................................... I-15
SECTION 8.2. Binding Effect, Persons Benefiting.......................... I-15
SECTION 8.3. Miscellaneous Obligations................................... I-15
SECTION 8.4. Amendments.................................................. I-15
SECTION 8.5. Interpretation.............................................. I-15
SECTION 8.6. Successors and Assigns; Assignment.......................... I-16
Exhibit A Excluded Liabilities of Selling Fund
Schedule 2.1 Classes of Shares of Selling Fund and Corresponding
Classes of Shares of Buying Fund
Schedule 3.3 Certain Contingent Liabilities of Selling Fund
Schedule 3.4(d) Permitted Restructurings and Redomestications of Funds
Schedule 4.3 Certain Contingent Liabilities of Buying Fund
Schedule 4.4(a) Classes of Shares of Buying Fund and Number of Shares of
Each Class Corporation is Authorized to Issue
Schedule 5.1 Permitted Combinations of Funds
Schedule 6.1(j) Tax Opinions
</Table>
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PLAN OF REORGANIZATION
PLAN OF REORGANIZATION, dated as of August 13, 2003 (this "Plan"), is
adopted by INVESCO Combination Stock & Bond Funds, Inc., a Maryland corporation
("Corporation"), acting on behalf of INVESCO Balanced Fund ("Selling Fund") and
INVESCO Total Return Fund ("Buying Fund"), each a separate series of
Corporation. INVESCO Funds Group, Inc., a Delaware corporation, has executed
this Plan to confirm its agreement with Section 6.1(d) of this Plan.
WITNESSETH
WHEREAS, Corporation is a management investment company registered with the
SEC (as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund, Buying Fund and INVESCO Core Equity Fund,
for sale to the public; and
WHEREAS, Investment Adviser (as defined below) provides investment advisory
services to Corporation; and
WHEREAS, Selling Fund desires to provide for its reorganization through the
transfer of all of its assets to Buying Fund in exchange for the assumption by
Buying Fund of all of the Liabilities (as defined below) of Selling Fund and the
issuance by Corporation of shares of Buying Fund in the manner set forth in this
Plan; and
WHEREAS, this Plan is intended to be and is adopted by Corporation as a
"plan of reorganization" within the meaning of the regulations under Section
368(a) of the Code (as defined below); and
WHEREAS, Corporation is duly organized, validly existing and in good
standing under Applicable Law (as defined below), with all requisite corporate
power and authority to adopt this Plan and perform its obligations hereunder.
NOW, THEREFORE, Corporation hereby adopts the following:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Plan, the following
terms shall have the respective meanings set forth in this Section 1.1 (such
definitions to be equally applicable to both the singular and plural forms of
the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Applicable Law" means the applicable laws of the State of Maryland,
including the Maryland General Corporation Law.
"Auditors" means PricewaterhouseCoopers LLP.
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Corporation on behalf of
Selling Fund, or otherwise providing benefits to any current or former employee,
officer or director of Corporation.
"Buying Fund" means INVESCO Total Return Fund, a separate series of
Corporation.
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"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended May 31, 2003.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Plan.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Plan.
"Closing Date" means November 3, 2003, or any other date Corporation
determines.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"Corporation" means INVESCO Combination Stock & Bond Funds, Inc., a
Maryland corporation.
"corresponding" means, when used with respect to a class of shares of
either Fund, the classes of their shares set forth opposite each other on
Schedule 2.1.
"Counsel" means Kirkpatrick & Lockhart LLP.
"Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of each Fund.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
"Fund" means Buying Fund or Selling Fund.
"Governing Documents" means the organic documents that govern the business
and operations of Corporation and shall include its Charter and Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading Commission, the National Futures Association, the
Investment Management Regulatory Organization Limited and the Office of Fair
Trading).
"Investment Adviser" means INVESCO Funds Group, Inc.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.8 of this Plan.
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"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Plan" means this Plan of Reorganization, together with all Exhibits and
Schedules attached hereto and all amendments hereto and thereof.
"Registration Statement" means the registration statement on Form N-1A of
Corporation, as amended, 1940 Act Registration No. 811-08066.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Corporation of Buying Fund
Shares directly to Selling Fund Shareholders as described in this Plan, and the
termination of Selling Fund's status as a designated series of shares of
Corporation.
"Required Shareholder Vote" means the lesser of (a) the affirmative vote of
67% or more of the voting securities of Selling Fund present or represented by
proxy at the Shareholders Meeting, if the holders of more than 50% of the
outstanding voting securities of Selling Fund are present or represented by
proxy, or (b) the affirmative vote of more than 50% of the outstanding voting
securities of Selling Fund.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Selling Fund" means INVESCO Balanced Fund, a separate series of
Corporation.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended May 31, 2003.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
"Selling Fund Shares" means the outstanding shares of each class of Selling
Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
convened in accordance with Applicable Law and the Governing Documents to
consider and vote upon the approval of this Plan.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means December 31, 2003, or any other date Corporation
determines.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Plan.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all
of the assets of Selling Fund shall be delivered to Custodian for the account of
Buying Fund in exchange for the assumption by Buying Fund of all of the
Liabilities of Selling Fund and delivery by Corporation directly to the holders
of
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record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund Shares, and
the value of the assets and the amount of the Liabilities of Selling Fund,
shall, in each case, be determined as of the close of regular trading on the
NYSE on the business day next preceding the Closing Date (the "Valuation Date").
(b) The net asset value per share of each class of Buying Fund Shares shall
be computed in accordance with the policies and procedures of Buying Fund as
described in the Registration Statement.
(c) The value of the assets and the amount of the Liabilities of Selling
Fund to be transferred to Buying Fund pursuant to this Plan shall be computed in
accordance with the policies and procedures of Selling Fund as described in the
Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of value
regarding the assets and Liabilities of Selling Fund and the net asset value per
share of each class of Buying Fund Shares to be issued pursuant to this Plan
shall be made by Corporation.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Selling Fund received in proper
form prior to the close of regular trading on the NYSE on the Valuation Date
shall be accepted by Selling Fund. Redemption requests thereafter received by
Selling Fund shall be deemed to be redemption requests for Buying Fund Shares of
the corresponding class (assuming that the transactions contemplated by this
Plan have been consummated), to be distributed to Selling Fund Shareholders
under this Plan.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing Date,
Corporation shall instruct Custodian to transfer all assets held by Selling Fund
to the account of Buying Fund maintained at Custodian. Such transfer of assets
(which shall be treated for all purposes hereof as delivery thereof by
Corporation on Selling Fund's behalf to Custodian for Buying Fund's account)
shall be made on the Closing Date. The assets so delivered shall be duly
endorsed in proper form for transfer in such condition as to constitute a good
delivery thereof, in accordance with the custom of brokers, and shall be
accompanied by all necessary state stock transfer stamps, if any, or a check for
the appropriate purchase price thereof. Cash held by Selling Fund shall be
delivered on the Closing Date and shall be in the form of currency or wire
transfer in Federal funds, payable to the order of the account of Buying Fund at
Custodian.
(b) If, on the Closing Date, Corporation is unable to make delivery in the
manner contemplated by Section 2.4(a) of securities held by Selling Fund for the
reason that any of such securities purchased prior to the Closing Date have not
yet been delivered to Selling Fund or its broker, then Corporation shall waive
the delivery requirements of Section 2.4(a) with respect to said undelivered
securities if Selling Fund has delivered to Custodian by or on the Closing Date,
and with respect to said undelivered securities, executed copies of an agreement
of assignment and escrow and due bills executed on behalf of said broker or
brokers, together with such other documents as may be required by Custodian,
including brokers' confirmation slips.
SECTION 2.5. Termination of Series. Following receipt of the Required
Shareholder Vote and as soon as reasonably practicable after the Closing Date,
the status of Selling Fund as a designated series of Corporation shall be
terminated and Corporation shall redeem the outstanding shares of Selling Fund
from
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Selling Fund Shareholders in accordance with its Governing Documents and
Applicable Law; provided, however, that the termination of Selling Fund as a
designated series of Corporation and the redemption of the outstanding shares of
Selling Fund shall not be required if the Reorganization shall not have been
consummated.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date. All issued and outstanding shares of Selling Fund shall thereupon be
canceled on the books of Corporation. Corporation shall provide instructions to
the transfer agent of Corporation with respect to the shares of each class of
Buying Fund to be issued to Selling Fund Shareholders. Corporation shall have no
obligation to inquire as to the validity, propriety or correctness of any such
instruction, but shall, in each case, assume that such instruction is valid,
proper and correct. Corporation shall record on its books the ownership of the
shares of each class of Buying Fund by Selling Fund Shareholders and shall
forward a confirmation of such ownership to Selling Fund Shareholders. No
redemption or repurchase of such shares credited to former Selling Fund
Shareholders in respect of Selling Fund Shares represented by unsurrendered
share certificates shall be permitted until such certificates have been
surrendered to Corporation for cancellation, or if such certificates are lost or
misplaced, until lost certificate affidavits have been executed and delivered to
Corporation.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Corporation shall prepare a list setting forth the securities Selling Fund then
owns together with the respective Federal income tax bases thereof (including
detailed tax basis accounting records for each security to be transferred
pursuant to this Plan) and holding periods therefor. Such records shall be
prepared in accordance with the requirements for specific identification tax lot
accounting and clearly reflect the bases used for determination of gain and loss
realized on the sale of any security transferred to Buying Fund hereunder.
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
CONDITIONS PRECEDENT WITH RESPECT TO BUYING FUND
Corporation's obligations to implement this Plan on Buying Fund's behalf
shall be subject to satisfaction of the following conditions on or before the
Closing Date, any one or more of which Corporation may waive:
SECTION 3.1. Registration and Regulation of Selling Fund. All Selling
Fund Shares which have been or are being offered for sale have been duly
registered under the Securities Act and have been duly registered, qualified or
are exempt from registration or qualification under the securities laws of each
state or other jurisdiction in which such shares have been or are being offered
for sale, and no action has been taken by Corporation to revoke or rescind any
such registration or qualification. Selling Fund is in compliance in all
material respects with all applicable laws, rules and regulations, including,
without limitation, the Investment Company Act, the Securities Act, the Exchange
Act and all applicable state securities laws. Selling Fund is in compliance in
all material respects with the investment policies and restrictions applicable
to it set forth in the Registration Statement. The value of the net assets of
Selling Fund is determined using portfolio valuation methods that comply in all
material respects with the requirements of the Investment Company Act and the
policies of Selling Fund and all purchases and redemptions of Selling Fund
Shares have been effected at the net asset value per share calculated in such
manner.
SECTION 3.2. Selling Fund Financial Statements. The books of account and
related records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Selling Fund Financial
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Statements present fairly in all material respects the financial position of
Selling Fund as of the date(s) indicated and the results of operations and
changes in net assets for the period(s) then ended in accordance with generally
accepted accounting principles applied on a consistent basis for the period(s)
then ended.
SECTION 3.3. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Selling Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Selling
Fund or the status of Selling Fund as a regulated investment company under the
Code, other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Selling Fund or occurring in the ordinary course of business of Selling Fund or
Corporation. Except as set forth on Schedule 3.3, (a) there are no contingent
liabilities of Selling Fund not disclosed in the Selling Fund Financial
Statements which are required to be disclosed in accordance with generally
accepted accounting principles and (b) no contingent liabilities of Selling Fund
have arisen since the date of the most recent financial statements included in
the Selling Fund Financial Statements which are required to be disclosed in
accordance with those principles.
SECTION 3.4. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(b) During the five-year period ending on the date of the Reorganization,
neither Selling Fund nor any person related to Selling Fund (as defined in
Section 1.368-1(e)(3) of the Treasury Regulations without regard to Section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired shares of Selling Fund for
consideration other than shares of Selling Fund, except for shares redeemed in
the ordinary course of Selling Fund's business as an open-end investment company
as required by the Investment Company Act, or (ii) made distributions with
respect to Selling Fund's shares, except for (a) distributions necessary to
satisfy the requirements of Sections 852 and 4982 of the Code for qualification
as a regulated investment company and avoidance of excise tax liability and (b)
additional distributions, to the extent such additional distributions do not
exceed 50 percent of the value (without giving effect to such distributions) of
the proprietary interest in Selling Fund on the Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing Date,
Selling Fund will have conducted its historic business within the meaning of
Section 1.368-1(d)(2) of the Treasury Regulations in a substantially unchanged
manner. In anticipation of its Reorganization, Selling Fund will not dispose of
assets that, in the aggregate, will result in less than 50% of its historic
business assets (within the meaning of Section 1.368-1(d)(3) of the Treasury
Regulations) being transferred to Buying Fund; provided, however, that this
Section 3.4(d) shall not preclude any of the restructurings or redomestications
of funds set forth on Schedule 3.4(d).
(e) Corporation does not have, and has not had during the six (6) months
prior to the date of this Plan, any employees, and shall not hire any employees
from and after the date of this Plan through the Closing Date.
SECTION 3.5. Accountants. Auditors, which have reported upon the Selling
Fund Financial Statements for the fiscal year ended on the date of the most
recent financial statements included in the Selling Fund Financial Statements,
are independent public accountants as required by the Securities Act and the
Exchange Act.
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SECTION 3.6. Binding Obligation. This Plan has been duly adopted by
Corporation on behalf of Selling Fund and, assuming this Plan has been duly
approved by the shareholders of Selling Fund, constitutes the legal, valid and
binding obligation of Corporation enforceable against Corporation in accordance
with its terms from and with respect to the revenues and assets of Selling Fund,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors rights
generally, or by general equity principles (whether applied in a court of law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 3.7. No Breaches or Defaults. The adoption of this Plan by
Corporation on behalf of Selling Fund and performance by Corporation of its
obligations hereunder has been duly authorized by all necessary corporate action
on the part of Corporation, other than approval by the shareholders of Selling
Fund, and (i) do not, and on the Closing Date will not, result in any violation
of the Governing Documents and (ii) do not, and on the Closing Date will not,
result in a breach of any of the terms or provisions of, or constitute (with or
without the giving of notice or the lapse of time or both) a default under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
or imposition of any Lien upon any property or assets of Selling Fund (except
for such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Corporation is a party or by which it may be bound and which
relates to the assets of Selling Fund or to which any property of Selling Fund
may be subject; (B) any Permit (as defined below); or (C) any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over Corporation or any property of Selling Fund.
SECTION 3.8. Permits. Corporation has in full force and effect all
approvals, consents, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights of Governmental Authorities (collectively,
"Permits") necessary for it to conduct its business as presently conducted as it
relates to Selling Fund, and there has occurred no default under any Permit,
except for the absence of Permits and for defaults under Permits the absence or
default of which would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect. To the knowledge of Corporation there
are no proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.9. No Actions, Suits or Proceedings. There are no judicial,
administrative or arbitration actions, suits, or proceedings instituted or
pending or, to the knowledge of Corporation, threatened in writing or, if
probable of assertion, orally, against Corporation affecting any property,
asset, interest or right of Selling Fund, that could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect with respect
to Selling Fund. There are not in existence on the date hereof any plea
agreements, judgments, injunctions, consents, decrees, exceptions or orders that
were entered by, filed with or issued by any Governmental Authority relating to
Corporation's conduct of the business of Selling Fund affecting in any
significant respect the conduct of such business. Corporation is not, and has
not been, to the knowledge of Corporation, the target of any investigation by
the SEC or any state securities administrator with respect to its conduct of the
business of Selling Fund.
SECTION 3.10. Contracts. Corporation is not in default under any
contract, agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party and which involves or affects the assets of
Selling Fund, by which the assets, business, or operations of Selling Fund may
be bound or affected, or under which it or the assets, business or operations of
Selling Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Corporation there has not occurred any event that, with the lapse
of time or the giving of notice or both, would constitute such a default.
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SECTION 3.11. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.12. Taxes.
(a) Selling Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Selling Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will have satisfied the requirements of Part
I of Subchapter M of the Code to maintain such qualification for the period
beginning on the first day of its current taxable year and ending on the Closing
Date. Selling Fund has no earnings and profits accumulated in any taxable year
in which the provisions of Subchapter M of the Code did not apply to it. In
order to (i) ensure continued qualification of Selling Fund for treatment as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of Selling Fund arising by reason of undistributed investment company
taxable income or net capital gain, Corporation will declare on or prior to the
Valuation Date to the shareholders of Selling Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(A) all of Selling Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended May 31,
2003, and for the short taxable year beginning on June 1, 2003, and ending on
the Closing Date and (B) all of Selling Fund's net capital gain recognized in
its taxable year ended May 31, 2003, and in such short taxable year (after
reduction for any capital loss carryover).
(b) Selling Fund has timely filed all Returns required to be filed by it
and all Taxes with respect thereto have been paid, except where the failure so
to file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Selling Fund Financial Statements for all Taxes in respect of all periods
ended on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Selling Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Selling Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 3.13. Benefit and Employment Obligations. As of the Closing Date,
Selling Fund will have no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to under any
Benefit Plan, and will have no obligation to provide unfunded deferred
compensation or other unfunded or self-funded benefits to any Person.
SECTION 3.14. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Plan and, in connection therewith, the sale of all of Selling
Fund's assets and the termination of Selling Fund as a designated series of
Corporation.
SECTION 3.15. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Plan or any
of the transactions contemplated by this Plan.
SECTION 3.16. Books and Records. The books and records of Corporation
relating to Selling Fund, reflecting, among other things, the purchase and sale
of Selling Fund Shares, the number of issued and outstanding shares owned by
each Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.17. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not
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contain, any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
SECTION 3.18. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Plan.
SECTION 3.19. Liabilities of Selling Fund. The Liabilities of Selling
Fund that are to be assumed by Buying Fund in connection with the
Reorganization, or to which the assets of Selling Fund to be transferred in the
Reorganization are subject, were incurred by Selling Fund in the ordinary course
of its business. The fair market value of the assets of Selling Fund to be
transferred to Buying Fund in the Reorganization will equal or exceed the sum of
the Liabilities to be assumed by Buying Fund, plus the amount of liabilities, if
any, to which such transferred assets will be subject. The total adjusted basis
of the assets of Selling Fund to be transferred to Buying Fund in the
Reorganization will equal or exceed the sum of the Liabilities to be assumed by
Buying Fund, plus the amount of liabilities, if any, to which such transferred
assets will be subject.
SECTION 3.20. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
ARTICLE 4
CONDITIONS PRECEDENT WITH RESPECT TO SELLING FUND
Corporation's obligations to implement this Plan on Selling Fund's behalf
shall be subject to satisfaction of the following conditions on or before the
Closing Date, any one or more of which Corporation may waive:
SECTION 4.1. Registration and Regulation of Buying Fund. Buying Fund is
in compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Buying Fund is in compliance in all material respects with the applicable
investment policies and restrictions set forth in the Registration Statement.
The value of the net assets of Buying Fund is determined using portfolio
valuation methods that comply in all material respects with the requirements of
the Investment Company Act and the policies of Buying Fund and all purchases and
redemptions of Buying Fund Shares have been effected at the net asset value per
share calculated in such manner.
SECTION 4.2. Buying Fund Financial Statements. The books of account and
related records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Buying Fund Financial
Statements present fairly in all material respects the financial position of
Buying Fund as of the date(s) indicated and the results of operations and
changes in net assets for the period(s) then ended in accordance with generally
accepted accounting principles applied on a consistent basis for the period(s)
then ended.
SECTION 4.3. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Buying Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Buying Fund
or the status of Buying Fund as a regulated investment company under the Code,
other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Buying Fund or occurring in the ordinary course of business of Buying Fund or
Corporation. Except as set forth on Schedule 4.3, (a) there are no contingent
liabilities of Buying Fund not disclosed in the Buying Fund Financial Statements
which are required to be disclosed in accordance with generally accepted
accounting principles and (b) no contingent liabilities of Buying Fund have
arisen since the date of the most recent financial statements included in the
Buying Fund Financial Statements which are required to be disclosed in
accordance with those principles.
I-9
SECTION 4.4. Registration of Buying Fund Shares.
(a) Buying Fund currently has those classes of shares that are set forth on
Schedule 4.4(a). Under its Governing Documents, Corporation is authorized to
issue the number of shares of each such class that is set forth on Schedule
4.4(a).
(b) Buying Fund Shares to be issued pursuant to Section 2.6 shall on the
Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Corporation then in effect.
(c) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(d) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of Corporation's Registration
Statement on Form N-14, shall be furnished to the shareholders of Selling Fund
entitled to vote at the Shareholders Meeting. The Combined Proxy
Statement/Prospectus and related Statement of Additional Information of Buying
Fund, when they become effective, shall conform to the applicable requirements
of the Securities Act and the Investment Company Act and shall not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not materially misleading,
provided, however, that no representation or warranty is made with respect to
written information provided by Corporation on Selling Fund's behalf for
inclusion in the Combined Proxy Statement/Prospectus.
(e) The shares of Buying Fund which have been or are being offered for sale
(other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Corporation to revoke or rescind any such
registration or qualification.
SECTION 4.5. Accountants. Auditors, which have reported upon the Buying
Fund Financial Statements for the fiscal year ended on the date of the most
recent financial statements included in the Buying Fund Financial Statements,
are independent public accountants as required by the Securities Act and the
Exchange Act.
SECTION 4.6. Binding Obligation. This Plan has been duly adopted by
Corporation on behalf of Buying Fund and constitutes the legal, valid and
binding obligation of Corporation enforceable against Corporation in accordance
with its terms from and with respect to the revenues and assets of Buying Fund,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors' rights
generally, or by general equity principles (whether applied in a court or law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 4.7. No Breaches or Defaults. The adoption of this Plan by
Corporation on behalf of Buying Fund and performance by Corporation of its
obligations hereunder have been duly authorized by all necessary corporate
action on the part of Corporation and (i) do not, and on the Closing Date will
not, result in any violation of the Governing Documents and (ii) do not, and on
the Closing Date will not, result in a breach of any of the terms or provisions
of, or constitute (with or without the giving of notice or the lapse of time or
both) a default under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation or imposition of any Lien upon any property or assets of
Buying Fund (except for such breaches or defaults
I-10
or Liens that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect) under (A) any indenture, mortgage
or loan agreement or any other material agreement or instrument to which
Corporation is a party or by which it may be bound and which relates to the
assets of Buying Fund or to which any properties of Buying Fund may be subject;
(B) any Permit; or (C) any existing applicable law, rule, regulation, judgment,
order or decree of any Governmental Authority having jurisdiction over
Corporation or any property of Buying Fund.
SECTION 4.8. Permits. Corporation has in full force and effect all
Permits necessary for it to conduct its business as presently conducted as it
relates to Buying Fund, and there has occurred no default under any Permit,
except for the absence of Permits and for defaults under Permits the absence or
default of which would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect. To the knowledge of Corporation there
are no proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 4.9. No Actions, Suits or Proceedings. There are no judicial,
administrative or arbitration actions, suits, or proceedings instituted or
pending or, to the knowledge of Corporation, threatened in writing or, if
probable of assertion, orally, against Corporation affecting any property,
asset, interest or right of Buying Fund, that could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect with respect
to Buying Fund. There are not in existence on the date hereof any plea
agreements, judgments, injunctions, consents, decrees, exceptions or orders that
were entered by, filed with or issued by any Governmental Authority relating to
Corporation's conduct of the business of Buying Fund affecting in any
significant respect the conduct of such business. Corporation is not, and has
not been, to the knowledge of Corporation, the target of any investigation by
the SEC or any state securities administrator with respect to its conduct of the
business of Buying Fund.
SECTION 4.10. Taxes.
(a) Buying Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Buying Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will satisfy the requirements of Part I of
Subchapter M of the Code to maintain such qualification for its current taxable
year. Buying Fund has no earnings or profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it.
(b) Buying Fund has timely filed all Returns required to be filed by it and
all Taxes with respect thereto have been paid, except where the failure so to
file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Buying Fund Financial Statements for all Taxes in respect of all periods
ending on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Buying Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Buying Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 4.11. Representations Concerning the Reorganization.
(a) Corporation has no plan or intention to reacquire any Buying Fund
Shares issued in the Reorganization, except to the extent that Buying Fund is
required by the Investment Company Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of its business as an
open-end, management investment company.
(b) Buying Fund has no plan or intention to sell or otherwise dispose of
any of the assets of Selling Fund acquired in the Reorganization, other than in
the ordinary course of its business and to the extent
I-11
necessary to maintain its status as a "regulated investment company" under the
Code; provided, however, that this Section 4.11(b) shall not preclude any of the
restructurings or redomestications of funds set forth on Schedule 3.4(d).
(c) Following the Reorganization, Buying Fund will continue an "historic
business" of Selling Fund or use a significant portion of Selling Fund's
"historic business assets" in a business. For purposes of this representation,
the terms "historic business" and "historic business assets" shall have the
meanings ascribed to them in Section 1.368-1(d) of the Treasury Regulations;
provided, however, that this Section 4.11(c) shall not preclude any of the
restructurings or redomestications of funds set forth on Schedule 3.4(d).
(d) Prior to or in the Reorganization, neither Buying Fund nor any person
related to Buying Fund (for purposes of this paragraph as defined in Section
1.368-1(e)(3) of the Treasury Regulations) will have acquired directly or
through any transaction, agreement or arrangement with any other person, shares
of Selling Fund with consideration other than shares of Buying Fund. There is no
plan or intention by Buying Fund or any person related to Buying Fund to acquire
or redeem any of the Buying Fund Shares issued in the Reorganization either
directly or through any transaction, agreement, or arrangement with any other
person, other than redemptions in the ordinary course of Buying Fund's business
as an open-end investment company as required by the Investment Company Act.
SECTION 4.12. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which they were issued did not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
ARTICLE 4A
CONDITIONS PRECEDENT WITH RESPECT TO EACH FUND
Corporation's obligations to implement this Plan on each Fund's behalf
shall be subject to satisfaction of the following conditions on or before the
Closing Date, any one or more of which Corporation may waive:
SECTION 4A.1 No Governmental Actions. There is no pending action, suit or
proceeding, nor, to the knowledge of Corporation, has any litigation been
overtly threatened in writing or, if probable of assertion, orally, against
Corporation before any Governmental Authority which questions the validity or
legality of this Plan or of the transactions contemplated hereby or which seeks
to prevent the consummation of the transactions contemplated hereby, including
the Reorganization.
SECTION 4A.2 No Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Corporation in connection with this Plan or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Corporation or any action taken by it.
SECTION 4A.3 Value of Shares. The fair market value of the shares of each
class of Buying Fund received by Selling Fund Shareholders in the Reorganization
will be approximately equal to the fair market value of the shares of each
corresponding class of Selling Fund constructively surrendered in exchange
therefor.
SECTION 4A.4 Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between the Funds that was issued or acquired, or will
be settled, at a discount. No consideration other than Buying Fund Shares (and
Buying Fund's assumption of Selling Fund's Liabilities, including for this
purpose any liabilities to which the assets of Selling Fund are subject) will be
given in exchange for the assets of Selling Fund acquired by Buying Fund in
connection with the Reorganization. The fair market value of the assets of
Selling Fund transferred to Buying Fund in the Reorganization will equal or
exceed
I-12
the sum of the Liabilities assumed by Buying Fund, plus the amount of
liabilities, if any, to which such transferred assets are subject.
SECTION 4A.5 Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with Section 2.5 of this Plan, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by
Corporation in connection with the due adoption by Corporation of this Plan and
the consummation by Corporation of the transactions contemplated hereby.
SECTION 4A.6 No Bankruptcy Proceedings. Corporation is not, with respect
to either Fund, under the jurisdiction of a court in a proceeding under Title 11
of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business. From the date of this Plan up to and
including the Closing Date (or, if earlier, the date upon which this Plan is
terminated pursuant to Article 7), Corporation shall conduct the business of
each Fund only in the ordinary course and substantially in accordance with past
practices, and shall use its reasonable best efforts to preserve intact its
business organization and material assets and maintain the rights, franchises
and business and customer relations necessary to conduct the business operations
of each Fund in the ordinary course in all material respects; provided, however,
that this Section 5.1 shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.4(d) or any of the
combinations of funds set forth on Schedule 5.1.
SECTION 5.2. Expenses. AMVESCAP PLC, on behalf of Investment Adviser,
shall bear the costs and expenses incurred in connection with this Plan and the
Reorganization and other transactions contemplated hereby; provided that any
such expenses incurred by or on behalf of Buying Fund or Selling Fund shall not
be reimbursed or paid for by another Person unless those expenses are solely and
directly related to the Reorganization.
SECTION 5.3. Consents, Approvals and Filings. Corporation shall make all
necessary filings, as soon as reasonably practicable, including, without
limitation, those required under the Maryland General Corporation Law, the
Securities Act, the Exchange Act, the Investment Company Act and the Advisers
Act, in order to facilitate prompt consummation of the Reorganization and the
other transactions contemplated by this Plan. In addition, Corporation shall use
its reasonable best efforts (i) to comply as promptly as reasonably practicable
with all requirements of Governmental Authorities applicable to the
Reorganization and the other transactions contemplated herein and (ii) to obtain
as promptly as reasonably practicable all necessary permits, orders or other
consents of Governmental Authorities and consents of all third parties necessary
for the consummation of the Reorganization and the other transactions
contemplated herein. Corporation shall use reasonable efforts to provide such
information and communications to Governmental Authorities as such Governmental
Authorities may request.
SECTION 5.4. Submission of Plan to Shareholders. Corporation shall take
all action necessary in accordance with Applicable Law and its Governing
Documents to convene the Shareholders Meeting. Corporation shall, through its
Board of Directors, recommend to the shareholders of Selling Fund approval of
this Plan. Corporation shall use its reasonable best efforts to hold a
Shareholders Meeting as soon as practicable after the date hereof.
I-13
ARTICLE 6
FURTHER CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Further Conditions Precedent with respect to Both Funds. The
obligation of Corporation to consummate the Reorganization is subject to the
satisfaction, at or prior to the Closing Date, of all of the following
conditions, any one or more of which may be waived by Corporation.
(a) Corporation shall have complied with and satisfied in all material
respects all agreements and conditions relating to each Fund set forth herein on
its part to be performed or satisfied at or prior to the Closing Date.
(b) There shall be delivered at the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Corporation, in such individual's
capacity as an officer of Corporation and not as an individual, to the effect
that the condition specified in Section 6.1(a) has been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Corporation certifying as to the accuracy and completeness of the
attached Governing Documents of Corporation, and resolutions, consents and
authorizations of or regarding Corporation with respect to the adoption of this
Plan and the transactions contemplated hereby.
(c) The dividend or dividends described in the last sentence of Section
3.12(a) shall have been declared.
(d) To the extent applicable, Investment Adviser shall have terminated or
waived, in either case in writing, any rights to reimbursement from Selling Fund
to which it is entitled for fees and expenses absorbed by Investment Adviser
pursuant to voluntary and contractual fee waiver or expense limitation
commitments between Investment Adviser and Selling Fund.
(e) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained on or
prior to the Closing Date, from Governmental Authorities in connection with the
adoption of this Plan and the consummation of the transactions contemplated
herein by Corporation shall have been made or obtained, as the case may be;
provided, however, that such consents, approvals, permits and authorizations may
be subject to conditions that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
(f) This Plan, the Reorganization of Selling Fund and related matters shall
have been approved and adopted at the Shareholders Meeting by the shareholders
of Selling Fund on the record date by the Required Shareholder Vote.
(g) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.1(g),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Plan and the Reorganization and to effect all shareholder redemptions and
distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Plan shall be included as assets of Selling Fund
held immediately prior to the Reorganization.
(h) No temporary restraining order, preliminary or permanent injunction or
other order issued by any Governmental Authority preventing the consummation of
the Reorganization on the Closing Date shall be in effect; provided, however,
that the Corporation shall use reasonable efforts to have any such order or
injunction vacated.
(i) The Registration Statement on Form N-14 filed by Corporation with
respect to Buying Fund Shares to be issued to Selling Fund Shareholders in
connection with the Reorganization shall have become effective under the
Securities Act and no stop order suspending the effectiveness thereof shall have
been
I-14
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the Securities Act.
(j) Corporation shall have received on or before the Closing Date an
opinion of Counsel in form and substance reasonably acceptable to Corporation,
as to the matters set forth on Schedule 6.1(j). In rendering such opinion,
Counsel may request and rely upon representations contained in certificates of
officers of Corporation and others, and the officers of Corporation shall use
their best efforts to make available such truthful certificates.
ARTICLE 7
TERMINATION OF AGREEMENT
SECTION 7.1. Termination. This Plan may be terminated by Corporation on
or prior to the Closing Date:
(a) if circumstances develop that, in its judgment, make proceeding
with the Reorganization inadvisable for either Fund;
(b) if the Closing Date shall not be on or before the Termination
Date;
(c) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been
obtained as contemplated by Section 5.4; or
(d) if any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such order, decree, ruling or
other action shall have become final and nonappealable.
SECTION 7.2. Survival After Termination. If this Plan is terminated in
accordance with Section 7.1 and the Reorganization is not consummated, this Plan
shall become void and of no further force and effect with respect to the
Reorganization and each Fund, except for the provisions of Section 5.2.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Governing Law. This Plan shall be construed and interpreted
according to the laws of the State of Maryland applicable to contracts made and
to be performed wholly within such state.
SECTION 8.2. Binding Effect, Persons Benefiting. This Plan shall inure to
the benefit of and be binding upon Corporation and its successors and assigns.
Nothing in this Plan is intended or shall be construed to confer upon any entity
or Person other than Corporation and its successors and assigns any right,
remedy or claim under or by reason of this Plan or any part hereof.
SECTION 8.3. Miscellaneous Obligations.
(a) To the extent Corporation is adopting this Plan on behalf of Buying
Fund, which is a separate investment portfolio of Corporation, any amounts
payable by Corporation under or in connection with this Plan shall be payable
solely from the revenues and assets of Buying Fund.
(b) To the extent Corporation is adopting this Plan on behalf of Selling
Fund, which is a separate investment portfolio of Corporation, any amounts
payable by Corporation under or in connection with this Plan shall be payable
solely from the revenues and assets of Selling Fund.
SECTION 8.4. Amendments. This Plan may be amended, altered or modified at
any time in any manner by Corporation's Board of Directors.
SECTION 8.5. Interpretation. When a reference is made in this Plan to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or a Schedule to, this Plan unless otherwise indicated. The table of
contents and headings contained in this Plan are for reference purposes
I-15
only and shall not affect in any way the meaning or interpretation of this Plan.
Whenever the words "include," "includes" or "including" are used in this Plan,
they shall be deemed to be followed by the words "without limitation." Each
condition contained in Articles 3, 4 or 4A that relates to a general category of
a subject matter shall be deemed superseded by a specific condition relating to
a subcategory thereof to the extent of such specific condition.
SECTION 8.6. Successors and Assigns; Assignment. This Plan shall be
binding upon and inure to the benefit of Corporation, on behalf of Selling Fund
and Buying Fund, and its respective successors and assigns. Corporation
expressly acknowledges and agrees that this Plan shall be binding upon and inure
to the benefit of those Delaware statutory trusts that are the resulting
entities in the permitted restructurings and redomestications of funds set forth
on Schedule 3.4(d).
* * * * *
By signing below, Investment Adviser accepts and agrees to its obligations
under Section 6.1(d) of this Plan.
INVESCO FUNDS GROUP, INC.
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
I-16
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF SELLING FUND SHARES OF BUYING FUND
- --------------------------------- ------------------------
Class A shares.............................................. Class A shares
Class B shares.............................................. Class B shares
Class C shares.............................................. Class C shares
Class K shares.............................................. Class K shares
Investor Class shares....................................... Investor Class shares
</Table>
SCHEDULE 3.3
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 3.4(d)
PERMITTED RESTRUCTURINGS AND REDOMESTICATIONS OF FUNDS
<Table>
<Caption>
CURRENT FUNDS CORRESPONDING NEW FUNDS
- ------------- -----------------------
AIM ADVISOR FUNDS................................ AIM INVESTMENT SECURITIES FUNDS
(DELAWARE STATUTORY TRUST) (DELAWARE STATUTORY TRUST)
AIM International Core Equity Fund............... AIM International Core Equity Fund
AIM Real Estate Fund............................. AIM Real Estate Fund
AIM INTERNATIONAL FUNDS, INC. ................... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
AIM European Growth Fund......................... AIM European Growth Fund
INVESCO BOND FUNDS, INC. ........................ AIM BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO High Yield Fund.......................... INVESCO High Yield Fund
INVESCO Select Income Fund....................... INVESCO Select Income Fund
INVESCO Tax-Free Bond Fund....................... INVESCO Tax-Free Bond Fund
INVESCO U.S. Government Securities Fund.......... INVESCO U.S. Government Securities Fund
INVESCO COMBINATION STOCK & BOND FUNDS, INC. .... AIM COMBINATION STOCK & BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Balanced Fund............................ INVESCO Balanced Fund
INVESCO Total Return Fund........................ INVESCO Total Return Fund
INVESCO COUNSELOR SERIES FUNDS, INC. ............ AIM COUNSELOR SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Advantage Fund........................... INVESCO Advantage Fund
INVESCO INTERNATIONAL FUNDS, INC. ............... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO European Fund............................ INVESCO European Fund
INVESCO International Blue Chip Value Fund....... INVESCO International Blue Chip Value Fund
INVESCO MONEY MARKET FUNDS, INC. ................ AIM TREASURER'S SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Cash Reserves Fund....................... INVESCO Cash Reserves Fund
INVESCO Tax-Free Money Fund...................... INVESCO Tax-Free Money Fund
INVESCO SECTOR FUNDS, INC. ...................... AIM SECTOR FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Energy Fund.............................. INVESCO Energy Fund
INVESCO Financial Services Fund.................. INVESCO Financial Services Fund
INVESCO Real Estate Opportunity Fund............. INVESCO Real Estate Opportunity Fund
INVESCO Technology Fund.......................... INVESCO Technology Fund
INVESCO Telecommunications Fund.................. INVESCO Telecommunications Fund
INVESCO Utilities Fund........................... INVESCO Utilities Fund
INVESCO STOCK FUNDS, INC. ....................... AIM STOCK FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Growth Fund.............................. INVESCO Growth Fund
INVESCO Growth & Income Fund..................... INVESCO Growth & Income Fund
INVESCO Value Equity Fund........................ INVESCO Value Equity Fund
</Table>
SCHEDULE 4.3
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.4(a)
<Table>
<Caption>
NUMBER OF SHARES OF EACH CLASS
CLASSES OF SHARES OF BUYING FUND CORPORATION IS AUTHORIZED TO ISSUE
- -------------------------------- ----------------------------------
Class A shares.............................................. 100,000,000
Class B shares.............................................. 100,000,000
Class C shares.............................................. 100,000,000
Class K shares.............................................. 100,000,000
Investor Class shares....................................... 100,000,000
</Table>
SCHEDULE 5.1
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
SCHEDULE 6.1(j)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Plan, will
constitute a "reorganization" within the meaning of Section 368(a) of the Code
and Selling Fund and Buying Fund will be "a party to a reorganization" within
the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders; provided that, no opinion is expressed as to the
effect of the Reorganization on Selling Fund or any Selling Fund Shareholder
with respect to any asset as to which any unrealized gain or loss is required to
be recognized for Federal income tax purposes at the end of a taxable year (or
on the termination or transfer of a taxpayer's rights (or obligations) with
respect to such asset) under a mark-to-market system of accounting.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized by Selling Fund Shareholders on the receipt of Buying Fund Shares
in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying Fund
of the assets of Selling Fund will be the same as the basis of such assets in
the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
APPENDIX II
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
INVESCO Core Equity Fund - Investor Class, Class A, B, C, and K
INVESCO Balanced Fund - Investor Class, Class A, B, C, and K
INVESCO Total Return Fund - Investor Class, Class A, B, C, and K
Supplement dated August 12, 2003 to the Prospectus dated August 12, 2003
The Board of Directors of INVESCO Combination Stock & Bond Funds, Inc.
("Seller") unanimously approved, on June 9, 2003, an Agreement and Plan of
Reorganization (the "Plan") pursuant to which INVESCO Balanced Fund ("Selling
Fund"), would transfer all of its assets and liabilities to INVESCO Total Return
Fund ("Buying Fund"), both of which are series of Seller (the "Reorganization").
As a result of the Reorganization, shareholders of Selling Fund would receive
shares of Buying Fund in exchange for their shares of Selling Fund, and Selling
Fund would cease operations.
INVESCO Funds Group, Inc. ("INVESCO") serves as the investment advisor to both
Selling Fund and Buying Fund. The investment advisor is a wholly owned
subsidiary of AMVESCAP PLC ("AMVESCAP"), an independent global investment
management company. The Reorganization is part of an integration initiative
announced on March 27, 2003, by AMVESCAP, with respect to its North American
mutual fund operations.
One component of AMVESCAP's integration initiative is the rationalization and
streamlining of various funds within the INVESCO Family of Funds. In that
regard, AMVESCAP has undertaken an extensive review of these funds and concluded
that it would be appropriate to reduce the number of smaller and less efficient
funds that compete in the same space for shareholder assets and to consolidate
certain funds having similar investment objectives and strategies. Reducing the
number of funds within the INVESCO Family of Funds will allow INVESCO to
concentrate on managing its core products.
AMVESCAP's belief is that the Reorganization will allow Buying Fund the best
available opportunities for investment management, growth prospects and
potential economies of scale.
The Board of Directors of Seller, including the independent directors, has
determined that the Reorganization is advisable and in the best interests of
Selling Fund and that the interests of the shareholders of Selling Fund will not
be diluted as a result of the Reorganization.
The investment objectives of Selling Fund and Buying Fund are the same. Selling
Fund's and Buying Fund's investment objective is capital appreciation and
current income.
The Plan requires approval of Selling Fund shareholders and will be submitted to
the shareholders for their consideration at a meeting to be held on or around
October 21, 2003. If the Plan is approved by shareholders of Selling Fund and
certain conditions required by the Plan are satisfied, the transaction is
expected to become effective shortly thereafter.
It is anticipated that Selling Fund will be closed to new investors during the
fourth quarter of 2003.
Effective August 18, 2003, the section of the Prospectus entitled "Fees And
Expenses" is amended to (i) delete the second paragraph in its entirety and (ii)
substitute the following in its place:
SHAREHOLDER FEES PAID DIRECTLY FROM YOUR ACCOUNT
Investor Class Class A Class B Class C Class K
Maximum Front-End Sales Charge
on purchases as a percentage of
offering price None 5.50% None None None
Maximum Contingent Deferred Sales
Charge (CDSC) as a percentage of
the lower of the total original cost or
current market value of the shares None None(1) 5.00%(2) 1.00%(2) None(1)
Maximum Sales Charge on reinvested
dividends/distributions None None None None None
1 If you buy $1,000,000 or more of Class A shares and redeem those shares within
eighteen months from the date of purchase, you may pay a 1% contingent deferred
sales charge (CDSC) at the time of redemption.
2 A 5% and 1% CDSC may be charged on Class B and Class C shares, respectively.
Please see the section entitled "How To Buy Shares."
Effective August 18, 2003, the section of the Prospectus entitled "How To Buy
Shares" is amended to (i) delete the second paragraph in its entirety and (ii)
substitute the following in its place:
With the exception of Class A shares, there is no charge to invest directly
through INVESCO. Class A shares are subject to a front-end sales charge. For
more information on this charge, please see the subsection entitled "Sales
Charges." If you buy $1,000,000 or more of Class A shares and redeem the shares
within eighteen months from the date of purchase, you may pay a 1% CDSC at the
time of redemption. If you are a qualified plan and elect to receive a dealer
concession, you may pay a CDSC of 1% on your Class A shares if the plan is
redeemed within twelve months from initial deposit in the plan's INVESCO
account. If you are a qualified plan and elect to forego the dealer concession,
you will not be charged a CDSC. With respect to redemption of Class B shares
held six years or less, a CDSC of 1% - 5% of the lower of the total original
cost or current market value of the shares may be assessed. With respect to
redemption of Class C shares held twelve months or less, a CDSC of 1% of the
lower of the total original cost or current market value of the shares may be
assessed. With respect to Class K shares, if you are a qualified plan and elect
to receive a dealer concession, you may pay a CDSC of 0.70% on your Class K
shares if the plan is redeemed within twelve months from initial deposit in the
plan's INVESCO account. If you are a qualified plan and elect to forego the
dealer concession, you will not be charged a CDSC. For a non-qualified plan, in
2
determining whether a CDSC applies to a redemption, it is assumed that the
shares being redeemed first are any shares in the shareholder's Fund account
that are not subject to a CDSC, followed by shares held the longest in the
shareholder's account. These charges are not assessed upon Class A, B, C, or K
shares acquired through reinvestment of dividends or other distributions, or
Class A, B, C, or K shares exchanged for the same class of another INVESCO Fund.
For more information on CDSC charges, please see the subsection of the
Prospectus entitled "Choosing A Share Class" and the section of the Statement of
Additional Information entitled "Distributor - Sales Charges and Dealer
Concessions."
Effective August 18, 2003, the section of the Prospectus entitled "How To Buy
Shares - Choosing A Share Class" is amended to (i) delete the second paragraph
in its entirety and (ii) substitute the following in its place:
In addition, you should also consider the factors below:
Investor
Class Class A Class B Class C Class K
Initial Sales Charge None 5.50% None None None
CDSC(1) None 1% on certain 1%-5% for 1% for shares 0.70% on certain
purchases held shares held held less than purchases
less than 18 less than 12 months held less than
months 6 years 12 months
12b-1 Fee 0.25% 0.35% 1.00% 1.00% 0.45%
Conversion No No Yes(2) No No
Purchase Order
Maximum None None $250,000 $1,000,000 None
1 Please see the subsection entitled "Sales Charges" below and the section of
the Funds' Statement of Additional Information entitled "Distributor - Sales
Charges and Dealer Concessions" for more information regarding CDSC charges and
dealer concessions.
2 Class B shares, along with the pro rata portion of the shares' reinvested
dividends and distributions, automatically convert to Class A shares at the end
of the month which is eight years after the date on which such Class B shares
were purchased.
Effective August 18, 2003, the section of the Prospectus entitled "How To Buy
Shares - Sales Charges (Class A, B, C And K Only)" is amended to (i) delete the
third, fourth, seventh, eighth, and tenth paragraphs in their entirety and (ii)
substitute the following, respectively, in their place:
CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS A AND CLASS K SHARES.
You can purchase $1,000,000 or more of Class A shares at net asset
value, and the distributor may pay a dealer concession and/or a service
fee for purchases of $1,000,000 or more. However, if you purchase
shares worth $1,000,000 or more, they may be subject to a CDSC of 1% if
you redeem them prior to eighteen months after the date of purchase. We
will use the "first-in, first-out" method to determine your holding
3
period. Under this method, the date of redemption will be compared with
the earliest purchase date of shares held in your account. If your
holding period is less than eighteen months, the CDSC may be assessed
on the amount of the lower of the total original cost or current market
value of the shares. For qualified plans investing in Class A shares,
you may pay a CDSC of 1% if the plan is redeemed within twelve months
from initial deposit in the plan's INVESCO account. For qualified plans
investing in Class K shares, you may pay a CDSC of 0.70% if the plan is
redeemed within twelve months from initial deposit in the plan's
INVESCO account.
CDSC FOR CLASS B AND CLASS C SHARES. You can purchase Class B and Class
C shares at their net asset value per share. However, when you redeem
them, they are subject to CDSC in the following percentages. If your
holding period is less than six years for Class B shares and twelve
months for Class C shares, the CDSC may be assessed on the amount of
the lower of the total original cost or current market value of the
shares.
Year Since
Purchase Made Class B Class C
First 5% 1%
Second 4% None
Third 3% None
Fourth 3% None
Fifth 2% None
Sixth 1% None
Seventh and following None(1) None
1 Class B shares, along with the pro rata portion of the shares'
reinvested dividends and distributions, automatically convert to Class
A shares at the end of the month which is eight years after the date on
which such Class B shares were purchased.
RIGHTS OF ACCUMULATION. You may combine your new purchases of
Class A shares with shares currently owned (Class A, B, C, or K)
for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial
sales charge for the new purchase is based on the total of your
current purchase and the current value of all other shares you
own.
LETTER OF INTENT. Under a Letter of Intent (LOI), you commit to
purchase a specified dollar amount of Class A shares of a Fund
during a thirteen-month period. The amount you agree to purchase
determines the initial sales charge you pay. If the full face
amount of the LOI is not invested by the end of the
thirteen-month period, your account will be adjusted to the
higher initial sales charge level for the amount actually
invested.
You will not pay a CDSC:
o if you purchase less than $1,000,000 of Class A shares;
4
o if you purchase $1,000,000 or more of Class A shares and
hold those shares for more than eighteen months;
o if you redeem Class B shares you held for more than six
years;
o if you redeem Class C shares you held for more than twelve
months;
o if you participate in the periodic withdrawal program and
withdraw up to 12% of the value of your shares that are
subject to a CDSC in any twelve-month period. The value of
your shares, and applicable twelve-month period, will be
calculated based upon the value of your account on, and the
date of, the first periodic withdrawal;
o if you redeem shares acquired through reinvestment of
dividends and distributions;
o if you are a participant in a qualified retirement plan and
redeem Class C shares or Class K shares in order to fund a
distribution;
o if you are a qualified plan investing in Class A shares or
Class K shares and elect to forego any dealer concession;
o on increases in the net asset value of your shares;
o to pay account fees;
o for IRA distributions due to death or disability or periodic
distribution based on life expectancy;
o to return excess contributions (and earnings, if applicable)
from retirement plan accounts; or for redemptions following
the death of a shareholder or beneficial owner.
Effective August 18, 2003, the section of the Prospectus entitled "How To Sell
Shares" is amended to (i) delete the second paragraph in its entirety and (ii)
substitute the following in its place:
Various fees may apply to Fund redemptions. You may be charged a CDSC
at the time of redemption depending how long you have held your shares.
If you buy $1,000,000 or more of Class A shares and redeem the shares
within eighteen months from the date of purchase, you may pay a 1% CDSC
at the time of redemption. If you are a qualified plan and elect to
receive a dealer concession, you may pay a CDSC of 1% on your Class A
shares if the plan is redeemed within twelve months from initial
deposit in the plan's INVESCO account. If you are a qualified plan and
elect to forego the dealer concession, you will not be charged a CDSC.
With respect to redemption of Class B shares held six years or less, a
CDSC of 1% - 5% of the lower of the total original cost or current
market value of the shares may be assessed. With respect to redemption
of Class C shares held twelve months or less, a CDSC of 1% of the lower
of the total original cost or current market value of the shares may be
assessed. With respect to Class K shares, if you are a qualified plan
and elect to receive a dealer concession, you may pay a CDSC of 0.70%
on your Class K shares if the plan is redeemed within twelve months
from initial deposit in the plan's INVESCO account. If you are a
qualified plan and elect to forego the dealer concession, you will not
be charged a CDSC. For a non-qualified plan, in determining whether a
CDSC applies to a redemption, it is assumed that the shares being
redeemed first are any shares in the shareholder's Fund account that
5
are not subject to a CDSC, followed by shares held the longest in the
shareholder's account. These charges are not assessed upon Class A, B,
C, or K shares acquired through reinvestment of dividends or other
distributions, or Class A, B, C, or K shares exchanged for the same
class of another INVESCO Fund. For more information on CDSC charges,
please see the subsection of the Prospectus entitled "Choosing A Share
Class" and the section of the Statement of Additional Information
entitled "Distributor - Sales Charges and Dealer Concessions."
6
PROSPECTUS | AUGUST 12, 2003
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (R)
- --------------------------------------------------------------------------------
INVESCO COMBINATION
STOCK & BOND FUNDS, INC.
INVESCO CORE EQUITY FUND -- INVESTOR CLASS, CLASS A, B, C, AND K
INVESCO BALANCED FUND -- INVESTOR CLASS, CLASS A, B, C, AND K
INVESCO TOTAL RETURN FUND -- INVESTOR CLASS, CLASS A, B, C, AND K
THREE MUTUAL FUNDS DESIGNED FOR INVESTORS SEEKING CAPITAL APPRECIATION AND
CURRENT INCOME.
INVESTOR CLASS SHARES OFFERED BY THIS PROSPECTUS ARE OFFERED ONLY TO
GRANDFATHERED INVESTORS. PLEASE SEE THE SECTION OF THE PROSPECTUS ENTITLED "HOW
TO BUY SHARES."
CLASS A, B, AND C SHARES ARE SOLD PRIMARILY THROUGH FINANCIAL INTERMEDIARIES.
CLASS K SHARES ARE SOLD TO QUALIFIED RETIREMENT PLANS, RETIREMENT SAVINGS
PROGRAMS, EDUCATIONAL SAVINGS PROGRAMS, AND WRAP PROGRAMS PRIMARILY THROUGH
FINANCIAL INTERMEDIARIES.
TABLE OF CONTENTS
Investment Goals, Strategies, And Risks ....... 2
Fund Performance............................... 3
Fees And Expenses.............................. 6
Investment Risks............................... 8
Principal Risks Associated With The Funds ..... 8
Temporary Defensive Positions..................10
Fund Management................................11
Portfolio Managers.............................11
Potential Rewards..............................12
Share Price....................................13
How To Buy Shares..............................13
Your Account Services..........................18
How To Sell Shares.............................18
Taxes..........................................20
Dividends And Capital Gain Distributions.......21
Financial Highlights...........................22
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and you should not rely on such other information or
representations.
[INVESCO ICON] INVESCO(R)
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.
INVESCO Funds Group, Inc. ("INVESCO") is the investment advisor for the Funds.
Together with our affiliated companies, we at INVESCO direct all aspects of the
management and sale of the Funds.
This Prospectus contains important information about the Funds' Investor Class,
Class A, B, C, and K shares. Class A, B, and C shares are sold primarily through
financial intermediaries. Class K shares are sold to qualified retirement plans,
retirement savings programs, educational savings programs, and wrap programs
primarily through financial intermediaries. If you invest through a financial
intermediary, please contact your financial intermediary or, with respect to
Class K shares, your plan or program sponsor, for detailed information on
suitability and transactional issues (i.e., how to purchase or sell shares,
minimum investment amounts, and fees and expenses). INVESCO Balanced Fund and
INVESCO Total Return Fund also offers an additional class of shares through a
separate Prospectus. Each of the Fund's classes has varying expenses, with
resulting 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 other relevant factors
discussed in "How To Buy Shares." To obtain additional information about the
other class of Balanced Fund's shares, contact A I M Distributors, Inc. ("ADI")
at 1-800-347-4246.
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] INVESTMENT GOALS & STRATEGIES
[ARROWS ICON] POTENTIAL INVESTMENT RISKS
[GRAPH ICON] PAST PERFORMANCE
[INVESCO ICON] WORKING WITH INVESCO
- --------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES, AND RISKS
FACTORS COMMON TO ALL THE FUNDS
FOR MORE DETAILS ABOUT EACH FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
The Funds seek to provide you with high total return through both growth and
current income. They are actively 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.
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.
At any given time, the Funds may be subject to sector risk. Companies that have
similar lines of business (for example, financial services, health, or
technology) are grouped together in broad categories called sectors. Sector risk
is the possibility that a certain sector may underperform other sectors or the
market as a whole. The Funds are not limited with respect to sectors in which
they can invest. If the portfolio managers allocate more of their respective
Fund's portfolio holdings to a particular economic sector, the Fund's overall
performance will be more susceptible to the economic, business, or other
developments which generally affect that sector. A Fund can still be
diversified, even if it is heavily weighted in one or more sectors.
The Funds are subject to other principal risks such as credit, debt securities,
foreign securities, interest rate, liquidity, prepayment, counterparty, and lack
of timely information risks. These risks are described and discussed later in
the Prospectus under the headings "Investment Risks" and "Principal Risks
Associated With The Funds." 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 may lose money on your investment in a Fund.
[KEY ICON] INVESCO CORE EQUITY FUND -- INVESTOR CLASS, CLASS A, B, C, AND K
The Fund normally invests at least 80% of its net assets, plus any borrowings
for investment purposes, in common and preferred stocks. At least 50% of common
stocks which the Fund holds will be dividend-paying common and preferred stocks.
Stocks selected for the Fund generally are expected to produce income and
consistent, stable returns. Although the Fund focuses on the stocks of larger
companies with a history 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 Depositary Receipts
("ADRs"). The Fund will normally invest up to 5% of its assets in debt
securities, generally U.S. government and corporate bonds that are rated
investment grade at the time of purchase.
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 -- INVESTOR CLASS, CLASS A, B, C, AND K
The Fund normally invests at least 65% of its assets 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 debt securities
that are investment grade at the time of purchase.
The portion of the Fund's portfolio invested in equity securities emphasizes
companies INVESCO believes to have better-than-average earnings growth
potential, as well as companies within industries that INVESCO believes are
well-positioned for the current and expected economic climate. Since current
income is a component of total return, we also consider companies' dividend
payout records. Most of these holdings are traded on national stock exchanges or
in the over-the-counter market. We may also take positions in securities traded
on regional or foreign exchanges.
The Fund will normally invest at least 25% of its assets in debt securities that
are investment-grade at the time of purchase, which 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 -- INVESTOR CLASS, CLASS A, B, C, AND K
The Fund normally invests at least 65% of its assets in a combination of common
stocks of companies with a history of paying regular dividends and in debt
securities. Debt securities include corporate obligations and obligations of the
U.S. government and government agencies. The Fund will normally invest at least
30% of its assets in debt securities that are investment grade at the time of
purchase. The remaining assets of the Fund are allocated to 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. Value-oriented
funds typically will under perform growth-oriented funds when investor sentiment
favors the growth investing style.
[GRAPH ICON] FUND PERFORMANCE
Performance information in the bar charts below is that of the Funds' Investor
Class shares, which has the longest operating history of the Funds' classes.
Information included in the table is that of Investor Class, Class C, and, with
respect to Balanced and Core Equity Funds, Class K shares. Performance
information for Class A and B shares and, with respect to Total Return Fund,
Class K shares, is not shown in the table as those classes do not yet have a
full calendar year of performance. Investor Class and Class A, B, C, and K
returns are similar because all classes of shares invest in the same portfolio
of securities. The returns of the classes differ, however, to the extent of
differing levels of expenses. In this regard, the returns reflected in the bar
charts and table reflect only the applicable total expenses of the class shown.
If the effect of the other classes' total expenses were reflected, the returns
would be lower than those shown because the other classes have higher total
expenses.
The bar charts below show the Funds' Investor Class actual yearly performance
(commonly known as their "total return") for the years ended December 31 over
the past decade or since inception. The returns in the bar charts do not reflect
a 12b-1 fee in excess of 0.25%, the sales charge for Class A shares, or the
applicable contingent deferred sales charge (CDSC) for Class B or Class C
shares; if they did, the total returns shown would be lower. The table below
shows the pre-tax and after-tax average annual total returns of Investor Class
and pre-tax average annual total returns for Class C shares, and, with respect
to Balanced and Core Equity Funds, Class K, for various periods ended December
31, 2002 compared to the S&P 500 and/or Lehman Government/Credit Bond Indexes.
The after-tax returns are shown only for the Investor Class shares. After-tax
returns for other classes of shares offered in this Prospectus will vary.
After-tax returns are provided on a pre-redemption and post-redemption basis.
Pre-redemption returns assume you continue to hold your shares and pay taxes on
Fund distributions (i.e., dividends and capital gains) but do not reflect taxes
that may be incurred upon selling or exchanging shares. Post-redemption returns
assume payment of taxes on fund distributions and also that you close your
account and pay remaining federal taxes. After-tax returns are calculated using
the highest individual federal income tax rates in effect at the time the
distribution is paid. State and local taxes are not considered. Actual after-tax
returns depend on an investor's tax situation and may differ from those shown.
For investors holding their shares in tax-deferred arrangements such as 401(k)
plans or individual retirement accounts, the after-tax returns shown are not
relevant.
The information in the bar charts and table illustrates the variability of each
Fund's total return and how its performance compared to a broad measure of
market performance. Remember, past performance (before and after taxes) does not
indicate how a Fund will perform in the future.
- --------------------------------------------------------------------------------
CORE EQUITY FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2),(3)
================================================================================
[GRAPHIC OMITTED]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02
16.74% (3.88%) 27.33% 16.72% 26.45% 14.13% 12.81% 4.21% (11.81%) (19.77%)
- --------------------------------------------------------------------------------
Calendar Qtr. 6/97 13.30%
Worst Calendar Qtr. 9/02 (17.94%)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BALANCED FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2),(3)(4)
================================================================================
[GRAPHIC OMITTED]
'94 '95 '96 '97 '98 '99 '00 '01 '02
9.44% 36.46% 14.66% 19.53% 17.33% 16.83% (1.85%) (11.54%) (17.04%)
- --------------------------------------------------------------------------------
Best Calendar Qtr. 12/98 13.67%
Worst Calendar Qtr. 9/01 (12.52%)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2),(3)
================================================================================
[GRAPHIC OMITTED]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02
12.34% 2.52% 28.64% 13.07% 25.04% 13.62% (1.36%) (3.65%) (0.93%) (12.44%)
- --------------------------------------------------------------------------------
Best Calendar Qtr. 6/97 11.86%
Worst Calendar Qtr. 9/02 (11.31%)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(5)
AS OF 12/31/02
- --------------------------------------------------------------------------------
10 YEARS
1 YEAR 5 YEARS OR SINCE INCEPTION
INVESTOR CLASS
Core Equity Fund(1),(3)
Return Before Taxes (19.77%) (1.03%) 7.19%
Return After Taxes on Distributions (20.11%) (2.93%) 4.61%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(5)
AS OF 12/31/02
- --------------------------------------------------------------------------------
10 YEARS
1 YEAR 5 YEARS OR SINCE INCEPTION
Return After Taxes on Distributions
and Sale of Fund Shares (12.11%) (0.92%) 5.19%
S&P 500 Index(6)
(reflects no deduction for fees,
expenses, or taxes) (22.09%) (0.58%) 9.35%
Balanced Fund(1),(3)
Return Before Taxes (17.04%) (0.25%) 8.14%(4)
Return After Taxes on Distributions (17.43%) (1.38%) 5.87%(4)
Return After Taxes on Distributions
and Sale of Fund Shares (10.45%) (0.52%) 5.74%(4)
S&P 500 Index(6)
(reflects no deduction for fees,
expenses, or taxes) (22.09%) (0.58%) 9.32%(4)
Lehman Government/Credit Bond Index(6)
(reflects no deduction for fees,
expenses, or taxes) 11.04% 7.62% 7.22%(4)
Total Return Fund(1),(3)
Return Before Taxes (12.44%) (1.30%) 6.97%
Return After Taxes on Distributions (13.63%) (2.82%) 5.31%
Return After Taxes on Distributions
and Sale of Fund Shares (7.24%) (1.41%) 5.15%
S&P 500 Index(6)
(reflects no deduction for fees,
expenses, or taxes) (22.09%) (0.58%) 9.35%
Lehman Government/Credit Bond Index(6)
(reflects no deduction for fees,
expenses, or taxes) 11.04% 7.62% 7.61%
CLASS C - RETURN BEFORE TAXES
(Including CDSC)
Core Equity Fund(1),(7) (21.52%) N/A (9.33%)(8)
S&P 500 Index(6) (22.09%) N/A (13.19%)(8)
Balanced Fund(1),(7) (18.73%) N/A (10.70%)(8)
Total Return Fund(1),(7) (14.52%) N/A (5.34%)(8)
S&P 500 Index(6) (22.09%) N/A (13.19%)(8)
Lehman Government/Credit Bond Index(6) 11.04% N/A 10.63%(8)
CLASS K - RETURN BEFORE TAXES
Core Equity Fund(1),(9) (20.21%) N/A (16.46%)(10)
S&P 500 Index(6) (22.09%) N/A (16.32%)(10)
Balanced Fund(1),(9) (17.20%) N/A (15.41%)(10)
S&P 500 Index(6) (22.09%) N/A (16.32%)(10)
Lehman Government/Credit Bond Index(6) 11.04% N/A 10.38%(10)
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of each class's expenses.
(2) The year-by-year returns are for Investor Class only and do not include the
effect of a 12b-1 fee in excess of 0.25%, Class A's front-end sales charge,
Class B's or Class C's CDSC, or other expenses specific to the other
classes. If the effect of the other classes' total expenses, including
12b-1 fees, front-end sales charge for Class A, and CDSC for Class B and
Class C were reflected, returns would be lower than those shown.
(3) Return before taxes for Investor Class shares of Core Equity, Balanced, and
Total Return Funds year-to-date as of the calendar quarter ended June 30,
2003 were 10.87%, 9.83%, and 7.42%, respectively.
(4) The Fund (Investor Class shares) commenced investment operations on
December 1, 1993. Index comparison begins on November 30, 1993.
(5) The total returns are for those classes of shares with a full calendar year
of performance. If the effect of the other classes' total expenses,
including 12b-1 fees, front-end sales charge for Class A, and CDSC for
Class B were reflected, returns for those classes would be lower than those
shown.
(6) The S&P 500 Index is an unmanaged index considered representative of the
performance of the broad U.S. stock market. The Lehman Government/Credit
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 classes and are reflected in their annual returns.
Index returns also do not include sales charges or CDSCs that may be paid
by the shareholder.
(7) Return before taxes, including CDSC, for Class C shares of Core Equity,
Balanced, and Total Return Funds year-to-date as of the calendar quarter
ended June 30, 2003 were 9.22%, 8.40%, and 5.94%, respectively.
(8) Since inception of Class C shares on February 15, 2000. Index comparison
begins on February 29, 2000.
(9) Return before taxes for Class K shares of Core Equity and Balanced Funds
year-to-date as of the calendar quarter ended June 30, 2003 were 10.21% and
9.64%, respectively.
(10) Since inception of Class K shares on December 14, 2000. Index comparison
begins on November 30, 2000.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class, Class A, Class B, Class C, or Class K shares of the Funds. If
you invest in the Funds through a financial intermediary, you may be charged a
commission or transaction fee by the financial intermediary for purchases and
sales of Fund shares.
SHAREHOLDER FEES PAID DIRECTLY FROM YOUR ACCOUNT
Investor Class Class A Class B Class C Class K
Maximum Front-End Sales Charge
on purchases as a percentage of
offering price None 5.50% None None None
Maximum Contingent Deferred
Sales Charge (CDSC) as a percentage
of the lower of the total original cost
or current market value of the shares None None(1) 5.00%(2) 1.00%(2) None(1)
Maximum Sales Charge on reinvested
dividends/distributions None None None None None
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
CORE EQUITY FUND
Investor Class Class A Class B Class C Class K
Management Fees 0.51% 0.51% 0.51% 0.51% 0.51%
Distribution and Service (12b-1) Fees(3) 0.25% 0.35% 1.00% 1.00% 0.45%
Other Expenses(4),(5) 0.32% 0.37% 1.06%(9) 0.69% 1.67%(11)
---- ---- ---- ---- ----
Total Annual Fund Operating Expenses(4),(5) 1.08% 1.23%(6) 2.57%(9) 2.20 2.63%(11)
==== ==== ==== ==== ====
Fee Waivers/Reimbursements(5),(6) 0.00% 0.00% 0.00% 0.00% 0.43%
Net Expenses(5),(6) 1.08% 1.23% 2.57%(9) 2.20% 2.20%(11)
==== ==== ==== ==== ====
BALANCED FUND
Investor Class Class A Class B Class C Class K
Management Fees 0.56% 0.56% 0.56% 0.56% 0.56%
Distribution and Service (12b-1) Fees(3) 0.25% 0.35% 1.00% 1.00% 0.45%
Other Expenses(4),(5) 0.50%(7) 1.60%(8) 2.89%(9) 1.18%(10) 0.51%(11)
---- ---- ---- ---- ----
Total Annual Fund Operating Expenses(4),(5) 1.31%(7) 2.51%(8) 4.45%(9) 2.74%(10) 1.52%(11)
==== ==== ==== ==== ====
Fee Waivers/Reimbursements(5),(6) 0.00% 0.41% 1.70% 0.00% 0.00%
Net Expenses(5),(6) 1.31%(7) 2.10%(8) 2.75%(9) 2.74%(10) 1.52%(11)
==== ==== ==== ==== ====
TOTAL RETURN FUND
Investor Class Class A Class B Class C Class K
Management Fees 0.71% 0.71% 0.71% 0.71% 0.71%
Distribution and Service (12b-1) Fees(3) 0.25% 0.35% 1.00% 1.00% 0.45%
Other Expenses(4),(5) 0.54%(7) 0.88%(8) 1.62%(9) 1.78%(10) 0.54%(12),(13)
---- ---- ---- ---- ----
Total Annual Fund Operating Expenses(4),(5) 1.50%(7) 1.94%(8) 3.33%(9) 3.49%(10) 1.70%(12),(13)
==== ==== ==== ==== ====
Fee Waivers/Reimbursements(5),(6) 0.00% 0.00% 0.58% 0.74% 0.00%
Net Expenses(5),(6) 1.50%(7) 1.94%(8) 2.75%(9) 2.75%(10) 1.70%(12),(13)
==== ==== ==== ==== ====
(1) If you buy $1,000,000 or more of Class A shares and redeem those shares within eighteen months from the date of purchase, you
may pay a 1% contingent deferred sales charge (CDSC) at the time of redemption.
(2) A 5% and 1% CDSC may be charged on Class B and Class C shares, respectively. Please see the section entitled "How To Buy
Shares."
(3) Because each class pays a 12b-1 distribution and service fee which are based upon each class'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.
(4) Each Fund's actual Other Expenses and Total Annual Fund Operating Expenses were lower than the figures shown, because their
custodian fees were reduced under expense offset arrangements.
(5) INVESCO is entitled to reimbursement from the classes for fees and expenses absorbed pursuant to voluntary and contractual
expense limitation commitments between INVESCO and the Funds if such reimbursements do not cause a class to exceed expense
limitations and the reimbursement is made within three years after INVESCO incurred the expense. This voluntary expense
limitation may be changed at any time following consultation with the board of directors.
(6) To limit expenses, INVESCO has contractually obligated itself to waive and bear any expenses through May 31, 2005, that would
cause the ratio of expenses to average net assets to exceed 2.10% for Class A shares, 2.75% for Class B and Class C shares, and
2.20% for Class K shares.
(7) Certain expenses of Investor Class shares of Balanced and Total Return Funds were absorbed voluntarily by INVESCO pursuant to a
commitment between the Funds and INVESCO. This commitment may be changed at any time following consultation with the board of
directors. After absorption, but excluding any expense offset arrangements, Balanced Fund's Investor Class shares' Other
Expenses and Total Annual Fund Operating Expenses were 0.45% and 1.26%, respectively, of the Fund's average net assets
attributable to Investor Class shares and Total Return Fund's Investor Class shares' Other Expenses and Total Annual Fund
Operating Expenses were 0.30% and 1.26%, respectively, of the Fund's average net assets attributable to Investor Class shares.
(8) Certain expenses of Class A shares of Balanced and Total Return Funds were absorbed voluntarily by INVESCO pursuant to
commitments between the Funds and INVESCO. These commitments may be changed at any time following consultation with the board
of directors. After absorption, but excluding any expense offset arrangements, Balanced Fund's Class A shares' Other Expenses
and Total Annual Fund Operating Expenses were 0.43% and 1.34%, respectively, of the Fund's average net assets attributable to
Class A shares and Total Return Fund's Class A shares' Other Expenses and Total Return Fund's Class A shares' Other Expenses
and Total Annual Fund Operating Expenses were 0.28% and 1.34%, respectively, of the Fund's average net assets atributable to
Class A shares.
(9) Certain expenses of Class B shares of Balanced, Core Equity and Total Return Funds were absorbed voluntarily by INVESCO
pursuant to commitments between the Funds and INVESCO. These commitments may be changed at any time following consultation with
the board of directors. After absorption, but excluding any expense offset arrangements, Balanced Fund's Class B shares' Other
Expenses and Total Annual Fund Operating Expenses were 0.45% and 2.01%, respectively, of the Fund's average net assets
attributable to Class B shares; Core Equity Fund's Class B shares' Other Expenses and Total Annual Fund Operating Expenses were
0.65% and 2.16%, respectively, of the Fund's average net assets attributable to Class B shares and Total Return Fund's Class B
shares' Other Expenses and Total Annual Fund Operating Expenses were 0.30% and 2.01%, respectively, of the Fund's average net
assets attributable to Class B shares.
(10) Certain expenses of Class C shares of Balanced and Total Return Funds were absorbed voluntarily by INVESCO pursuant to
commitments between the Funds and INVESCO. These commitments may be changed at any time following consultation with the board
of directors. After absorption, but excluding any expense offset arrangements, Balanced Fund's Class C shares' Other Expenses
and Total Annual Fund Operating Expenses were 0.45% and 2.01%, respectively, of the Fund's average net assets attributable to
Class C shares and Total Return Fund's Class C shares' Other Expenses and Total Annual Fund Operating Expenses were 0.53% and
2.24%, respectively, of the Fund's average net assets attributable to Class C shares.
(11) Certain expenses of Class K shares of Balanced and Core Equity Funds were absorbed voluntarily by INVESCO pursuant to
commitments between the Funds and INVESCO. These commitments may be changed at any time following consultation with the board
of directors. After absorption, but excluding any expense offset arrangements, Balanced Fund's Class K shares' Other Expenses
and Total Annual Fund Operating Expenses were 0.45% and 1.46%, respectively, of the Fund's average net assets attributable to
Class K shares and Core Equity Fund's Class K shares' Other Expenses and Total Annual Fund Operating Expenses were 1.02% and
1.98%, respectively, of the Fund's average net assets attributable to Class K shares.
(12) Based on estimated expenses for the current fiscal year.
(13) Certain expenses of Class K shares of Total Return Fund will be absorbed voluntarily by INVESCO pursuant to a commitment
between the Fund and INVESCO. This commitment may be changed at anytime following consultation with the board of directors.
After absorption, but excluding any expense offset-arrangements, Total Return Fund's Class K shares' Other Expenses and Total
Annual Fund Operating Expenses are estimated to be 0.28% and 1.44%, respectively, of the Fund's average net assets attributable
to Class K shares.
EXPENSE EXAMPLE
The Example is intended to help you compare the cost of investing in the
Investor Class, Class A, Class B, Class C, and Class K shares of the Funds to
the cost of investing in other mutual funds.
The Example assumes that you invested $10,000 in Investor Class, Class A, Class
B, Class C, or Class K shares of a Fund for the time periods indicated. Within
each Example, there is an assumption that you redeem all of your shares at the
end of those periods and that you keep your shares. The Example also assumes
that your investment had a hypothetical 5% return each year, and that a Fund's
Investor Class, Class A, Class B, Class C, and Class K shares' operating
expenses remain the same. Although the actual costs and performance of a Fund's
Investor Class, Class A, Class B, Class C, and Class K shares may be higher or
lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CORE EQUITY FUND
Investor Class $110 $343 $ 595 $1,317
Class A(1) $125 $390 $ 676 $1,489
Class B - With Redemption(1) $760 $1,099 $1,565 $2,275(2)
Class B - Without Redemption $260 $799 $1,365 $2,575(2)
Class C - With Redemption(1) $323 $688 $1,180 $2,534
Class C - Without Redemption $223 $688 $1,180 $2,534
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class K(3) $223 $734 $1,316 $2,898
BALANCED FUND
Investor Class $133 $415 $ 718 $1,579
Class A(1),(3) $751 $1,213 $1,740 $3,179
Class B - With Redemption(1),(3) $778 $1,329 $2,170 $3,956(2)
Class B - Without Redemption(3) $278 $1,029 $1,970 $3,956(2)
Class C - With Redemption(1) $377 $850 $1,450 $3,070
Class C - Without Redemption $277 $850 $1,450 $3,070
Class K $155 $480 $ 829 $1,813
TOTAL RETURN FUND
Investor Class $153 $474 $ 818 $1,791
Class A(1) $736 $1,126 $1,539 $2,690
Class B - With Redemption(1),(3) $778 $1,214 $1,833 $3,221(2)
Class B - Without Redemption(3) $278 $914 $1,633 $3,221(2)
Class C - With Redemption(1),(3) $378 $930 $1,682 $3,664
Class C - Without Redemption(3) $278 $930 $1,682 $3,664
Class K $173 $536 $923 $2,009
(1) Based on initial sales charge for Class A shares at the beginning of each
period shown and CDSC charges for Class B and C shares based on redemption
at the end of each period shown. Please see "How To Buy Shares."
(2) Assumes conversion of Class B to Class A at the end of the eighth year.
Please see "How To Buy Shares."
(3) Class expenses remain the same for each period (except that the example
reflects the contractual expense reimbursements by INVESCO for the one-year
period and the first two years of the three-, five-, and ten-year periods).
[ARROWS ICON] INVESTMENT RISKS
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.
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:
NOT INSURED. Mutual funds are not insured by the FDIC or any other government
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.
[ARROWS ICON] PRINCIPAL RISKS ASSOCIATED WITH THE FUNDS
You should consider the special risk factors discussed below associated with the
Funds' policies 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 small
companies are more volatile than those of mid-size or large companies.
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 Investors Service, 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. 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.
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 respective assets in securities of non-U.S.
issuers. Core Equity 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 Depositary 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.
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.
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.
PREPAYMENT RISK
INVESCO Total Return Fund may invest in Government Agency mortgage-backed
securities. In the event that a high volume of mortgages are prepaid, thereby
reducing income from interest on the principal of such mortgages, the
opportunity for the Fund to earn income may be decreased.
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.
--------------------------------------------------------
Although each Fund generally invests in equity and debt securities, the Funds
also may invest in other types of securities and other financial instruments,
indicated in the chart below. Although these investments typically are not part
of any Fund's principal investment strategy, they may constitute a significant
portion of a Fund's portfolio, thereby possibly exposing a Fund and its
investors to the following additional risks.
- --------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
- --------------------------------------------------------------------------------
AMERICAN DEPOSITARY RECEIPTS
(ADRS) Market, Information, Core Equity Balanced
These are securities Political, Regulatory, Total Return
issued by U.S. banks that Diplomatic, Liquidity,
represent shares of and Currency Risks
foreign corporations held
by those banks. Although
traded in U.S. securities
markets and valued in U.S.
dollars, ADRs carry most
of the risks of investing
directly in foreign
securities
- --------------------------------------------------------------------------------
GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES Prepayment and Interest Total Return
These are securities Rate Risks
issued by the FHLMC and
the FNMA or guaranteed by
the GNMA and backed by
mortgages. The Fund
receives payments out of
the interest and principal
on the underlying
mortgages
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A contract under which the Credit and Counter- Core Equity Balanced
seller of a security party Risks Total Return
agrees to buy it back at
an agreed-upon price and
time in the future
- --------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not Liquidity Risk Core Equity Balanced
registered, but which are Total Return
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
- --------------------------------------------------------------------------------
[ARROWS 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 shortterm 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.
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISOR
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $347.6 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 4350 South Monaco Street, Denver, Colorado, is the
investment [GRAPHIC OMITTED]advisor of the Funds. INVESCO was founded in 1932
and manages over $19.2 billion for 2,756,061 shareholder accounts in 48 INVESCO
mutual funds as of June 30, 2003. 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).
ADI is the Funds' distributor and is responsible for the sale of the Funds'
shares.
INVESCO and ADI are subsidiaries of AMVESCAP PLC.
The following table shows the fees the Funds paid to INVESCO for its advisory
services in the fiscal year ended May 31, 2003.
- --------------------------------------------------------------------------------
ADVISORY FEE AS A PERCENTAGE OF
FUND AVERAGE ANNUAL NET ASSETS UNDER MANAGEMENT
- --------------------------------------------------------------------------------
Core Equity 0.51%
Balanced 0.56%
Total Return 0.71%
[INVESCO ICON] PORTFOLIO MANAGERS
The following individuals are primarily responsible for the day-to-day
management of their respective Fund's portfolio holdings:
FUND PORTFOLIO MANAGER(S)
Core Equity Jeffrey G. Morris
Sean D. Katof
Michael Heyman
Mark Lattis
Balanced Michael Heyman
Mark Lattis
Ken Bowling
Richard King
Steve Johnson
Total Return Michael Heyman
Mark Lattis
Ken Bowling
Richard King
Steve Johnson
Effective July 1, 2003, the below referenced portfolio managers, (with the
exception of Sean D. Katof and Jeffrey G. Morris) are dual employees of INVESCO
Funds Group, Inc. (the "advisor") and A I M Advisors, Inc. ("A I M Advisors").
KEN BOWLING has been responsible for INVESCO Balanced Fund and INVESCO Total
Return Fund since July 1, 2003. He has been with the INVESCO Fixed Income
division since 1993 and is a portfolio manager of the Fund. Ken earned a
Bachelor of Science degree in Mechanical Engineering and a Masters in
Engineering from the University of Louisville. Before joining INVESCO, he was a
Lead Engineer with General Electric, and a Project Engineer with General Motors
prior to that.
MICHAEL HEYMAN has been responsible for INVESCO Core Equity Fund, INVESCO
Balanced Fund, and INVESCO Total Return Fund since July 1, 2003. He is a member
of the INVESCO-NAM Portfolio Group. He has more than 25 years of investment
management experience. Mick is a graduate of Northwestern University, a
Chartered Financial Analyst and a member of the Louisville Society of Financial
Analysts.
STEVE JOHNSON has been responsible for INVESCO Balanced Fund and INVESCO Total
Return Fund since July 1, 2003. He joined INVESCO in May of 1991. As Chief
Investment Officer of INVESCO Fixed Income, he is responsible for all phases of
the fixed income investment process. Steve began his investment career in 1986
with American General Corporation in Houston, Texas as a fixed income trader.
SEAN D. KATOF a vice president of INVESCO, is the portfolio manager of Core
Equity Fund. Sean joined INVESCO in 1994. He is a CFA charterholder. Sean holds
a M.A. in Finance and a B.S. in Business Administration from the University of
Colorado.
RICHARD KING has been responsible for INVESCO Balanced Fund and INVESCO Total
Return Fund since July 1, 2003. He joined INVESCO's Fixed Income Investment
Management Team in 2000, bringing 16 years of fixed income portfolio management
experience. Prior to INVESCO, Rich spent 10 years with Criterion Investment
Management, where he served as Chairman of the Core Sector Group.
MARK LATTIS has been responsible for INVESCO Core Equity Fund, INVESCO Balanced
Fund, and INVESCO Total Return Fund since July 1, 2003. He is a member of the
INVESCO-NAM Portfolio Group. He has more than 10 years of investment management
experience. After completing his undergraduate studies at the University of
Louisville, Mark went on to earn an MBA from the University of Kentucky. He is a
Chartered Financial Analyst and a member of the Louisville Society of Financial
Analysts and currently serves as its President.
JEFFREY G. MORRIS a vice president of INVESCO, is the portfolio manager of Core
Equity Fund. Jeff joined INVESCO in 1991 and is a CFA charterholder. He holds an
M.S. in Finance from the University of Colorado - Denver and a B.S. in Business
Administration from Colorado State University.
[INVESCO ICON] POTENTIAL REWARDS
NO SINGLE FUND SHOULD REPRESENT YOUR COMPLETE INVESTMENT PROGRAM NOR SHOULD YOU
ATTEMPT TO USE THE FUNDS FOR SHORT-TERM TRADING PURPOSES.
The Funds offer shareholders the potential to increase the value of their
capital over time and also offer the opportunity for current income. Like most
mutual funds, each Fund seeks to provide higher returns than the market or its
competitors, but cannot guarantee that performance. Each Fund seeks to minimize
risk by investing in many different companies in a variety of industries.
SUITABILITY FOR INVESTORS
Only you can determine if an investment in a Fund is right for you based upon
your own economic situation, the risk level with which you are comfortable and
other factors. In general, the Funds are most suitable for investors who:
o are willing to grow their capital over the long-term (at least five years).
o understand that shares of a Fund can, and likely will, have daily price
fluctuations.
o are investing through tax-deferred retirement accounts, such as traditional
and Roth Individual Retirement Accounts ("IRAs"), as well as
employer-sponsored qualified retirement plans, including 401(k)s and 403(b)s,
all of which have longer investment horizons.
You probably do not want to invest in the Funds if you are:
o primarily seeking current dividend income.
o unwilling to accept potential daily changes in the price of Fund shares.
o speculating on short-term fluctuations in the stock markets.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- - - FUND DEBTS
INCLUDING ACCRUED EXPENSES
- --------------------------
/ NUMBER OF SHARES
= YOUR SHARE PRICE (NAV)
The value of your Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in each Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of the regular trading day on that
exchange (normally 4:00 p.m. Eastern time), except that securities traded
primarily on the Nasdaq Stock Market ("Nasdaq") are normally valued by a Fund at
the Nasdaq Official Closing Price provided by Nasdaq each business day. Shares
of the Funds are not priced on days when the NYSE is closed, which generally is
on weekends, most national holidays in the U.S., and Good Friday.
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. Because
their expenses vary, NAV is calculated separately for each class.
All purchases, sales, and exchanges of Fund shares are made by INVESCO at the
NAV next calculated after INVESCO receives proper instructions from you, your
financial intermediary, or plan or program sponsor. Instructions must be
received by INVESCO no later than the close of the NYSE to effect transactions
at that day's NAV. If INVESCO receives instructions from you, your financial
intermediary, or plan or program sponsor after that time, the instructions will
be processed at the NAV next calculated after receipt of these instructions.
Financial institutions that process customer transactions through the National
Securities Clearing Corporation's Fund/SERV and Networking facilities must
obtain their customers' permission for each transaction, and each financial
institution retains responsibility to its customers for any error or
irregularities related to these transactions.
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 DAYS CLOSING PRICE, YOU MUST CONTACT US BEFORE THE CLOSE
OF THE NYSE. NORMALLY 4:00 P.M. EASTERN TIME.
The Funds offer multiple classes of shares. The chart in this section shows
several convenient ways to invest in the shares of the Funds if you invest
directly through INVESCO. If you invest in a Fund through a financial
intermediary, please consult the financial intermediary, or with respect to
Class K shares, the plan or program sponsor, for more information on how to
purchase shares of a Fund. You may be charged a commission or transaction fee by
the financial intermediary or plan or program sponsor for purchases of Fund
shares.
With the exception of Class A shares, there is no charge to invest directly
through INVESCO. Class A shares are subject to a front-end sales charge. For
more information on this charge, please see the subsection entitled "Sales
Charges." If you buy $1,000,000 or more of Class A shares and redeem the shares
within eighteen months from the date of purchase, you may pay a 1% CDSC at the
time of redemption. If you are a qualified plan and elect to receive a dealer
concession, you may pay a CDSC of 1% on your Class A shares if the plan is
redeemed within twelve months from initial deposit in the plan's INVESCO
account. If you are a qualified plan and elect to forego the dealer concession,
you will not be charged a CDSC. With respect to redemption of Class B shares
held six years or less, a CDSC of 1% - 5% of the total original cost of the
shares may be assessed. With respect to redemption of Class C shares held
thirteen months or less, a CDSC of 1% of the total original cost of the shares
may be assessed. With respect to Class K shares, if you are a qualified plan and
elect to receive a dealer concession, you may pay a CDSC of 0.70% on your Class
K shares if the plan is redeemed within twelve months from initial deposit in
the plan's INVESCO account. If you are a qualified plan and elect to forego the
dealer concession, you will not be charged a CDSC. For a non-qualified plan, in
determining whether a CDSC applies to a redemption, it is assumed that the
shares being redeemed first are any shares in the shareholder's Fund account
that are not subject to a CDSC, followed by shares held the longest in the
shareholder's account. These charges are not assessed upon Class A, B, C, or K
shares acquired through reinvestment of dividends or other distributions, or
Class A, B, C, or K shares exchanged for the same class of another INVESCO Fund.
For more information on CDSC charges, please see the subsection of theProspectus
entitled "Choosing A Share Class" and the section of the Statement of Additional
Information entitled "Distributor - Sales Charges and Dealer Concessions."
For all new accounts, please send a completed application form, and specify the
fund or funds and class or classes of shares you wish to purchase. If you do not
specify a fund or funds, your initial investment and any subsequent purchases
will automatically go into INVESCO Cash Reserves Fund - Class A, a series of
INVESCO Money Market Funds, Inc. You will receive a confirmation of this
transaction and may contact INVESCO to exchange into the fund you choose.
A share of each class represents an identical interest in a Fund and has the
same rights, except that each class bears its own distribution and shareholder
servicing charges, and other expenses. 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, if applicable, and the other expenses payable by that
class.
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.
Please remember that if you pay by check, Automated Clearing House ("ACH"), 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).
MINIMUM INITIAL INVESTMENT. $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retire ment
plans, including IRAs.
MINIMUM SUBSEQUENT INVESTMENT. $50 (Minimums are lower for certain retirement
plans.)
The following chart shows several ways to invest in a Fund if you invest
directly through INVESCO.
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
BY CHECK $1,000 for regular INVESCO does not
Mail to: accounts; $250 for an accept cash, credit
INVESCO Funds Group, Inc. IRA; $50 for each cards, travelers'
P.O. Box 173706 subsequent investment. cheques, credit card
Denver, CO 80217-3706. checks, instant loan
You may send your check by checks, money orders,
overnight courier to: or third party checks
4350 South Monaco Street unless they are from
Denver, CO 80237. another financial
institution related to
a retirement plan
transfer.
- --------------------------------------------------------------------------------
BY WIRE $1,000 for regular
You may send your payment accounts; $250 for an
by bank wire (call IRA; $50 for each
1-800-525-8085 for subsequent investment.
instructions).
- --------------------------------------------------------------------------------
BY TELEPHONE WITH ACH $1,000 for regular You must provide your
Call 1-800-525-8085 to accounts; $250 for an bank account
request your purchase. Upon IRA; $50 for each information to INVESCO
your telephone subsequent investment. prior to using this
instructions, INVESCO will option.
move money from your
designated bank/credit
union checking or savings
account in order to
purchase shares.
- --------------------------------------------------------------------------------
BY INTERNET (INVESTOR $1,000 for regular You will need a Web
CLASS - GRANDFATHERED accounts; $250 for browser to use this
INVESTORS ONLY) an IRA; $50 for each service. Internet
Go to the INVESCO Web site subsequent investment. transactions are
at invescofunds.com. limited to a maximum
of $25,000.
- --------------------------------------------------------------------------------
REGULAR INVESTING WITH $50 per month for Like all regular
EASIVEST OR DIRECT PAYROLL EasiVest; $50 per pay investment plans,
PURCHASE period for Direct neither EasiVest nor
You may enroll on your Payroll Purchase. You Direct Payroll
fund application, or call may start or stop your Purchase ensures a
us for a separate form and regular investment profit or protects
more details. Investing plan at any time, with against loss in a
the same amount on a two weeks' notice to falling market.
monthly basis allows you INVESCO. Because you'll invest
to buy more shares when continually,
prices are low and fewer regardless of varying
shares when prices are price levels, consider
high. This "dollar cost your financial ability
averaging" may help offset to keep buying through
market fluctuations. Over low price levels. And
a period of time, your remember that you will
average cost per share may lose money if you
be less than the actual redeem your shares
average net asset value when the market value
per share. of all your shares is
less than their cost.
- --------------------------------------------------------------------------------
BY PERSONAL ACCOUNT LINE $50 for subsequent You must provide your
WITH ACH investments. bank account
Automated transactions by information to INVESCO
telephone are available prior to using this
for subsequent purchases option. Automated
and exchanges 24 hours a transactions are
day. Simply call limited to a maximum
1-800-424-8085. of $25,000.
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
BY EXCHANGE $1,000 for regular See "Exchange Policy."
Between the same class of accounts; $250 for an
any two INVESCO funds. IRA; $50 for each
Call 1-800-525-8085 for subsequent investment.
prospectuses of other
INVESCO funds. Exchanges
may be made by phone or at
our Web site at
invescofunds.com. You may
also establish an
automatic monthly exchange
service between two
INVESCO funds; call us for
further details and the
correct form.
GRANDFATHERED INVESTORS. Investor Class shares of a Fund can be purchased only
by:
o Persons or entities who had established an account in any of the funds
managed and distributed by INVESCO (the "INVESCO Funds") in Investor Class
shares prior to April 1, 2002 and have continuously maintained such account
in Investor Class shares since April 1, 2002;
o Any person or entity listed in the account registration for any INVESCO Funds
account in Investor Class shares that has been established prior to April 1,
2002 and continuously maintained since April 1, 2002, such as joint owners,
trustees, custodians, and designated beneficiaries;
o Customers of certain financial institutions, wrap accounts or other fee-based
advisory programs, or insurance company separate accounts, which have had
relationships with INVESCO and/or any of the INVESCO Funds' Investor Class
shares prior to April 1, 2002 and continuously maintained such relationships
since April 1, 2002;
o Defined benefit, defined contribution, and deferred compensation plans; and
o INVESCO employees, INVESCO Funds directors, AMVESCAP employees, AMVESCAP
directors, and their immediate families.
For more detailed information about eligibility, please call 1-800-525-8085. If
you hold INVESCO Funds Investor Class shares through a broker/dealer or other
financial institution, your eligibility to purchase Investor Class shares may
differ depending on that institution's policies.
EXCHANGE POLICY. You may exchange your shares in any of the Funds for shares of
the same class in another INVESCO fund on the basis of their respective NAVs at
the time of the exchange.
FUND EXCHANGES AN 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.
You will not pay a sales charge when exchanging Class B shares for other Class B
shares, Class C shares for other Class C shares, or Class K shares for other
Class K shares. If you make an exchange involving Class B, Class C, or Class K
shares, the amount of time you held the original shares will be added to the
holding period of the Class B, Class C, or Class K shares, respectively, into
which you exchanged for the purpose of calculating any CDSC that may be assessed
upon a subsequent redemption.
We have the following policies governing exchanges:
o Both fund accounts involved in the exchange must be registered in exactly the
same name(s) and Social Security or federal tax I.D. number(s).
o You may make up to four exchanges out of each Fund per twelve-month period.
o Each Fund reserves the right to reject any exchange request, or to modify or
terminate the exchange policy, if it is in the best interests of the Fund.
Notice of all such modifications or terminations that affect all shareholders
of the Fund will be given at least sixty 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.
CHOOSING A SHARE 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, (iii) the eligibility requirements that apply to purchases of a
particular class, and (iv) any services you may receive in making your
investment determination. Your financial intermediary can help you decide among
the various classes. Please contact your financial intermediary for several
convenient ways to invest in a Fund. Class A, B, C, and K shares of the Funds
are available primarily through financial intermediaries.
In addition, you should also consider the factors below:
Investor
Class Class A Class B Class C Class K
----- ------- ------- ------- -------
Initial Sales Charge None 5.50% None None None
CDSC(1) None 1% on certain 1% - 5% for 1% for shares 0.70% on
purchases held shares held held less certain
less than 18 months less than 6 than 13 purchases
years months held less
than 12
months
12b-1 Fee 0.25% 0.35% 1.00% 1.00% 0.45%
Conversion No No Yes(2) No No
Purchase Order Maximum None None $250,000 $1,000,000 None
(1) Please see the subsection entitled "Sales Charges" below and the section of the Funds' Statement of
Additional Information entitled "Distributor -- Sales Charges and Dealer Concessions" for more
information regarding CDSC charges and dealer concessions.
(2) Class B shares, along with the pro rata portion of the shares' reinvested dividends and
distributions, automatically convert to Class A shares at the end of the month which is eight years
after the date on which such Class B shares were purchased.
INTERNET TRANSACTIONS (INVESTOR CLASS - GRANDFATHERED INVESTORS ONLY).
Investors may open new accounts and exchange and redeem Investor Class shares of
any INVESCO fund through the INVESCO Web site. To use this service, you will
need a web browser (presently Netscape version 4.0 or higher, Microsoft Internet
Explorer version 4.0 or higher, or AOL version 5.0 or higher) and the ability to
use the INVESCO Web site. INVESCO will accept Internet purchase instructions
only for exchanges or if the purchase price is paid to INVESCO through debiting
your bank account, and any Internet cash redemptions will be paid only to the
same bank account from which the payment to INVESCO originated. INVESCO imposes
a limit of $25,000 on Internet purchase and redemption transactions. Other
minimum transaction amounts are discussed in this Prospectus. You may also
download an application to open an account from the Web site, complete it by
hand, and mail it to INVESCO, along with a check.
INVESCO employs reasonable procedures to confirm that transactions entered into
over the Internet are genuine. These procedures include the use of alphanumeric
passwords, secure socket layering, encryption, and other precautions reasonably
designed to protect the integrity, confidentiality, and security of shareholder
information. In order to enter into a transaction on the INVESCO Web site, you
will need an account number, your Social Security number, and an alphanumeric
password. If INVESCO follows these procedures, neither INVESCO, its affiliates
nor any INVESCO fund will be liable for any loss, liability, cost, or expense
for following instructions communicated via the Internet that are reasonably
believed to be genuine or that follow INVESCO's security procedures. By entering
into the user's agreement with INVESCO to open an account through our Web site,
you lose certain rights if someone gives fraudulent or unauthorized instructions
to INVESCO that result in a loss to you.
SALES CHARGES (CLASS A, B, C, AND K ONLY)
Sales charges on Class A shares of the Funds are detailed below. As used below,
the term "offering price" with respect to Class A shares includes the initial
sales charge.
INITIAL SALES CHARGES. Class A shares of the Funds are subject to the following
initial sales charges:
Investor's Sales Charge
Amount of investment As a % of As a % of
in a single transaction offering price investment
Less than $25,000 5.50% 5.82%
$25,000 but less than $50,000 5.25% 5.54%
$50,000 but less than $100,000 4.75% 4.99%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 3.00% 3.09%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 or more NAV NAV
CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS A AND CLASS K SHARES. You can
purchase $1,000,000 or more of Class A shares at net asset value, and the
distributor may pay a dealer concession and/or a service fee for purchases of
$1,000,000 or more. However, if you purchase shares worth $1,000,000 or more,
they may be subject to a CDSC of 1% if you redeem them prior to eighteen months
after the date of purchase. We will use the "first-in, first-out" method to
determine your holding period. Under this method, the date of redemption will be
compared with the earliest purchase date of shares held in your account. If your
holding period is less than eighteen months, the CDSC may be assessed on the
amount of the total original cost of the shares. For qualified plans investing
in Class A shares, you may pay a CDSC of 1% if the plan is redeemed within
twelve months from initial deposit in the plan's INVESCO account. For qualified
plans investing in Class K shares, you may pay a CDSC of 0.70% if the plan is
redeemed within twelve months from initial deposit in the plan's INVESCO
account.
CDSC FOR CLASS B AND CLASS C SHARES. You can purchase Class B and Class C shares
at their net asset value per share. However, when you redeem them, they are
subject to a CDSC in the following percentages. If your holding period is less
than six years for Class B shares and thirteen months for Class C shares, the
CDSC may be assessed on the amount of the total original cost of the shares.
Year Since
purchase made Class B Class C
First 5% 1%(1)
Second 4% None
Third 3% None
Fourth 3% None
Fifth 2% None
Sixth 1% None
Seventh and following None(2) None
(1) The first year will consist of the first thirteen months.
(2) Class B shares, along with the pro rata portion of the shares' reinvested
dividends and distributions, automatically convert to Class A shares at the
end of the month which is eight years after the date on which such Class B
shares were purchased.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS. You may qualify for reduced
sales charges or sales charge exceptions. To qualify for these reductions or
exceptions, you or your financial intermediary must provide sufficient
information at the time of purchase to verify that your purchase qualifies for
such treatment.
REDUCED SALES CHARGES. You may be eligible to buy Class A shares at reduced
initial sales charge rates under Right of Accumulation or Letter of Intent
under certain circumstances.
RIGHTS OF ACCUMULATION. You may combine your new purchases of Class A
shares for the purpose of qualifying for the lower initial sales
charge rates that apply to larger purchases. The applicable initial
sales charge for the new purchase is based on the total of your
current purchase and the current value of all Class A shares you own.
LETTER OF INTENT. Under a Letter of Intent (LOI), you commit to
purchase a specified dollar amount of Class A shares of the Fund
during a thirteen-month period. The amount you agree to purchase
determines the initial sales charge you pay. If the full face amount
of the LOI is not invested by the end of the thirteen-month period,
your account will be adjusted to the higher initial sales charge level
for the amount actually invested.
INITIAL SALES CHARGE/CDSC EXCEPTIONS
You will not pay initial sales charges:
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares of the same class among certain INVESCO funds;
o when using the reinstatement privilege;
o when a merger, consolidation, or acquisition of assets of an INVESCO
fund occurs; and
o upon automatic conversion of Class B to Class A.
You will not pay a CDSC:
o if you purchase less than $1,000,000 of Class A shares;
o if you purchase $1,000,000 or more of Class A shares and hold those
shares for more than eighteen months;
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than thirteen months;
o if you participate in the periodic withdrawal program and withdraw up to
10% of the value of your shares that are subject to a CDSC in any
twelve-month period. The value of your shares, and applicable
twelve-month period, will be calculated based upon the value of your
account on, and the date of, the first periodic withdrawal.
o if you redeem shares acquired through reinvestment of dividends and
distributions;
o if you are a qualified plan investing in Class A or Class K shares and
elect to forego any dealer concession;
o on increases in the net asset value of your shares;
o to pay account fees;
o for IRA distributions due to death or disability or periodic
distributions based on life expectancy;
o to return excess contributions (and earnings, if applicable) from
retirement plan accounts; or for redemptions following the death of a
shareholder or beneficial owner.
There may be other situations when you may be able to purchase or redeem shares
at reduced or no sales charges. Consult the Funds' Statement of Additional
Information for further details.
DISTRIBUTION EXPENSES. We have adopted a Master Distribution Plan and Agreement
(commonly known as a "12b-1 Plan") for each class of shares of the Funds. The
12b-1 fees paid by each Fund's classes of shares are used to pay distribution
and service fees to ADI for the sale and distribution of the Funds' shares and
to pay for services provided to shareholders. These services include
compensation to financial intermediaries that sell Fund shares and/or service
shareholder accounts. Because each Fund's shares pay these fees out of their
assets on an ongoing basis, these fees increase the cost of your investment.
Under each Plan, payments are limited to an amount computed at each class's
applicable 12b-1 fee. If distribution expenses for a class exceed these computed
amounts, ADI pays the difference. Conversely, if distribution fees are less than
computed amounts, ADI retains the difference.
[INVESCO ICON] YOUR ACCOUNT SERVICES
With the exception of householding, the following information pertains only to
shareholders who hold their shares directly through INVESCO.
SHAREHOLDER ACCOUNTS. INVESCO maintains your share account, which contains your
current Fund holdings. The Funds do not issue share certificates.
INVESCO PROVIDES YOU WITH SERVICES DESIGNED TO MAKE IT SIMPLE FOR YOU TO BUY,
SELL, OR EXCHANGE YOUR SHARES OF ANY INVESCO MUTUAL FUND
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 and your financial intermediary or plan or program
sponsor may buy, exchange, and sell Fund shares by telephone, unless these
privileges are specifically declined when the INVESCO new account Application is
filled out.
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. INVESCOFUNDS.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.
HOUSEHOLDING. To save money for the Funds, you may receive only one copy of a
prospectus or financial report to each household address. This process, known as
"householding," is used for most required shareholder mailings. It does not
apply to account statements. You may, of course, request an additional copy of a
prospectus or financial report at any time by calling or writing INVESCO. You
may also request that householding be eliminated from all your required
mailings.
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 chart in this section shows several convenient ways to sell your Fund shares
if you invest directly through INVESCO. If you invest in a Fund through a
financial intermediary, please consult the financial intermediary, or with
respect to Class K shares, the plan or program sponsor, for information on how
to sell shares of a Fund. You may be charged a commission or transaction fee by
your financial intermediary or plan or program sponsor for sales of Fund shares.
Shares of the Funds may be sold at any time at the next NAV calculated after
your request to sell is received by INVESCO in proper form. 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.
Various fees may apply to Fund redemptions. You may be charged a CDSC at the
time of redemption, depending on how long you have held your shares. If you buy
$1,000,000 or more of Class A shares and redeem the shares within eighteen
months from the date of purchase, you may pay a 1% CDSC at the time of
redemption. If you are a qualified plan and elect to receive a dealer
concession, you may pay a CDSC of 1% on your Class A shares if the plan is
redeemed within twelve months from initial deposit in the plan's INVESCO
account. If you are a qualified plan and elect to forego the dealer concession,
you will not be charged a CDSC. With respect to redemption of Class B shares
held six years or less, a CDSC of 1% - 5% of the total original cost of the
shares may be assessed. With respect to redemption of Class C shares held
thirteen months or less, a CDSC of 1% of the total original cost of the shares
may be assessed. With respect to Class K shares, if you are a qualified plan and
elect to receive a dealer concession, you may pay a CDSC of 0.70% on your Class
K shares if the plan is redeemed within twelve months from initial deposit in
the plan's INVESCO account. If you are a qualified plan and elect to forego the
dealer concession, you will not be charged a CDSC. For a non-qualified plan in
determining whether a CDSC applies to a redemption, it is assumed that the
shares being redeemed first are any shares in the shareholder's Fund account
that are not subject to a CDSC, followed by shares held the longest in the
shareholder's account. These charges are not assessed upon Class A, B, C, or K
shares acquired through reinvestment of dividends or other distributions, or
Class A, B, C, or K shares exchanged for the same class of another INVESCO Fund.
For more information on CDSC charges, please see the subsection of the
Prospectus entitled "Choosing A Share Class" and the section of the Statement of
Additional Information entitled "Distributor-Sales Charges and Dealer
Concessions."
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 and specify the class of shares. 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 telephone.
INVESCO usually forwards 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 twelve business 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 structures, 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), the 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 sixty days to increase the value of your account to
$250 or more.
REDEMPTION FEES. Except for any applicable CDSC, we will not charge you any fees
to redeem your shares; however, your financial intermediary may charge service
fees for handling these transactions.
REINSTATEMENT PRIVILEGE (CLASS A AND CLASS B ONLY). You may, within ninety days
after you sell Class A or Class B shares, reinvest all or part of your
redemption proceeds in Class A shares of a Fund at net asset value in an
identically registered account. You will not pay any sales charges on the amount
reinvested. You must notify INVESCO in writing at the time you reinstate that
you are exercising your reinstatement privilege. You may exercise this privilege
only once per calendar year.
The following chart shows several ways to sell your shares of the Funds if you
invest directly through INVESCO.
METHOD REDEMPTION MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
BY TELEPHONE Any amount. You must provide an IRA
Call us toll-free at: redemption form to
1-800-525-8085. INVESCO prior to making
an IRA redemption by
telephone. INVESCO's
telephone redemption
privileges may be
modified or terminated in
the future at INVESCO's
discretion. The maximum
amount which may be
redeemed by telephone is
generally $25,000.
METHOD REDEMPTION MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
IN WRITING Any amount. The redemption request
Mail your request to: must be signed by all
INVESCO Funds Group, Inc. registered account
P.O. Box 173706 owners. Payment will be
Denver, CO 80217-3706. mailed to your address
You may also send your as it appears on
request by overnight INVESCO's records, or to
courier to: a bank designated by you
4350 South Monaco Street in writing.
Denver, CO 80237.
- --------------------------------------------------------------------------------
BY TELEPHONE WITH ACH Any amount. You must provide your
Call 1-800-525-8085 to bank account information
request your redemption. or IRA redemption form
to INVESCO prior to
using this option.
INVESCO will
automatically pay the
proceeds into your
designated bank account.
- --------------------------------------------------------------------------------
BY INTERNET (INVESTOR Any amount. IRA You will need a Web
CLASS - GRANDFATHERED redemptions are not browser to use this
INVESTORS ONLY) Go to permitted via the service. Internet
the INVESCO Web site at Internet. transactions are limited
invescofunds.com to a maximum of $25,000.
INVESCO will
automatically pay the
proceeds into your
designated bank account.
- --------------------------------------------------------------------------------
BY PERSONAL ACCOUNT LINE $50. Be sure to write down
WITH ACH (INVESTOR CLASS the confirmation number
- - - GRANDFATHERED INVESTORS provided to you. You
ONLY) must forward your bank
Automated transactions account information to
by telephone are INVESCO prior to using
available for this option.
redemptions and
exchanges 24 hours a
day. Simply call
1-800-424-8085.
- --------------------------------------------------------------------------------
PERIODIC WITHDRAWAL PLAN $100 per payment on a You must have at least
You may call us to monthly or quarterly $10,000 total invested
request the appropriate basis. The redemption with the INVESCO funds
form and more check may be made with at least $5,000 of
information at payable to any party you that total invested in
1-800-525-8085. designate. the fund from which
withdrawals will be
made.
- --------------------------------------------------------------------------------
PAYMENT TO THIRD PARTY Any amount. All registered account
Mail your request to: owners must sign the
INVESCO Funds Group, Inc. request, with signature
P.O. Box 173706 guarantees from an
Denver, CO 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 manage the Funds in an effort to provide
maximum total returns to all shareholders of the Funds. INVESCO generally
focuses on pre-tax results and ordinarily does not manage a Fund to minimize
taxes. We may, nevertheless, take advantage of opportunities to mitigate taxes
through management of capital gains and losses. 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 a Fund's shares that you own. These distributions
are required under federal tax laws governing mutual funds. It is the policy of
each Fund to distribute all investment company taxable income and net capital
gains. As a result of this policy and each 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 from your distributions, and any money
that you receive from the sale of shares of the Funds, a backup withholding tax
at the rate in effect on the date of the transaction.
Unless your account is held through a financial intermediary, 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.
[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 substanially all of this
investment income, less Fund expenses, to shareholders quarterly. All Funds can
make distributions at other times, if they choose to do so. Please note that
classes with higher expenses are expected to have lower dividends.
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 OR TAX-DEFERRED
ACCOUNTS).
Each Fund also realizes capital gains or 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 November or December.
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.
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.
A Fund's daily NAV reflects all ordinary income and realized capital gains that
have not yet been distributed to shareholders. Therefore, a Fund's NAV will drop
by the amount of a distribution, net of market fluctuations, 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 declares a dividend or capital gain distribution shortly after you buy, you
will receive some of your investment back as a taxable distribution. Although
purchasing your shares at the resulting higher NAV may mean a smaller capital
gain or greater loss upon sale of the shares, most shareholders want to avoid
the purchase of shares immediately before the distribution record date. However,
keep in mind that your basis in the Fund will be increased to the extent such
distributions are reinvested in the Fund. If you sell your shares of a Fund at a
loss for tax purposes and then replace those shares with a substantially
identical investment either thirty 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-distribution 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, are generally
subject to federal income tax.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the various classes of each Fund for the past five years (or, if
shorter, the period of the class's operations). Certain information reflects
financial results for a single Fund share. Since Class K shares of Total Return
Fund had not commenced operations as of May 31, 2003, financial information is
not available for that class as of the date of this Prospectus. The total
returns in the table represent the annual percentages 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 2003 Annual Report to Shareholders, which is incorporated by reference
into the Statement of Additional Information. This Report is available without
charge by contacting ADI at the address or telephone number on the back cover of
this Prospectus.
PERIOD YEAR
ENDED ENDED
YEAR ENDED MAY 31 MAY 31 JUNE 30
- ------------------------------------------------------------------------------------------------------------------------------------
CORE EQUITY FUND -- INVESTOR CLASS
PER SHARE DATA 2003 2002 2001 2000 1999(a) 1998
Net Asset Value--Beginning of Period $ 11.60 $ 13.91 $ 15.45 $ 15.85 $ 16.18 $ 15.31
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.16 0.22 0.24 0.30 0.38
Net Gains or (Losses) on Securities (Both
Realized and Unrealized) (1.17) (1.88) (0.31) 1.05 1.19 2.54
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (1.07) (1.72) (0.09) 1.29 1.49 2.92
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS 0.10 0.59 1.45 1.69 1.82 2.05
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 10.43 $ 11.60 $ 13.91 $ 15.45 $ 15.85 $ 16.18
====================================================================================================================================
TOTAL RETURN (9.18%) (12.42%) (0.45%) 8.46% 10.31%(b) 20.55%
RATIOS
Net Assets--End of Period
($000 Omitted) $ 2,518,441 $ 3,184,866 $ 4,120,025 $ 4,405,739 $ 4,845,036 $ 5,080,735
Ratio of Expenses to Average Net
Assets(c)(d) 1.08% 1.02% 0.96% 0.93% 0.90%(e) 0.90%
Ratio of Net Investment Income to
Average Net Assets(d) 0.99% 1.27% 1.47% 1.52% 2.10% 2.35%
Portfolio Turnover Rate 36% 25% 36% 50% 47%(b) 58%
(a) From July 1, 1998 to May 31, 1999.
(b) Based on operations for the period shown and, accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by INVESCO, if applicable, which is before any expense
offset arrangements (which may include custodian, distribution, and transfer agent fees).
(d) Various expenses of the Class were voluntarily absorbed by INVESCO for the period ended May 31, 1999 and the year ended June
30, 1998. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been 0.91%
(annualized) and 0.90%, respectively, and ratio of net investment income to average net assets would have been 2.09%
(annualized) and 2.35%, respectively.
(e) Annualized
FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS A CLASS B
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MAY 31 MAY 31 MAY 31 MAY 31
- ------------------------------------------------------------------------------------------------------------------------------------
CORE EQUITY FUND-- CLASS A & CLASS B 2003 2002(a) 2003 2002(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $ 11.56 $ 12.34 $ 11.54 $ 12.34
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss)(c) 0.15 0.01 (0.00) 0.01
Net Losses on Securities (Both Realized and
Unrealized) (1.21) (0.71) (1.17) (0.73)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (1.06) (0.70) (1.17) (0.72)
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS 0.15 0.08 0.10 0.08
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 10.35 $ 11.56 $ 10.27 $ 11.54
===================================================================================================================================
TOTAL RETURN(d) (9.09%) (5.67%)(e) (10.11%) (5.83%)(e)
RATIOS
Net Assets--End of Period ($000 Omitted) $ 4,674 $ 297 $ 1,264 $ 258
Ratio of Expenses to Average Net Assets(f)(g) 1.23% 0.99%(h) 2.16% 1.62%(h)
Ratio of Net Investment Income (Loss) to Average Net Assets(g) 0.92% 1.41%(h) (0.05%) 0.84%(h)
Portfolio Turnover Rate 36% 25%(i) 36% 25%(i)
(a) From April 1, 2002, inception of Class, to May 31, 2002
(b) The per share information for Class B was computed based on average shares for the year ended May 31, 2003.
(c) Net Investment Loss for Class B aggregated less than $0.01 on a per share basis for the year ended May 31 2003.
(d) The applicable sales charges for Class A or CDSC for Class B is not included in the Total Return calculation.
(e) Based on operations for the period shown and, accordingly, is not representative of a full year.
(f) Ratio is based on Total Expenses of the Class, less Expenses absorbed by INVESCO, if applicable, which is before any expense
offset arrangements (which may include custodian fees).
(g) Various expenses of Class B were voluntarily absorbed by INVESCO for the year ended May 31, 2003. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have been 2.57% and ratio of net investment loss to average
net assets would have been (0.46%).
(h) Annualized
(i) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2002.
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
CORE EQUITY FUND--CLASS C
PER SHARE DATA
Net Asset Value--Beginning of Period $ 11.51 $ 13.77 $ 15.32 $ 14.55
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.01) 0.05 0.18 0.12
Net Gains or (Losses) on Securities (Both Realized and Unrealized) (1.16) (1.86) (0.38) 0.84
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (1.17) (1.81) (0.20) 0.96
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.45 1.35 0.19
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 10.34 $ 11.51 $ 13.77 $ 15.32
====================================================================================================================================
TOTAL RETURN(b) (10.17%) (13.17%) (1.22%) 6.66%(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $ 8,912 $ 9,747 $ 10,404 $ 1,388
Ratio of Expenses to Average Net Assets(d) 2.20% 1.90% 1.73% 1.67%(e)
Ratio of Net Investment Income (Loss) to Average Net Assets (0.12%) 0.40% 0.75% 0.94%(e)
Portfolio Turnover Rate 36% 25% 36% 50%(f)
(a) From February 15, 2000, inception of Class, to May 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include custodian
fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2000.
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED
YEAR ENDED MAY 31 MAY 31
- ------------------------------------------------------------------------------------------------------------------------------------
CORE EQUITY FUND-- CLASS K 2003 2002 2001(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $ 11.41 $ 13.84 $ 14.38
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss) 0.01 0.20 (0.05)
Net Losses on Securities (Both Realized and Unrealized) (1.16) (1.98) (0.48)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (1.15) (1.78) (0.53)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS 0.01 0.65 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 10.25 $ 11.41 $ 13.84
====================================================================================================================================
TOTAL RETURN (10.07%) (12.91%) (3.68%)(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $ 22,450 $ 28,372 $ 1
Ratio of Expenses to Average Net Assets(d)(e) 1.98% 1.18% 3.00%(f)
Ratio of Net Investment Income (Loss) to Average Net Assets(e) 0.08% 1.08% (0.71%)(f)
Portfolio Turnover Rate 36% 25% 36%(g)
(a) From December 14, 2000, inception of Class, to May 31, 2001.
(b) The per share information was computed based on average shares for the year ended May 31, 2003.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses absorbed by INVESCO, if applicable, which is before any expense
offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by INVESCO for the year ended May 31, 2003. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would have been 2.63% and ratio fo net investment loss to
average net assets would have been (0.57%).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2001.
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD YEAR
ENDED ENDED
YEAR ENDED MAY 31 MAY 31 JULY 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1998
BALANCED FUND-- INVESTOR CLASS
PER SHARE DATA
Net Asset Value--Beginning of Period $ 13.79 $ 15.99 $ 17.18 $ 16.78 $ 15.71 $ 15.86
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.18 0.24 0.34 0.32 0.24 0.33
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.84) (2.22) (0.95) 0.92 1.73 1.50
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.66) (1.98) (0.61) 1.24 1.97 1.83
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS 0.12 0.22(b) 0.58 0.84 0.90 1.98
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 13.01 $ 13.79 $ 15.99 $ 17.18 $ 16.78 $ 15.71
====================================================================================================================================
TOTAL RETURN (4.78%) (12.37 (3.65%) 7.47% 13.12 12.90%
RATIOS
Net Assets--End of Period ($000
Omitted) $ 537,543 $ 784,095 $ 1,087,540 $ 644,957 $ 324,838 $ 216,624
Ratio of Expenses to Average Net
Assets(d)(e) 1.26% 1.22% 1.07% 1.15% 1.21%(f) 1.22%
Ratio of Net Investment Income to Average
Net Assets(e) 1.32% 1.63% 2.07% 1.98% 1.94%(f) 2.18%
Portfolio Turnover Rate 94% 87% 67% 89% 100%(c) 108%
(a) From August 1, 1998 to May 31, 1999.
(b) Dividends and Distributions included a tax return of capital which 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) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by INVESCO, if applicable, which is before any expense
offset arrangements (which may include custodian, distribution and transfer agent fees).
(e) Various expenses of the Class were voluntarily absorbed by INVESCO for the year ended May 31, 2003. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would have been 1.31% and ratio of net investment income to
average net assets would have been 1.27%.
(f) Annualized
FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS A CLASS B
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MAY 31 MAY 31 MAY 31 MAY 31
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND-- CLASS A & CLASS B 2003 2002(a) 2003 2002(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $ 13.71 $ 14.45 $ 13.71 $ 14.45
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.24 0.02 0.26 0.02
Net Losses on Securities (Both Realized and Unrealized) (0.93) (0.62) (1.03) (0.64)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.69) (0.60) (0.77) (0.62)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS 0.40 0.14 0.51 0.12
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 12.62 $ 13.71 $ 12.43 $ 13.71
====================================================================================================================================
TOTAL RETURN(B) (4.88%) (4.19%)(c) (5.46%) (4.28%)(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $ 376 $ 127 $ 255 $ 58
Ratio of Expenses to Average Net Assets(d)(e) 1.34% 1.04%(f) 2.01% 1.77%(f)
Ratio of Net Investment Income to Average Net Assets(e) 1.21% 1.56%(f) 0.55% 1.01%(f)
Portfolio Turnover Rate 94% 87%(g) 94% 87%(g)
(a) From April 1, 2002, inception of Class, to May 31, 2002.
(b) The applicable sales charges for Class A or CDSC for Class B is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses absorbed by INVESCO, if applicable, which is before any expense
offset arrangements (which may include custodian fees).
(e) Various expenses of each Class were voluntarily absorbed by INVESCO for the year ended May 31, 2003. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would have been 2.51% for Class A and 4.45% for Class B and
ratio of net investment income (loss) to average net assets would have been 0.04% for Class A and (1.89%) for Class B.
(f) Annualized.
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2002.
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
BALANCED FUND--CLASS C
PER SHARE DATA
Net Asset Value--Beginning of Period $ 13.81 $ 15.94 $ 17.05 $ 17.38
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.15 0.19 0.28 0.17
Net Losses on Securities (Both Realized and Unrealized) (0.91) (2.27) (0.99) (0.25)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.76) (2.08) (0.71) (0.08)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS 0.02 0.05 0.40 0.25
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 13.03 $ 13.81 $ 15.94 $ 17.05
====================================================================================================================================
=========
TOTAL RETURN(b) (5.52%) (13.08%) (4.25%) (0.46%)(c)
RATIOS
Net Assets-- End of Period ($000 Omitted) $ 2,878 $ 4,296 $ 8,468 $ 2,134
Ratio of Expenses to Average Net Assets(d)(e) 2.01% 2.00% 1.81% 1.77%(f)
Ratio of Net Investment Income to Average Net Assets(e) 0.58% 0.89% 1.36% 1.57%(f)
Portfolio Turnover Rate 94% 87% 67% 89%(g)
(a) From February 15, 2000, inception of Class, to May 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by INVESCO, if applicable, which is before any expense
offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by INVESCO for the years ended May 31, 2003 and 2002. If such expenses
had not been absorbed, ratio of expenses to average net assets would have been 2.74% and 2.07%, respectively and ratio of net
investment income (loss) to average net assets would have been (0.15%) and 0.82%, respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2000.
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED PERIOD ENDED
MAY 31 MAY 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001(a)
BALANCED FUND-- CLASS K
PER SHARE DATA
Net Asset Value--Beginning of Period $ 13.64 $ 15.96 $ 17.36
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.08 0.17 0.13
Net Losses on Securities (Both Realized and Unrealized) (0.76) (2.16) (1.39)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.68) (1.99) (1.26)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS 0.08 0.33(b) 0.14
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 12.88 $ 13.64 $ 15.96
====================================================================================================================================
TOTAL RETURN (4.96%) (12.55%) (7.25%)(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $ 8,483 $ 12,257 $ 1
Ratio of Expenses to Average Net Assets(d)(e) 1.46% 1.39% 1.47%(f)
Ratio of Net Investment Income to Average Net Assets(e) 1.12% 1.26% 1.65%(f)
Portfolio Turnover Rate 94% 87% 67%(g)
(a) From December 14, 2000, inception of Class, to May 31, 2001.
(b) Dividends and Distributions included a tax return of capital which 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) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by INVESCO, if applicable, which is before any expense
offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by INVESCO for the year ended May 31, 2003 and the period ended May 31,
2001. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been 1.52% and
3.09% (annualized), respectively, and ratio of net investment income to average net assets would have been 1.06% and 0.03%
(annualized), respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2001.
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD YEAR
ENDED ENDED
YEAR ENDED MAY 31 MAY 31 AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN FUND-- 2003 2002 2001 2000 1999(a) 1998
INVESTOR CLASS
PER SHARE DATA
Net Asset Value--Beginning of Period $ 24.28 $ 26.75 $ 27.74 $ 32.37 $ 28.16 $ 27.77
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.40 0.39 0.55 0.81 0.60 0.83
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (1.63) (1.74) (0.29) (3.47) 5.03 0.87
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (1.23) (1.35) 0.26 (2.66) 5.63 1.70
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS 1.09 1.12 1.25 1.97 1.42 1.31
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 21.96 $ 24.28 $ 26.75 $ 27.74 $ 32.37 $ 28.16
====================================================================================================================================
TOTAL RETURN (4.85%) (5.13%) 1.08% (8.29%) 20.27%(b) 6.02%
RATIOS
Net Assets--End of Period ($000 Omitted) $ 810,787 $ 1,080,197 $ 1,462,543 $ 2,326,899 $ 3,418,746 $ 2,561,016
Ratio of Expenses to Average Net Assets(c)(d) 1.26% 1.49% 1.27% 1.00% 0.83%(e) 0.79%
Ratio of Net Investment Income to
Average Net Assets(d) 1.90% 1.57% 1.98% 2.60% 2.61%(e) 2.82%
Portfolio Turnover Rate 45% 54% 76% 49% 7%(b) 17%
(a) From September 1, 1998 to May 31, 1999.
(b) Based on operations for the period shown and, accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by INVESCO, if applicable, which is before any expense
offset arrangements (which may include custodian, distribution and transfer agent fees).
(d) Various expenses of the Class were voluntarily absorbed by INVESCO for the year ended May 31, 2003, the period ended May 31,
1999 and the year ended August 31, 1998. If such expenses had not been voluntarily absorbed, ratio of expenses to average net
assets would have been 1.50%, 0.84% (annualized) and 0.80%, respectively, and ratio of net investment income to average net
assets would have been 1.66%, 2.60% (annualized) and 2.81%, respectively.
(e) Annualized
FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS A CLASS B
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MAY 31 MAY 31 MAY 31 MAY 31
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN FUND-- CLASS A & CLASS B 2003 2002(a) 2003 2002(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $ 24.08 $ 25.28 $ 24.08 $ 25.28
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.63 0.03 0.54 0.02
Net Losses on Securities (Both Realized and Unrealized) (1.89) (0.95) (1.94) (0.96)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (1.26) (0.92) (1.40) (0.94)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS 1.35 0.28 1.37 0.26
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 21.47 $ 24.08 $ 21.31 $ 24.08
====================================================================================================================================
TOTAL RETURN(b) (4.99%) (3.64%)(c) (5.54%) (3.76%)(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $ 546 $ 93 $ 570 $ 91
Ratio of Expenses to Average Net Assets(d)(e) 1.34% 1.18%(f) 2.01% 1.86%(f)
Ratio of Net Investment Income to Average Net Assets(e) 1.76% 2.11%(f) 1.13% 1.27%(f)
Portfolio Turnover Rate 45% 54%(g) 45% 54%(g)
(a) From April 1, 2002, inception of Class, to May 31, 2002
(b) The applicable sales charges for Class A or CDSC for Class B is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses absorbed by INVESCO, if applicable, which is before any expense
offset arrangements (which may include custodian fees).
(e) Various expenses of each Class were absorbed by INVESCO for the year ended May 31, 2003. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have been 1.94% for Class A and 3.33% for Class B and ratio
of net investment income (loss) to average net assets would have been 1.16% for Class A and (0.19%) for Class B.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2002.
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED
YEAR ENDED MAY 31 MAY 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
TOTAL RETURN FUND--CLASS C
PER SHARE DATA
Net Asset Value--Beginning of Period $ 23.60 $ 26.07 $ 27.30 $ 26.71
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.12 0.05 0.43 0.29
Net Gains or (Losses) on Securities (Both Realized and Unrealized) (1.54) (1.71) (0.94) 0.87
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (1.42) (1.66) (0.51) 1.16
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS 0.71 0.81 0.72 0.57
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 21.47 $ 23.60 $ 26.07 $ 27.30
====================================================================================================================================
TOTAL RETURN(b) (5.91%) (6.44%) (1.78%) 4.40%(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $ 787 $ 591 $ 334 $ 10
Ratio of Expenses to Average Net Assets(d)(e) 2.24% 2.59% 2.30% 2.94%(f)
Ratio of Net Investment Income to Average Net Assets(e) 0.89% 0.46% 0.84% 1.46%(f)
Portfolio Turnover Rate 45% 54% 76% 49%(g)
(a) From February 15, 2000, inception of Class, to May 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses absorbed by INVESCO, if applicable, which is before any expense
offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by INVESCO for the year ended May 31, 2003. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would have been 3.49%, and ratio of net investment loss to
average net aseets would have been (0.36%).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2000.
AUGUST 12, 2003
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
INVESCO Core Equity Fund--INVESTOR CLASS, CLASS A, B, C, AND K
INVESCO BALANCED FUND--INVESTOR CLASS, CLASS A, B, C, AND K
INVESCO TOTAL RETURN FUND--INVESTOR CLASS, CLASS A, B, C, AND K
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 the effect of
market and general economic trends and a Fund's investment strategy on each
Fund's performance. The annual report also includes the report of the Funds'
independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated August 12, 2003, is a
supplement to this Prospectus and has detailed information about the Funds and
their investment policies and practices. A current SAI for the Funds is on file
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus of the Funds may be accessed through the
INVESCO Web site at invescofunds.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 A I M Fund Services, Inc., P.O. Box 4739, Houston,
Texas 77210-4739; or call 1-800-347-4246. 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. 20549-0102. You can obtain information on
the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 1-202-942-8090. This information can be
obtained by electronic request at the following E-mail address:
publicinfo@sec.gov. The SEC file numbers for the Funds are 811-8066 and
033-69904.
811-8066
APPENDIX III
YOUR FUND'S REPORT
TOTAL RETURN FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
All three of the major indexes measuring stock market performance retreated
during the 12-month period ended May 31, 2003. For the majority of the year,
investors were assailed by one concern after the next, from news of corporate
accounting fraud, to rising oil prices, to the war in Iraq and the ongoing
threat of terrorism. Additionally, there were few signs of improvement in the
economy, with consumer confidence dropping dramatically and the Institute for
Supply Management's monthly reports on the manufacturing sector showing
stagnation over the course of the year.
- --------------------------------------------------------------------------------
TOTAL RETURN FUND --
Top 10 COMMON STOCK HOLDINGS
% of Total Net Assets as of 5/31/03
- --------------------------------------------------------------------------------
Target Corp.........................2.47%
Anheuser-Busch Cos..................2.38%
Pfizer Corp.........................2.38%
Wells Fargo & Co....................2.26%
Lehman Brothers Holdings............2.24%
General Electric....................2.14%
Verizon Communications..............2.08%
Citigroup Inc.......................2.01%
Exxon Mobil.........................1.98%
Bank of America.....................1.97%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
However, when the war proved to be shorter than many had anticipated, the market
staged an impressive rally from March through May, gaining the most ground in
April. Indeed, hopes for a recovery blossomed during this latter part of the
fiscal year, as investors were able to turn their attention from geopolitical
events to better-than-expected first-quarter earnings reports. Nevertheless, the
rally was not enough to boost the stock market's annual return into positive
territory.
Against this backdrop, the fund's diversification across asset classes proved
beneficial, as defensive-minded investors rewarded bonds during the year. For
the 12-month period ended May 31, 2003, Total Return Fund-Investor Class shares
declined 4.85%, compared to an 8.05% loss for the S&P 500 Index.(R) The Lehman
Government/Credit Bond Index, however, gained 14.57% over the same period. (Of
course, past performance is no guarantee of future results.)(5),(6) For
performance of other share classes, please see page 2.
EXPOSURE TO FIXED-INCOME MARKETS PROVIDES BALLAST
With equity markets so volatile, investors turned to fixed-income securities for
stability. Bond investors originally feared that a Federal Reserve tightening
cycle would take hold by 2003, but with the economy's health remaining in
question and the possibility of deflation increasingly becoming a concern, the
central bank opted to remain open to more easing, as evidenced by a rate cut of
50 basis points in November. Given this turn of events, Treasuries outperformed.
And, with its substantial allocation in highly liquid fixed-income securities,
the fund benefited.
Pockets of strength on the equities side of the portfolio also played a part in
the fund's outperformance of the S&P 500 Index.(R) Although underweight relative
to the index in the health care sector, strong stock selection in this area
served us well. For example, Pharmacia Corp and Merck & Co both gained ground
over the past six months. Investors responded positively to Pfizer's acquisition
of Pharmacia, and Merck garnered favor after announcing that its earnings growth
was expected to increase significantly in 2003 from flat levels in 2002.
Other outperformance came from the technology sector, which languished early in
the period only to stage a dramatic comeback. Although underweight relative to
the index in tech stocks, we had increased the fund's position in companies like
Hewlett-Packard Co, Nokia Corp, and International Business Machines prior to the
rally -- a strategy that proved effective for the fund. Finally, a number of the
fund's financial services stocks provided a lift. Standouts included Lehman
Brothers Holdings, Merrill Lynch & Co, and American International Group.
SOME HOLDINGS DISAPPOINT
In a period that saw negative returns from every sector of the S&P 500,(R)
laggards came from a variety of areas. For example, industrial conglomerate SPX
Corp saw its earnings fall back in the second half of 2002 and into 2003 -- a
result of the struggling economy. Other detractors from performance included
Altria Group (formerly Philip Morris) and Qwest Communications International.
Altria suffered legal setbacks related to its tobacco business, and Qwest fell
prey to questions about its accounting practices. Although neither of these
companies remains a portfolio holding, some losses were incurred prior to our
decision to sell them.
PIE CHART: TOTAL RETURN FUND
SECTOR BREAKDOWN
AS OF 5/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
U.S. Government.....................25.07%
Financials..........................18.68%
Industrials.........................11.58%
Information Technology.............. 8.18%
Consumer Discretionary.............. 7.29%
Consumer Staples.................... 7.00%
Materials........................... 6.26%
Health Care......................... 5.58%
Energy.............................. 5.06%
Telecommunications Services......... 4.05%
Utilities........................... 1.41%
Net Cash & Cash Equivalents.........(0.16%)
LINE GRAPH: INVESCO TOTAL RETURN FUND - INVESTOR CLASS GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Total
Return Fund - Investor Class to the value of a $10,000 investment in the S&P 500
Index(R)(6) and to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(6), assuming in each case reinvestment of all
dividends and capital gain distributions, for the ten-year period ended 5/31/03.
INVESCO TOTAL RETURN FUND - LEHMAN GOVERNMENT/
INVESTOR CLASS S&P 500 INDEX(6) CREDIT BOND INDEX(6)
5/93 $10,000 $10,000 $10,000
5/94 $10,733 $10,425 $10,101
5/95 $12,589 $12,527 $11,274
5/96 $14,711 $16,086 $11,736
5/97 $17,616 $20,821 $12,663
5/98 $21,523 $27,205 $14,117
5/99 $23,749 $32,926 $14,690
5/00 $21,781 $36,373 $14,971
5/01 $22,017 $32,536 $16,896
5/02 $20,887 $28,033 $18,222
5/03 $19,873 $25,771 $20,877
MEET THE NEW MANAGEMENT TEAM
(AS OF 7/1/03)
KENNETH R. BOWLING, CFA
AS DIRECTOR OF U.S. FIXED-INCOME, KEN HAS BEEN WITH THE INVESCO FIXED-INCOME
DIVISION SINCE 1993. KEN EARNED A BACHELOR OF SCIENCE DEGREE IN MECHANICAL
ENGINEERING AND A MASTERS IN ENGINEERING FROM THE UNIVERSITY OF LOUISVILLE. HE
IS ALSO A CHARTERED FINANCIAL ANALYST CHARTERHOLDER AND A MEMBER OF THE
LOUISVILLE SOCIETY OF FINANCIAL ANALYSTS BEFORE JOINING INVESCO, HE WAS A LEAD
ENGINEER WITH GENERAL ELECTRIC, AND A PROJECT ENGINEER WITH GENERAL MOTORS.
MICHAEL C. HEYMAN, CFA
MICK IS A MEMBER OF THE INVESCO-NAM PORTFOLIO GROUP AND HAS MORE THAN 25 YEARS
OF INVESTMENT MANAGEMENT EXPERIENCE. HE IS A GRADUATE OF NORTHWESTERN
UNIVERSITY, A CHARTERED FINANCIAL ANALYST CHARTERHOLDER, AND A MEMBER OF THE
LOUISVILLE SOCIETY OF FINANCIAL ANALYSTS.
STEPHEN M. JOHNSON, CFA
STEVE JOHNSON JOINED INVESCO IN MAY OF 1991. AS CHIEF INVESTMENT OFFICER OF
INVESCO FIXED-INCOME, HE IS RESPONSIBLE FOR ALL PHASES OF THE FIXED-INCOME
INVESTMENT PROCESS. STEVE EARNED A BACHELOR OF SCIENCE DEGREE IN PETROLEUM
ENGINEERING FROM THE UNIVERSITY OF KANSAS, AN MBA FROM RICE UNIVERSITY, AND IS A
CHARTERED FINANCIAL ANALYST CHARTERHOLDER. HE BEGAN HIS INVESTMENT CAREER IN
1986, AND PRIOR TO JOINING INVESCO, HE WORKED AS A FIXED-INCOME PORTFOLIO
MANAGER FOR THE CAPITAL MANAGEMENT DIVISION OF PNC BANK.
MARK W. LATTIS, CFA
MARK IS A MEMBER OF THE INVESCO-NAM PORTFOLIO GROUP AND HAS MORE THAN 10 YEARS
OF INVESTMENT MANAGEMENT EXPERIENCE. AFTER COMPLETING HIS UNDERGRADUATE STUDIES
AT THE UNIVERSITY OF LOUISVILLE, MARK EARNED AN MBA FROM THE UNIVERSITY OF
KENTUCKY. HE IS A CHARTERED FINANCIAL ANALYST CHARTERHOLDER, AND CURRENTLY
SERVES AS PRESIDENT OF THE LOUISVILLE SOCIETY OF FINANCIAL ANALYSTS.
RICHARD J. KING, CFA
RICH JOINED INVESCO'S FIXED-INCOME INVESTMENT MANAGEMENT TEAM IN 2000, BRINGING
16 YEARS OF FIXED-INCOME PORTFOLIO MANAGEMENT EXPERIENCE. HE IS A GRADUATE OF
THE OHIO STATE UNIVERSITY WHERE HE EARNED A BACHELOR OF SCIENCE DEGREE IN
BUSINESS ADMINISTRATION. HE HAS PASSED THE CERTIFIED PUBLIC ACCOUNTANT
EXAMINATION, AND IS A CHARTERED FINANCIAL ANALYST CHARTERHOLDER. PRIOR TO
INVESCO, RICH SERVED AS CHAIRMAN OF THE CORE SECTOR GROUP OF CRITERION
INVESTMENT MANAGEMENT, AND WAS ALSO A MANAGING DIRECTOR AND PORTFOLIO MANAGER
WITH BEAR STEARNS ASSET MANAGEMENT.
DIVERSIFICATION REMAINS A PRIMARY FOCUS
An economic recovery seems to be gradually taking shape in the wake of improved
investor sentiment, the end of the war in Iraq, and the passage of an economic
stimulus plan. We'll keep looking for new opportunities on both the buy and sell
sides, taking profits where we can and making the most of any attractive
valuations resulting from the market volatility. As always, we will maintain
significant exposure to fixed-income securities for diversification purposes.
REPORTED BY FORMER FUND MANAGERS CHARLES P. MAYER (EQUITY) AND RICHARD R.
HINDERLIE (FIXED-INCOME). AS OF 7/1/03, THE FUND HAS BEEN MANAGED BY KENNETH R.
BOWLING, MICHAEL C. HEYMAN, STEPHEN M. JOHNSON, MARK W. LATTIS, AND RICHARD J.
KING.
LINE GRAPH: INVESCO TOTAL RETURN FUND - CLASS A & CLASS B GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Total
Return Fund - Class A and the value of a $10,000 investment in INVESCO Total
Return Fund - Class B to the value of a $10,000 investment in the S&P 500
Index(R)(6) and to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(6), assuming in each case reinvestment of all
dividends and capital gain distributions, and in the cases of INVESCO Total
Return Fund - Class A and Class B, inclusion of front-end sales charge and
contingent deferred sales charge, respectively, for the period since inception
(4/02) through 5/31/03.
INVESCO TOTAL RETURN INVESCO TOTAL RETURN LEHMAN GOVERNMENT/
FUND - CLASS A FUND - CLASS B S&P 500 INDEX(6) CREDIT BOND INDEX(6)
4/02 $10,000 $10,000 $10,000 $10,000
5/02 $ 9,107 $ 9,624 $ 9,325 $10,288
5/03 $ 8,652 $ 8,691 $ 8,572 $11,787
LINE GRAPH: INVESCO TOTAL RETURN FUND - CLASS C GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Total
Return Fund - Class C to the value of a $10,000 investment in the S&P 500
Index(R)(6) and to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(6), assuming in each case reinvestment of all
dividends and capital gain distributions, and in the case of INVESCO Total
Return Fund - Class C, inclusion of contingent deferred sales charge, for the
period since inception (2/00) through 5/31/03.
LEHMAN GOVERNMENT/
INVESCO TOTAL RETURN FUND - CLASS C S&P 500 INDEX(6) CREDIT BOND INDEX(6)
2/00 $10,000 $10,000 $10,000
5/00 $10,440 $10,429 $10,086
5/01 $10,254 $ 9,329 $11,383
5/02 $ 9,593 $ 8,038 $12,277
5/03 $ 9,026 $ 7,389 $14,065
(5)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEXES DO NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED THEIR PERFORMANCE.
(6)THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET, AND THE LEHMAN GOVERNMENT/CREDIT BOND
INDEX IS AN UNMANAGED INDEX REFLECTING PERFORMANCE OF THE LONG-TERM FIXED-INCOME
MARKET. THE INDEXES ARE NOT MANAGED; THEREFORE, THEIR PERFORMANCE DOES NOT
REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND INCLUDING
FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET
INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
APPENDIX IV
[REGISTRANT]
MASTER INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this day of , 200 , by and between
[Registrant], a Delaware statutory trust (the "Trust") with respect to its
series of shares shown on the Appendix A attached hereto, as the same may be
amended from time to time, and A I M Advisors, Inc., a Delaware corporation (the
"Advisor").
RECITALS
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management investment
company;
WHEREAS, the Advisor is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as an investment advisor and engages in
the business of acting as an investment advisor;
WHEREAS, the Trust's Agreement and Declaration of Trust (the "Declaration
of Trust") authorizes the Board of Trustees of the Trust (the "Board of
Trustees") to create separate series of shares of beneficial interest of the
Trust, and as of the date of this Agreement, the Board of Trustees has created
separate series portfolios (such portfolios and any other portfolios
hereafter added to the Trust being referred to collectively herein as the
"Funds"); and
WHEREAS, the Trust and the Advisor desire to enter into an agreement to
provide for investment advisory services to the Funds upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Advisory Services. The Advisor shall act as investment advisor for the
Funds and shall, in such capacity, supervise all aspects of the Funds'
operations, including the investment and reinvestment of cash, securities or
other properties comprising the Funds' assets, subject at all times to the
policies and control of the Board of Trustees. The Advisor shall give the Trust
and the Funds the benefit of its best judgment, efforts and facilities in
rendering its services as investment advisor.
2. Investment Analysis and Implementation. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise all aspects of the operations of the Funds;
(b) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Funds,
and whether concerning the individual issuers whose securities are included
in the assets of the Funds or the activities in which such issuers engage,
or with respect to securities which the Advisor considers desirable for
inclusion in the Funds' assets;
(c) determine which issuers and securities shall be represented in the
Funds' investment portfolios and regularly report thereon to the Board of
Trustees;
(d) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Board of Trustees; and
(e) take, on behalf of the Trust and the Funds, all actions which
appear to the Trust and the Funds necessary to carry into effect such
purchase and sale programs and supervisory functions as aforesaid,
including but not limited to the placing of orders for the purchase and
sale of securities for the Funds.
IV-1
3. Securities Lending Duties and Fees. The Advisor agrees to provide the
following services in connection with the securities lending activities of each
Fund: (a) oversee participation in the securities lending program to ensure
compliance with all applicable regulatory and investment guidelines; (b) assist
the securities lending agent or principal (the "Agent") in determining which
specific securities are available for loan; (c) monitor the Agent to ensure that
securities loans are effected in accordance with the Advisor's instructions and
with procedures adopted by the Board of Trustees; (d) prepare appropriate
periodic reports for, and seek appropriate approvals from, the Board of Trustees
with respect to securities lending activities; (e) respond to Agent inquiries;
and (f) perform such other duties as necessary.
As compensation for such services provided by the Advisor in connection
with securities lending activities of each Fund, a lending Fund shall pay the
Advisor a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities.
4. Delegation of Responsibilities. The Advisor is authorized to delegate
any or all of its rights, duties and obligations under this Agreement to one or
more sub-advisors, and may enter into agreements with sub-advisors, and may
replace any such sub-advisors from time to time in its discretion, in accordance
with the 1940 Act, the Advisers Act, and rules and regulations thereunder, as
such statutes, rules and regulations are amended from time to time or are
interpreted from time to time by the staff of the Securities and Exchange
Commission ("SEC"), and if applicable, exemptive orders or similar relief
granted by the SEC and upon receipt of approval of such sub-advisors by the
Board of Trustees and by shareholders (unless any such approval is not required
by such statutes, rules, regulations, interpretations, orders or similar
relief).
5. Independent Contractors. The Advisor and any sub-advisors shall for
all purposes herein be deemed to be independent contractors and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed to be an agent of the
Trust.
6. Control by Board of Trustees. Any investment program undertaken by the
Advisor pursuant to this Agreement, as well as any other activities undertaken
by the Advisor on behalf of the Funds, shall at all times be subject to any
directives of the Board of Trustees.
7. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and the Advisers Act and
any rules and regulations adopted thereunder;
(b) the provisions of the registration statement of the Trust, as the
same may be amended from time to time under the Securities Act of 1933 and
the 1940 Act;
(c) the provisions of the Declaration of Trust, as the same may be
amended from time to time;
(d) the provisions of the by-laws of the Trust, as the same may be
amended from time to time; and
(e) any other applicable provisions of state, federal or foreign law.
8. Broker-Dealer Relationships. The Advisor is responsible for decisions
to buy and sell securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates.
(a) The Advisor's primary consideration in effecting a security
transaction will be to obtain the best execution.
(b) In selecting a broker-dealer to execute each particular
transaction, the Advisor will take the following into consideration: the
best net price available; the reliability, integrity and financial
condition of the broker-dealer; the size of and the difficulty in executing
the order; and the value of the expected contribution of the broker-dealer
to the investment performance of the Funds on a continuing basis.
Accordingly, the price to the Funds in any transaction may be less
favorable than
IV-2
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the fund execution services offered.
(c) Subject to such policies as the Board of Trustees may from time to
time determine, the Advisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Funds to pay a broker or dealer that
provides brokerage and research services to the Advisor an amount of
commission for effecting a fund investment transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to a particular Fund, other Funds of the
Trust, and to other clients of the Advisor as to which the Advisor
exercises investment discretion. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Funds to such brokers and
dealers who also provide research or statistical material, or other
services to the Funds, to the Advisor, or to any sub-advisor. Such
allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocations regularly to the
Board of Trustees indicating the brokers to whom such allocations have been
made and the basis therefor.
(d) With respect to one or more Funds, to the extent the Advisor does
not delegate trading responsibility to one or more sub-advisors, in making
decisions regarding broker-dealer relationships, the Advisor may take into
consideration the recommendations of any sub-advisor appointed to provide
investment research or advisory services in connection with the Funds, and
may take into consideration any research services provided to such
sub-advisor by broker-dealers.
(e) Subject to the other provisions of this Section 8, the 1940 Act,
the Securities Exchange Act of 1934, and rules and regulations thereunder,
as such statutes, rules and regulations are amended from time to time or
are interpreted from time to time by the staff of the SEC, any exemptive
orders issued by the SEC, and any other applicable provisions of law, the
Advisor may select brokers or dealers with which it or the Funds are
affiliated.
9. Compensation. The compensation that each Fund shall pay the Advisor is
set forth in Appendix B attached hereto.
10. Expenses of the Funds. All of the ordinary business expenses incurred
in the operations of the Funds and the offering of their shares shall be borne
by the Funds unless specifically provided otherwise in this Agreement. These
expenses borne by the Funds include but are not limited to brokerage
commissions, taxes, legal, accounting, auditing, or governmental fees, the cost
of preparing share certificates, custodian, transfer and shareholder service
agent costs, expenses of issue, sale, redemption and repurchase of shares,
expenses of registering and qualifying shares for sale, expenses relating to
trustees and shareholder meetings, the cost of preparing and distributing
reports and notices to shareholders, the fees and other expenses incurred by the
Trust on behalf of the Funds in connection with membership in investment company
organizations and the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders.
11. Services to Other Companies or Accounts. The Trust understands that
the Advisor now acts, will continue to act and may act in the future as
investment manager or advisor to fiduciary and other managed accounts, and as
investment manager or advisor to other investment companies, including any
offshore entities, or accounts, and the Trust has no objection to the Advisor so
acting, provided that whenever the Trust and one or more other investment
companies or accounts managed or advised by the Advisor have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each company and account.
The Trust recognizes that in some cases this procedure may adversely affect the
size of the positions obtainable and the prices realized for the Funds.
IV-3
12. Non-Exclusivity. The Trust understands that the persons employed by
the Advisor to assist in the performance of the Advisor's duties under this
Agreement will not devote their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict the right of the Advisor
or any affiliate of the Advisor to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature. The Trust
further understands and agrees that officers or directors of the Advisor may
serve as officers or trustees of the Trust, and that officers or trustees of the
Trust may serve as officers or directors of the Advisor to the extent permitted
by law; and that the officers and directors of the Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
13. Effective Date, Term and Approval. This Agreement shall become
effective with respect to a Fund, if approved by the shareholders of such Fund,
on the Effective Date for such Fund, as set forth in Appendix A attached hereto.
If so approved, this Agreement shall thereafter continue in force and effect
until , 200 , and may be continued from year to year thereafter,
provided that the continuation of the Agreement is specifically approved at
least annually:
(a) (i) by the Board of Trustees or (ii) by the vote of "a majority of
the outstanding voting securities" of such Fund (as defined in Section
2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) of a party to this Agreement (other than as trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated as to the Trust or as
to any one or more of the Funds at any time, without the payment of any penalty,
by vote of the Board of Trustees or by vote of a majority of the outstanding
voting securities of the applicable Fund, or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by the party entitled to receipt thereof. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for purposes of
this paragraph having the meaning defined in Section 2(a)(4) of the 1940 Act.
15. Amendment. No amendment of this Agreement shall be effective unless
it is in writing and signed by the party against which enforcement of the
amendment is sought.
16. Liability of Advisor and Fund. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Advisor or any of its officers, directors or
employees, the Advisor shall not be subject to liability to the Trust or to the
Funds or to any shareholder of the Funds for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security. Any liability of
the Advisor to one Fund shall not automatically impart liability on the part of
the Advisor to any other Fund. No Fund shall be liable for the obligations of
any other Fund.
17. Liability of Shareholders. Notice is hereby given that, as provided
by applicable law, the obligations of or arising out of this Agreement are not
binding upon any of the shareholders of the Trust individually but are binding
only upon the assets and property of the Trust and that the shareholders shall
be entitled, to the fullest extent permitted by applicable law, to the same
limitation on personal liability as shareholders of private corporations for
profit.
18. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered, telecopied or mailed postage paid, to the other party
entitled to receipt thereof at such address as such party may designate for the
receipt of such notice. Until further notice to the other party, it is agreed
that the address of the Trust and that of the Advisor shall be 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
19. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act or the
IV-4
Advisers Act shall be resolved by reference to such term or provision of the
1940 Act or the Advisers Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to said Acts.
In addition, where the effect of a requirement of the 1940 Act or the Advisers
Act reflected in any provision of the Agreement is revised by rule, regulation
or order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Subject to the foregoing, this Agreement shall
be governed by and construed in accordance with the laws (without reference to
conflicts of law provisions) of the State of Texas.
20. License Agreement. The Trust shall have the non-exclusive right to
use the name "AIM" to designate any current or future series of shares only so
long as A I M Advisors, Inc. serves as investment manager or advisor to the
Trust with respect to such series of shares.
IV-5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
[REGISTRANT]
(a Delaware statutory trust)
Attest:
<Table>
- ----------------------------------------- By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
Attest:
A I M ADVISORS, INC.
- -----------------------------------------
By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
</Table>
IV-6
APPENDIX A
FUNDS AND EFFECTIVE DATES
<Table>
<Caption>
NAME OF FUND EFFECTIVE DATE OF ADVISORY AGREEMENT
- ------------ ------------------------------------
[To Be Added] [To Be Added]
</Table>
A-1
APPENDIX B
COMPENSATION TO THE ADVISOR
The Trust shall pay the Advisor, out of the assets of a Fund, as full
compensation for all services rendered, an advisory fee for such Fund set forth
below. Such fee shall be calculated by applying the following annual rates to
the average daily net assets of such Fund for the calendar year computed in the
manner used for the determination of the net asset value of shares of such Fund.
[To Be Added -- Please see Exhibit L for the annual rates applicable to
your Fund]
B-1
APPENDIX V
MASTER INTERGROUP SUB-ADVISORY CONTRACT FOR MUTUAL FUNDS
This contract is made as of , 200 , between A I M Advisors, Inc.
hereinafter "Adviser," 11 Greenway Plaza, Suite 100, Houston, Texas 77046, and
[INVESCO Institutional (N.A.), Inc.] "Sub-Adviser," 1360 Peachtree Street, N.E.,
Suite 100 Atlanta, Georgia 30309.
WHEREAS:
A) Adviser has entered into an investment advisory agreement with
[Registrant] (hereinafter "Trust"), an open-end management investment
company registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), with respect to the funds set forth in Exhibit A
attached hereto (each a "Fund");
B) Sub-Adviser represents that it is licensed under the Investment Advisers
Act of 1940 ("Advisers Act") as an investment adviser and engages in the
business of acting as an investment adviser;
C) Adviser is authorized to delegate certain, any or all of its rights,
duties and obligations under investment advisory agreements to
sub-advisers, including sub-advisers that are affiliated with Adviser.
NOW THEREFORE, in consideration of the promises and the mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. Adviser hereby appoints Sub-Adviser as Sub-Adviser of
each Fund for the period and on the terms set forth herein. Sub-Adviser accepts
such appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. Duties as Sub-Adviser.
(a) Subject to the supervision of the Trust's Board of Trustees ("Board")
and Adviser, the Sub-Adviser will provide a continuous investment program for
each Fund, including investment research and management, with respect to all or
a portion of the securities and investments and cash equivalents of the Fund
(the "Sub-Advised Assets"), such Sub-Advised Assets to be determined by the
Adviser. The Sub-Adviser will determine from time to time what securities and
other investments will be purchased, retained or sold with respect to the
Sub-Advised Assets of each Fund, and the brokers and dealers through whom trades
will be executed.
(b) The Sub-Adviser agrees that, in placing orders with brokers and
dealers, it will attempt to obtain the best net result in terms of price and
execution. Consistent with this obligation, the Sub-Adviser may, in its
discretion, purchase and sell portfolio securities from and to brokers and
dealers who sell shares of the Funds or provide the Funds, Adviser's other
clients, or Sub-Adviser's other clients with research, analysis, advice and
similar services. The Sub-Adviser may pay to brokers and dealers, in return for
such research and analysis, a higher commission or spread than may be charged by
other brokers and dealers, subject to the Sub-Adviser determining in good faith
that such commission or spread is reasonable in terms either of the particular
transaction or of the overall responsibility of the Adviser and the Sub-Adviser
to the Funds and their other clients and that the total commissions or spreads
paid by each Fund will be reasonable in relation to the benefits to the Fund
over the long term. In no instance will portfolio securities be purchased from
or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the applicable securities laws and the rules and regulations
thereunder and any exemptive orders currently in effect. Whenever the
Sub-Adviser simultaneously places orders to purchase or sell the same security
on behalf of a Fund and one or more other accounts advised by the Sub-Adviser,
such orders will be allocated as to price and amount among all such accounts in
a manner believed to be equitable to each account.
(c) The Sub-Adviser will maintain all required books and records with
respect to the securities transactions of the Funds, and will furnish the Board
and Adviser with such periodic and special reports as
V-1
the Board or Adviser reasonably may request. Sub-Adviser hereby agrees that all
records which it maintains for the Adviser are the property of the Adviser, and
agrees to preserve for the periods prescribed by applicable law any records
which it maintains for the Adviser and which are required to be maintained, and
further agrees to surrender promptly to the Adviser any records which it
maintains for the Adviser upon request by the Adviser.
3. Further Duties. In all matters relating to the performance of this
Contract, Sub-Adviser will act in conformity with the Agreement and Declaration
of Trust, By-Laws and Registration Statement of the Trust and with the
instructions and directions of the Board and will comply with the requirements
of the 1940 Act, the rules, regulations, exemptive orders and no-action
positions thereunder, and all other applicable laws and regulations. Sub-Adviser
shall maintain compliance procedures for the Funds that it and the Adviser
reasonably believe are adequate to ensure compliance with the 1940 Act and the
investment objective(s) and policies as stated in the prospectuses and
statements of additional information.
4. Services Not Exclusive. The services furnished by Sub-Adviser
hereunder are not to be deemed exclusive and Sub-Adviser shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Sub-Adviser, who may also be a
Trustee, officer or employee of the Trust, to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any other business, whether of a similar nature or a dissimilar nature.
5. Compensation.
(a) For the services provided to a Fund under this Contract, Adviser will
pay Sub-Adviser a fee, computed daily and paid monthly, at the rate of 40% of
the Adviser's compensation on the Sub-Advised Assets per year, on or before the
last business day of the next succeeding calendar month.
(b) If this Contract becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of the month or
from the beginning of such month to the date of termination, as the case may be,
shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
6. Fee Waivers and Expense Limitations. If, for any fiscal year of the
Trust, the amount of the advisory fee which the Fund would otherwise be
obligated to pay to the Adviser is reduced because of contractual or voluntary
fee waivers or expense limitations by the Adviser, the fee payable hereunder to
the Sub-Adviser shall be reduced proportionately; and to the extent that the
Adviser reimburses the Fund as a result of such expense limitations, the
Sub-Adviser shall reimburse the Adviser that proportion of such reimbursement
payments which the sub-advisory fee hereunder bears to the advisory fee under
this Contract.
7. Limitation of Liability of Sub-Adviser and
Indemnification. Sub-Adviser shall not be liable for any costs or liabilities
arising from any error of judgment or mistake of law or any loss suffered by the
Fund or the Trust in connection with the matters to which this Contract relates
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of Sub-Adviser in the performance by Sub-Adviser of its duties or
from reckless disregard by Sub-Adviser of its obligations and duties under this
Contract. Any person, even though also an officer, partner, employee, or agent
of Sub-Adviser, who may be or become a Trustee, officer, employee or agent of
the Trust, shall be deemed, when rendering services to a Fund or the Trust or
acting with respect to any business of a Fund or the Trust to be rendering such
service to or acting solely for the Fund or the Trust and not as an officer,
partner, employee, or agent or one under the control or direction of Sub-Adviser
even though paid by it.
8. Duration and Termination.
(a) This Contract shall become effective upon the date hereabove written,
provided that this Contract shall not take effect with respect to any Fund
unless it has first been approved (i) by a vote of a majority of the independent
Trustees who are not parties to this Contract or "interested persons" (as
defined in the 1940 Act) of a party to this Contract, other than as Board
members ("Independent Trustees"), cast in
V-2
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of that Fund's outstanding voting securities, when
required by the 1940 Act.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in force and effect until , 200 . Thereafter, if not
terminated, with respect to each Fund, this Contract shall continue
automatically for successive periods not to exceed twelve months each, provided
that such continuance is specifically approved at least annually (i) by a vote
of a majority of the Independent Trustees, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by the Board or by vote of
a majority of the outstanding voting securities of that Fund.
(c) Notwithstanding the foregoing, with respect to any Fund this Contract
may be terminated at any time, without the payment of any penalty, (i) by vote
of the Board or by a vote of a majority of the outstanding voting securities of
the Fund on sixty days' written notice to Sub-Adviser; or (ii) by the Adviser on
sixty days' written notice to Sub-Adviser; or (iii) by the Sub-Adviser on sixty
days' written notice to the Trust. Termination of this Contract with respect to
one Fund shall not affect the continued effectiveness of this Contract with
respect to any other Fund. This Contract will automatically terminate in the
event of its assignment.
9. Amendment. No provision of this Contract may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and, when required by the 1940 Act, no amendment of this
Contract shall be effective until approved by vote of a majority of the Fund's
outstanding voting securities.
10. Notices. Any notices under this Contract shall be writing, addressed
and delivered, telecopied or mailed postage paid, to the other party entitled to
receipt thereof at such address as such party may designate for the receipt of
such notice. Until further notice to the other party, it is agreed that the
address of the Trust and the Adviser shall be 11 Greenway Plaza, Suite 100,
Houston, Texas 77046. Until further notice to the other party, it is agreed that
the address of the Sub-Adviser shall be 1360 Peachtree Street, N.E., Suite 100,
Atlanta, Georgia 30309.
11. Governing Law. This Contract shall be construed in accordance with
the laws of the State of Texas and the 1940 Act. To the extent that the
applicable laws of the State of Texas conflict with the applicable provisions of
the 1940 Act, the latter shall control.
12. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. Any question of
interpretation of any term or provision of this Contract having a counterpart in
or otherwise derived from a term or provision of the 1940 Act or the Advisers
Act shall be resolved by reference to such term or provision of the 1940 Act or
the Advisers Act and to interpretations thereof, if any, by the United States
Courts or in the absence of any controlling decision of any such court, by
rules, regulations or orders of the Securities and Exchange Commission ("SEC")
issued pursuant to said Acts. In addition, where the effect of a requirement of
the 1940 Act or the Advisers Act reflected in any provision of the Contract is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
V-3
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
<Table>
A I M ADVISORS, INC. [INVESCO INSTITUTIONAL (N.A.), INC.]
Adviser Sub-adviser
By:
- -----------------------------------------
By: ----------------------------------------------------
Name:
- -----------------------------------------
Name: -------------------------------------------------
Title:
- ----------------------------------------- Title:
--------------------------------------------------
</Table>
V-4
EXHIBIT A
TO
MASTER INTERGROUP SUB-ADVISORY CONTRACT FOR MUTUAL FUNDS
FUND
[To Be Added]
V-5
APPENDIX VI
[NAME OF INVESCO FUND]
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of August
13, 2003, by and between [name of current INVESCO Fund], a Maryland corporation
(the "Company"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A to this Agreement, and
[name of new Delaware statutory trust], a Delaware statutory trust (the
"Trust"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A.
BACKGROUND
The Company is organized as a series management investment company and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended. The Company currently publicly offers shares of
common stock representing interests in one or more separate series portfolios.
Each of these series portfolios is listed on Schedule A and is referred to in
this Agreement as a "Current Fund."
The Board of Directors of the Company has designated one or more classes of
common stock that represent interests in each Current Fund. Each of these
classes is listed on Schedule B to this Agreement and is referred to in this
Agreement as a "Current Fund Class."
The Company desires to change its form and place of organization by
reorganizing as the Trust. In anticipation of such reorganization, the Board of
Trustees of the Trust has established a series portfolio corresponding to each
of the Current Funds (each a "New Fund"), and has designated one or more classes
of shares of beneficial interest in each New Fund corresponding to the Current
Fund Classes (each a "New Fund Class"). Schedule A lists the New Funds and
Schedule B lists the New Fund Classes.
Each Current Fund desires to provide for its Reorganization (each, a
"Reorganization" and collectively, the "Reorganizations") through the transfer
of all of its assets to the corresponding New Fund in exchange for the
assumption by such New Fund of the liabilities of the corresponding Current Fund
and the issuance by the Trust to such Current Fund of shares of beneficial
interest in the New Fund ("New Fund Shares"). New Fund Shares received by a
Current Fund will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Current Fund immediately prior to the
Reorganization (the "Current Fund Shares"). Each Current Fund will then
distribute the New Fund Shares it has received to its shareholders.
Each Reorganization of each Current Fund is dependent upon the consummation
of the Reorganization of all of the other Current Funds, so that the
Reorganizations of all of the Current Funds must be consummated if any of them
are to be consummated. For convenience, the balance of this Agreement refers
only to a single Reorganization, but the terms and conditions hereof shall apply
separately to each Reorganization and to the Current Fund and the corresponding
New Fund participating therein, as applicable.
The Reorganization is subject to, and shall be effected in accordance with,
the terms of this Agreement. This Agreement is intended to be and is adopted by
the Company, on its own behalf and on behalf of the Current Funds, and by the
Trust, on its own behalf and on behalf of the New Funds, as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
VI-1
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS
Any capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the preamble or background to this Agreement. In addition,
the following terms shall have the following meanings:
1.1 "Assets" shall mean all assets including, without limitation, all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and prepaid
expenses shown as assets on a Current Fund's books, and other property owned by
a Current Fund at the Effective Time.
1.2 "Closing" shall mean the consummation of the transfer of Assets,
assumption of Liabilities and issuance of shares described in Sections 2.1 and
2.2 of this Agreement, together with the related acts necessary to consummate
the Reorganization, to occur on the date set forth in Section 3.1.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4 "Current Fund" shall mean each of the series portfolios of the Company
as shown on Schedule A.
1.5 "Current Fund Class" shall mean each class of common stock of the
Company representing an interest in a Current Fund as shown on Schedule B.
1.6 "Current Fund Shares" shall mean the shares of a Current Fund
outstanding immediately prior to the Reorganization.
1.7 "Effective Time" shall have the meaning set forth in Section 3.1.
1.8 "Liabilities" shall mean all liabilities of a Current Fund including,
without limitation, all debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
determinable at the Effective Time, and whether or not specifically referred to
herein.
1.9 "New Fund" shall mean each of the series portfolios of the Trust, one
of which shall correspond to one of the Current Funds as shown on Schedule A.
1.10 "New Fund Class" shall mean each class of shares of beneficial
interest in a New Fund, one of which shall correspond to one of the Current Fund
Classes as shown on Schedule B.
1.11 "New Fund Shares" shall mean those shares of beneficial interest in a
New Fund issued to a Current Fund hereunder.
1.12 "Registration Statement" shall have the meaning set forth in Section
5.4.
1.13 "RIC" shall mean a "regulated investment company" (as defined under
Subchapter M of the Code).
1.14 "SEC" shall mean the Securities and Exchange Commission.
1.15 "Shareholder(s)" shall mean a Current Fund's shareholder(s) of
record, determined as of the Effective Time.
1.16 "Shareholders Meeting" shall have the meaning set forth in Section
5.1.
1.17 "Transfer Agent" shall have the meaning set forth in Section 2.2.
1.18 "1940 Act" shall mean the Investment Company Act of 1940, as amended.
VI-2
2. PLAN OF REORGANIZATION
2.1 The Company agrees, on behalf of each Current Fund, to assign, sell,
convey, transfer and deliver all of the Assets of each Current Fund to its
corresponding New Fund. The Trust, on behalf of each New Fund, agrees in
exchange therefor:
(a) to issue and deliver to the corresponding Current Fund the number
of full and fractional (rounded to the third decimal place) New Fund Shares
of each New Fund Class designated on Schedule B equal to the number of full
and fractional Current Fund Shares of each corresponding Current Fund Class
designated on Schedule B; and
(b) to assume all of the Current Fund's Liabilities.
Such transactions shall take place at the Closing.
2.2 At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Shares issued pursuant to Section 5.2 shall be
redeemed by each New Fund for $10.00 and (b) each Current Fund shall distribute
the New Fund Shares received by it pursuant to Section 2.1 to the Current Fund's
Shareholders in exchange for such Shareholders' Current Fund Shares. Such
distribution shall be accomplished through opening accounts, by the transfer
agent for the Trust (the "Transfer Agent"), on each New Fund's share transfer
books in the Shareholders' names and transferring New Fund Shares to such
accounts. Each Shareholder's account shall be credited with the respective pro
rata number of full and fractional (rounded to the third decimal place) New Fund
Shares of each New Fund Class due that Shareholder. All outstanding Current Fund
Shares, including those represented by certificates, shall simultaneously be
canceled on each Current Fund's share transfer books. The Trust shall not issue
certificates representing the New Fund Shares in connection with the
Reorganization. However, certificates representing Current Fund Shares shall
represent New Fund Shares after the Reorganization.
2.3 Following receipt of the required shareholder vote and as soon as
reasonably practicable after the Closing, the status of each Current Fund as a
designated series of the Company shall be terminated; provided, however, that
the termination of each Current Fund as a designated series of the Company shall
not be required if the Reorganization shall not have been consummated.
2.4 Following receipt of the required shareholder vote and as soon as
reasonably practicable after distribution of the New Fund Shares pursuant to
Section 2.2, the Company and the Trust shall cause Articles of Transfer to be
filed with the State Department of Assessments and Taxation of Maryland and,
following the filing of Articles of Transfer, the Company shall file Articles of
Dissolution with the State Department of Assessments and Taxation of Maryland to
dissolve the Company as a Maryland corporation; provided, however, that the
filing of Articles of Transfer and Articles of Dissolution as aforesaid shall
not be required if the Reorganization shall not have been consummated.
2.5 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder of the Current Fund Shares exchanged
therefor shall be paid by the person to whom such New Fund Shares are to be
issued, as a condition of such transfer.
2.6 Any reporting responsibility of the Company or each Current Fund to a
public authority is and shall remain its responsibility up to and including the
date on which it is terminated.
3. CLOSING
3.1 The Closing shall occur at the principal office of the Company on
[date], 2003, or on such other date and at such other place upon which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the Company's and the Trust's close of business on
the date of the Closing or at such other time as the parties may agree (the
"Effective Time").
3.2 The Company or its fund accounting agent shall deliver to the Trust at
the Closing, a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by the Current Funds to
the New
VI-3
Funds, as reflected on the New Funds' books immediately following the Closing,
does or will conform to such information on the Current Funds' books immediately
before the Closing. The Company shall cause the custodian for each Current Fund
to deliver at the Closing a certificate of an authorized officer of the
custodian stating that (a) the Assets held by the custodian will be transferred
to each corresponding New Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3 The Company shall deliver to the Trust at the Closing a list of the
names and addresses of each Shareholder of each Current Fund and the number of
outstanding Current Fund Shares of the Current Fund Class owned by each
Shareholder, all as of the Effective Time, certified by the Company's Secretary
or Assistant Secretary. The Trust shall cause the Transfer Agent to deliver at
the Closing a certificate as to the opening on each New Fund's share transfer
books of accounts in the Shareholders' names. The Trust shall issue and deliver
a confirmation to the Company evidencing the New Fund Shares to be credited to
each corresponding Current Fund at the Effective Time or provide evidence
satisfactory to the Company that such shares have been credited to each Current
Fund's account on such books. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, stock certificates, receipts, or
other documents as the other party or its counsel may reasonably request.
3.4 The Company and the Trust shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Company represents and warrants on its own behalf and on behalf of
each Current Fund as follows:
(a) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland, and its Charter
is on file with the Maryland Department of Assessments and Taxation;
(b) The Company is duly registered as an open-end series management
investment company under the 1940 Act, and such registration is in full
force and effect;
(c) Each Current Fund is a duly established and designated series of
the Company;
(d) At the Closing, each Current Fund will have good and marketable
title to its Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, the corresponding New Fund
will acquire good and marketable title to the Assets;
(e) The New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms
hereof;
(f) Each Current Fund is a "fund" as defined in Section 851(g)(2) of
the Code; each Current Fund qualified for treatment as a RIC for each
taxable year since it commenced operations that has ended (or will end)
before the Closing and will continue to meet all the requirements for such
qualification for its current taxable year (and the Assets will be invested
at all times through the Effective Time in a manner that ensures compliance
with the foregoing); each Current Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it; and each Current Fund has made all distributions for each
calendar year that has ended (or will end) before the Closing that are
necessary to avoid the imposition of federal excise tax or has paid or
provided for the payment of any excise tax imposed for any such calendar
year;
VI-4
(g) During the five-year period ending on the date of the
Reorganization, neither Company nor any person related to Company (as
defined in Section 1.368-1(e)(3) of the Federal income tax regulations
adopted pursuant to the Code without regard to Section 1.368-1(e)(3)(i)(A))
will have directly or through any transaction, agreement, or arrangement
with any other person, (i) acquired shares of a Current Fund for
consideration other than shares of such Current Fund, except for shares
redeemed in the ordinary course of such Current Fund's business as an
open-end investment company as required by the 1940 Act, or (ii) made
distributions with respect to a Current Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and
4982 of the Code for qualification as a regulated investment company and
avoidance of excise tax liability and (b) additional distributions, to the
extent such additional distributions do not exceed 50 percent of the value
(without giving effect to such distributions) of the proprietary interest
in such Current Fund at the Effective Time. There is no plan or intention
of the Shareholders who individually own 5% or more of any Current Fund
Shares and, to the best of the Company's knowledge, there is no plan or
intention of the remaining Shareholders to redeem or otherwise dispose of
any New Fund Shares to be received by them in the Reorganization. The
Company does not anticipate dispositions of those shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of the Current Fund as a series of an open-end
investment company. Consequently, the Company is not aware of any plan that
would cause the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization to be one
percent (1%) or more of the shares of the Current Fund outstanding as of
the Effective Time;
(h) The Liabilities were incurred by the Current Funds in the ordinary
course of their business and are associated with the Assets;
(i) The Company is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
(j) As of the Effective Time, no Current Fund will have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Current Fund Shares except for
the right of investors to acquire its shares at net asset value in the
normal course of its business as a series of an open-end diversified
management investment company operating under the 1940 Act;
(k) At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by the Company's
shareholders;
(l) Throughout the five-year period ending on the date of the Closing,
each Current Fund will have conducted its historic business within the
meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code
in a substantially unchanged manner;
(m) The fair market value of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred Assets are subject; and
(n) The total adjusted basis of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred assets are subject.
4.2 The Trust represents and warrants on its own behalf and on behalf of
each New Fund as follows:
(a) The Trust is a statutory trust duly organized, validly existing,
and in good standing under the laws of the State of Delaware, and its
Certificate of Trust has been duly filed in the office of the Secretary of
State of Delaware;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act. At the Effective Time, the New Fund Shares to
be issued pursuant to Section 2.1 of this Agreement shall be duly
registered under the Securities Act of 1933 by a Registration Statement
filed with the SEC;
VI-5
(c) At the Effective Time, each New Fund will be a duly established
and designated series of the Trust;
(d) No New Fund has commenced operations nor will it commence
operations until after the Closing;
(e) Prior to the Effective Time, there will be no issued and
outstanding shares in any New Fund or any other securities issued by the
Trust on behalf of any New Fund, except as provided in Section 5.2;
(f) No consideration other than New Fund Shares (and each New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in
the Reorganization;
(g) The New Fund Shares to be issued and delivered to each
corresponding Current Fund hereunder will, at the Effective Time, have been
duly authorized and, when issued and delivered as provided herein, will be
duly and validly issued and outstanding shares of the New Fund, fully paid
and nonassessable;
(h) Each New Fund will be a "fund" as defined in Section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
(i) The Trust, on behalf of the New Funds, has no plan or intention to
issue additional New Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does the Trust, on behalf of the New Funds, have
any plan or intention to redeem or otherwise reacquire any New Fund Shares
issued pursuant to the Reorganization, other than in the ordinary course of
such business or to the extent necessary to comply with its legal
obligation under Section 22(e) of the 1940 Act;
(j) Each New Fund will actively continue the corresponding Current
Fund's business in substantially the same manner that the Current Fund
conducted that business immediately before the Reorganization; and no New
Fund has any plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of its business
or dispositions necessary to maintain its qualification as a RIC, although
in the ordinary course of its business the New Fund will continuously
review its investment portfolio (as each Current Fund did before the
Reorganization) to determine whether to retain or dispose of particular
stocks or securities, including those included in the Assets, provided,
however that this Section 4.2(j) shall not preclude any of the combinations
of funds set forth on Schedule C to this Agreement; and
(k) There is no plan or intention for any of the New Funds to be
dissolved or merged into another corporation or statutory trust or "fund"
thereof (within the meaning of Section 851(g)(2) of the Code) following the
Reorganization, provided, however that this Section 4.2(k) shall not
preclude any of the combinations of Funds set forth on Schedule C.
4.3 Each of the Company and the Trust, on its own behalf and on behalf of
each Current Fund or each New Fund, as appropriate, represents and warrants as
follows:
(a) The fair market value of the New Fund Shares of each New Fund
received by each Shareholder will be equal to the fair market value of the
Current Fund Shares of the corresponding Current Fund surrendered in
exchange therefor;
(b) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares of each New Fund and will own
such shares solely by reason of their ownership of the Current Fund Shares
of the corresponding Current Fund immediately before the Reorganization;
(c) The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
VI-6
(d) There is no intercompany indebtedness between a Current Fund and a
New Fund that was issued or acquired, or will be settled, at a discount;
and
(e) Immediately following consummation of the Reorganization, each New
Fund will hold the same assets, except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization, and be subject to
the same liabilities that the corresponding Current Fund held or was
subject to immediately prior to the Reorganization. Assets used to pay (i)
expenses, (ii) all redemptions (other than redemptions at the usual rate
and frequency of the Current Fund as a series of an open-end investment
company), and (iii) distributions (other than regular, normal
distributions), made by a Current Fund after the date of this Agreement
will, in the aggregate, constitute less than one percent (1%) of its net
assets.
5. COVENANTS
5.1 As soon as practicable after the date of this Agreement, the Company
shall call a meeting of its shareholders (the "Shareholders Meeting") to
consider and act on this Agreement and, in connection therewith, the sale of all
of the Company's assets and the dissolution of the Company as a Maryland
corporation. The Board of Directors of the Company shall recommend that
shareholders approve this Agreement and, in connection therewith, sale of all of
the Company's assets and the dissolution of the Company as a Maryland
corporation. Approval by shareholders of this Agreement will authorize the
Company, and the Company hereby agrees, to vote on the matters referred to in
Sections 5.2 and 5.3.
5.2 Prior to the Closing, the Company shall acquire one New Fund Share in
each New Fund Class of each New Fund for the purpose of enabling the Company to
elect the Company's directors as the Trust's trustees (to serve without limit in
time, except as they may resign or be removed by action of the Trust's trustees
or shareholders), to ratify the selection of the Trust's independent
accountants, and to vote on the matters referred to in Section 5.3.
5.3 Immediately prior to the Closing, the Trust (on its own behalf and
with respect to each New Fund or each New Fund Class, as appropriate) shall
enter into a Master Investment Advisory Agreement, a Master Sub-Advisory
Agreement, if applicable, a Master Administrative Services Agreement, Master
Distribution Agreements, a Custodian Agreement, and a Transfer Agency and
Servicing Agreement; shall adopt plans of distribution pursuant to Rule 12b-l of
the 1940 Act, a multiple class plan pursuant to Rule 18f-3 of the 1940 Act; and
shall enter into or adopt, as appropriate, such other agreements and plans as
are necessary for each New Fund's operation as a series of an open-end
investment company. Each such agreement and plan shall have been approved by the
Trust's trustees and, to the extent required by law, by such of those trustees
who are not "interested persons" of the Trust (as defined in the 1940 Act) and
by the Company as the sole shareholder of each New Fund.
5.4 The Company or the Trust, as appropriate, shall file with the SEC one
or more post-effective amendments to the Company's Registration Statement on
Form N-lA under the Securities Act of 1933, as amended, and the 1940 Act, as
amended (the "Registration Statement"), (i) which will contain such amendments
to such Registration Statement as are determined by the Company to be necessary
and appropriate to effect the Reorganization, (ii) which will register the New
Fund Shares to be issued pursuant to Section 2.1 of this Agreement, and (iii) if
applicable, under which the Trust will succeed to the Registration Statement,
and shall use its best efforts to have such post-effective amendment or
amendments to the Registration Statement become effective as of the Closing.
6. CONDITIONS PRECEDENT
The obligations of the Company, on its own behalf and on behalf of each
Current Fund, and the Trust, on its own behalf and on behalf of each New Fund,
will be subject to (a) performance by the other party of all its obligations to
be performed hereunder at or before the Effective Time, (b) all representations
and warranties of the other party contained herein being true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated
VI-7
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
6.1 The shareholders of the Company shall have approved this
Agreement and the transactions contemplated by this Agreement in accordance
with applicable law.
6.2 All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry
out the transactions contemplated hereby. All consents, orders, and permits
of federal, state, and local regulatory authorities (including the SEC and
state securities authorities) deemed necessary by either the Company or the
Trust to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain such consults, orders, and permits would not involve a risk of a
material adverse effect on the assets or properties of either a Current
Fund or a New Fund, provided that either the Company or the Trust may for
itself waive any of such conditions.
6.3 Each of the Company and the Trust shall have received an opinion
from Ballard Spahr Andrews & Ingersoll, LLP as to the federal income tax
consequences mentioned below. In rendering such opinion, such counsel may
rely as to factual matters, exclusively and without independent
verification, on the representations made in this Agreement (or in separate
letters of representation that the Company and the Trust shall use their
best efforts to deliver to such counsel) and the certificates delivered
pursuant to Section 3.4. Such opinion shall be substantially to the effect
that, based on the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this Agreement, for
federal income tax purposes:
(a) The Reorganization will constitute a reorganization within the
meaning of section 368(a) of the Code, and each Current Fund and each
New Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(b) No gain or loss will be recognized to a Current Fund on the
transfer of its Assets to the corresponding New Fund in exchange solely
for the New Fund's New Fund Shares and the New Fund's assumption of the
Current Fund's Liabilities or on the subsequent distribution of those
New Fund Shares to its Shareholders, in constructive exchange for their
Current Fund Shares, in liquidation of the Current Fund;
(c) No gain or loss will be recognized to a New Fund on its receipt
of the corresponding Current Fund's Assets in exchange for New Fund
Shares and its assumption of the Current Fund's Liabilities;
(d) Each New Fund's basis for the corresponding Current Fund's
Assets will be the same as the basis thereof in the Current Fund's hands
immediately before the Reorganization, and the New Fund's holding period
for those Assets will include the Current Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the
constructive exchange of Current Fund Shares solely for New Fund Shares
pursuant to the Reorganization; and
(f) A Shareholder's basis for the New Fund Shares of each New Fund
to be received in the Reorganization will be the same as the basis for
the Current Fund Shares of the corresponding Current Fund to be
constructively surrendered in exchange for such New Fund Shares, and a
Shareholder's holding period for such New Fund Shares will include its
holding period for such Current Fund Shares, provided that such Current
Fund Shares are held as capital assets by the Shareholder at the
Effective Time.
6.4 No stop-order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose shall
have been initiated or threatened by the SEC (and not withdrawn or
terminated).
VI-8
At any time prior to the Closing, any of the foregoing conditions (except
those set forth in Sections 6.1 and 6.3) may be waived by the directors/trustees
of either the Company or the Trust if, in their judgment, such waiver will not
have a material adverse effect on the interests of the Current Fund's
Shareholders.
7. EXPENSES
Except as otherwise provided in Section 4.3(c), all expenses incurred in
connection with the transactions contemplated by this Agreement (regardless of
whether they are consummated) will be borne by the parties as they mutually
agree.
8. ENTIRE AGREEMENT
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties.
9. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding its approval by the Company's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
shareholders' interests.
10. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by the Company's shareholders:
10.1 By either the Company or the Trust (a) in the event of the other
party's material breach of any representation, warranty, or covenant
contained herein to be performed at or prior to the Effective Time, (b) if
a condition to its obligations has not been met and it reasonably appears
that such condition will not or cannot be met, or (c) if the Closing has
not occurred on or before December 31, 2003; or
10.2 By the parties' mutual agreement.
Except as otherwise provided in Section 7, in the event of termination
under Sections 10.1(c) or 10.2, there shall be no liability for damages on the
part of either the Company or the Trust or any Current Fund or corresponding New
Fund, to the other.
11. MISCELLANEOUS
11.1 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2 Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3 The execution and delivery of this Agreement have been authorized by
the Trust's trustees, and this Agreement has been executed and delivered by a
duly authorized officer of the Trust in his or her capacity as an officer of the
Trust intending to bind the Trust as provided herein, and no officer, trustee or
shareholder of the Trust shall be personally liable for the liabilities or
obligations of the Trust incurred hereunder. The liabilities and obligations of
the Trust pursuant to this Agreement shall be enforceable against the assets of
the New Funds only and not against the assets of the Trust generally.
VI-9
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
<Table>
Attest: [NAME OF MARYLAND CORPORATION],
on behalf of each of its series listed in Schedule A
By:
- -------------------------------------------- --------------------------------------------------------
Title:
--------------------------------------------------------
Attest: [NAME OF DELAWARE STATUTORY TRUST],
on behalf of each of its series listed in Schedule A
By:
- -------------------------------------------- --------------------------------------------------------
Title:
--------------------------------------------------------
</Table>
VI-10
SCHEDULE A
<Table>
<Caption>
SERIES OF CORRESPONDING SERIES OF
[MARYLAND CORPORATION] [DELAWARE STATUTORY TRUST]
(EACH A "CURRENT FUND") (EACH A "NEW FUND")
- ----------------------- --------------------------
[To Be Added]............................................... [To Be Added]
</Table>
VI-11
SCHEDULE B
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF EACH CURRENT FUND EACH NEW FUND
- ---------------------------- ------------------------
[To Be Added]............................................... [To Be Added]
</Table>
VI-12
SCHEDULE C
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
VI-13
INVESCO TOTAL RETURN FUND,
A PORTFOLIO OF INVESCO COMBINATION STOCK & BOND FUNDS, INC.
4350 South Monaco Street
Denver, Colorado 80237
Toll Free: (800) 525-8085
INVESCO BALANCED FUND,
A PORTFOLIO OF INVESCO COMBINATION STOCK & BOND FUNDS, INC.
4350 South Monaco Street
Denver, Colorado 80237
Toll Free: (800) 525-8085
STATEMENT OF ADDITIONAL INFORMATION
(October 21, 2003 Special Meeting of Shareholders of INVESCO Balanced Fund)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
August 25, 2003 of INVESCO Total Return Fund for use in connection with the
Special Meeting of Shareholders of INVESCO Balanced Fund to be held on October
21, 2003. Copies of the Combined Proxy Statement and Prospectus may be obtained
at no charge by writing A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas
77210-4739 or by calling (800) 347-4246. Unless otherwise indicated, capitalized
terms used herein and not otherwise defined have the same meanings as are given
to them in the Combined Proxy Statement and Prospectus.
A Statement of Additional Information for INVESCO Combination Stock &
Bond Funds, Inc. dated September 30, 2002, as amended July 28, 2003 and as
supplemented August 14, 2003, has been filed with the Securities and Exchange
Commission and is attached hereto as Appendix I which is incorporated herein by
this reference.
The date of this Statement of Additional Information is August 15, 2003.
TABLE OF CONTENTS
THE COMPANY............................................................................3
DESCRIPTION OF PERMITTED INVESTMENTS...................................................3
DIRECTORS AND OFFICERS OF THE COMPANY..................................................3
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES....................................3
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION..........3
PORTFOLIO TRANSACTIONS.................................................................3
DESCRIPTION OF SHARES..................................................................4
DETERMINATION OF NET ASSET VALUE.......................................................4
TAXES .................................................................................4
PERFORMANCE DATA.......................................................................4
CODE OF ETHICS.........................................................................4
FINANCIAL INFORMATION..................................................................4
Appendix I - Statement of Additional Information of the Company
Appendix II - Audited Financial Statements of INVESCO Balanced Fund
(5/31/03)
Appendix III - Pro forma Financial Statements
S-2
THE COMPANY
This Statement of Additional Information relates to INVESCO Combination Stock &
Bond Funds, Inc. (the "Company") and its investment portfolio, INVESCO Total
Return Fund (the "Fund"). The Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund is a separate series of shares of common stock of the
Company. For additional information about the Company, see heading "The Company"
in the Company's Statement of Additional Information attached hereto as Appendix
I.
DESCRIPTION OF PERMITTED INVESTMENTS
For a discussion of the fundamental and nonfundamental investment policies of
the Fund adopted by the Company's Board of Directors, see headings "Investments,
Policies and Risks" and "Investment Restrictions" in the Company's Statement of
Additional Information attached hereto as Appendix I.
DIRECTORS AND OFFICERS OF THE COMPANY
For a disclosure of the names and a brief occupational biography of each of the
Company's directors and executive officers identifying those who are interested
persons of the Company as well as stating their aggregate remuneration, see
heading "Management of the Funds" in the Company's Statement of Additional
Information attached hereto as Appendix I.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
For a disclosure of the control persons of the Fund, the principal holders of
shares of the Fund and the ownership by officers and directors of the Fund, see
heading "Management of the Funds - Control Persons and Principal Shareholders"
in the Company's Statement of Additional Information attached hereto as Appendix
I.
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION
For a discussion of the Company's advisory and management-related services
agreements and plans of distribution, see headings "Management of the Funds" and
"Other Service Providers" in the Company's Statement of Additional Information
attached hereto as Appendix I.
PORTFOLIO TRANSACTIONS
For a discussion of the Company's brokerage policy, see heading "Brokerage
Allocation and Other Practices" in the Company's Statement of Additional
Information attached hereto as Appendix I.
S-3
DESCRIPTION OF SHARES
For a discussion of the Company's authorized securities and the characteristics
of the Company's shares of common stock, see heading "Capital Stock" in the
Company's Statement of Additional Information attached hereto as Appendix I.
DETERMINATION OF NET ASSET VALUE
For a discussion of the Company's valuation and pricing procedures and a
description of its purchase and redemption procedures, see heading "Management
of the Funds" in the Company's Statement of Additional Information attached
hereto as Appendix I.
TAXES
For a discussion of any tax information relating to ownership of the Company's
shares, see heading "Tax Consequences of Owning Shares of a Fund" in the
Company's Statement of Additional information attached hereto as Appendix I.
PERFORMANCE DATA
For a description and quotation of certain performance data used by the Company,
see heading "Performance" in the Company's Statement of Additional Information
attached hereto as Appendix I.
CODE OF ETHICS
For a description of the Code of Ethics applicable to INVESCO Funds Group, Inc.,
the investment advisor to the Fund, see heading "Code of Ethics" in the
Company's Statement of Additional Information attached hereto as Appendix I.
FINANCIAL INFORMATION
The audited financial statements of the Fund, and the report thereon by
PricewaterhouseCoopers LLP, are set forth under the heading "Financial
Statements" in the Company's Statement of Additional Information attached hereto
as Appendix I.
The audited financial statements of INVESCO Balanced Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Annual Report of
INVESCO Balanced Fund, dated May 31, 2003, which is incorporated herein by
reference and attached hereto as Appendix II.
Pro forma financial statements for INVESCO Total Return Fund, giving effect to
the reorganization of INVESCO Balanced Fund into INVESCO Total Return Fund, are
attached hereto as Appendix III.
S-4
APPENDIX I
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
INVESCO Core Equity Fund - Investor Class, Class A, B, C, and K
INVESCO Balanced Fund - Investor Class, Institutional Class,
Class A, B, C, and K
INVESCO Total Return Fund - Investor Class, Institutional Class,
Class A, B, C, and K
Supplement dated August 12, 2003 to the Statement of
Additional Information Dated August 12, 2003
Effective August 18, 2003, the section of the Statement of Additional
Information entitled "Distributor-Class C." is amended to (i) delete the third
paragraph in its entirety and (ii) substitute the following in its place:
Distributor may pay sales commissions to financial intermediaries that 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 financial intermediary, and will consist of an asset-based sales charge
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. Distributor will
retain all payments received by it relating to Class C shares for the first
twelve months after they are purchased. The portion of the payments to
distributor under the Class C Plan which constitutes an asset-based sales charge
of 0.75% is intended in part to permit distributor to recoup a portion of
on-going sales commissions to financial intermediaries plus financing costs, if
any. After the first twelve months, distributor will make such payments
quarterly to financial intermediaries based on the average net asset value of
Class C shares which are attributable to shareholders for whom the financial
intermediaries are designated as dealers of record. These commissions are not
paid on sales to investors who may not be subject to payment of the CDSC and in
circumstances where distributor grants an exemption on particular transactions.
Should the financial intermediary elect to waive the asset-based sales charge,
the 12b-1 fees will begin to be paid by distributor to the financial
intermediary immediately.
Effective August 18, 2003, the section of the Statement of Additional
Information entitled "Sales Charges and Dealer Concessions" is amended to (i)
delete the sixth paragraph in its entirety and (ii) substitute the following in
its place:
Distributor may pay sales commissions to financial intermediaries that 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 financial intermediary, and will consist of an asset-based sales charge
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. Distributor will
retain all payments received by it relating to Class C shares for the first
twelve months after they are purchased. The portion of the payments to
distributor under the Class C Plan which constitutes an asset-based sales charge
of 0.75% is intended in part to permit distributor to recoup a portion of
on-going sales commissions to financial intermediaries plus financing costs, if
any. After the first twelve months, distributor will make such payments
quarterly to financial intermediaries based on the average net asset value of
Class C shares which are attributable to shareholders for whom the financial
intermediaries are designated as dealers of record. These commissions are not
paid on sales to investors who may not be subject to payment of the CDSC and in
circumstances where distributor grants an exemption on particular transactions.
Should the financial intermediary elect to waive the asset-based sales charge,
the 12b-1 fees will begin to be paid by distributor to the financial
intermediary immediately.
Effective August 18, 2003, the section of the Statement of Additional
Information entitled "Contingent Deferred Sales Charge Exceptions" is amended to
(i) delete subsection [i] of the second bullet in its entirety and (ii)
substitute the following in its place:
(i) required minimum distributions to plan participants or beneficiaries who are
age 70 1/2 or older, and only with respect to that portion of such distributions
that does not exceed 12% annually of the participant's or beneficiary's account
value in a fund.
2
STATEMENT OF ADDITIONAL INFORMATION
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
INVESCO Core Equity Fund - Investor Class, Class A, B, C, and K
INVESCO Balanced Fund - Investor Class, Institutional Class,
Class A, B, C, and K
INVESCO Total Return Fund - Investor Class, Institutional Class,
Class A, B, C, and K
Address: Mailing Address:
4350 South Monaco Street, P.O. Box 173706,
Denver, CO 80237 Denver, CO 80217-3706
Telephone:
In continental U.S., call:
1-800-347-4246
August 12, 2003
- --------------------------------------------------------------------------------
A Prospectus for the Investor Class, Class A, B, C, and K shares of INVESCO Core
Equity, INVESCO Balanced, and INVESCO Total Return Funds, and a Prospectus for
the Institutional Class shares of INVESCO Balanced and INVESCO Total Return
Funds, each dated August 12, 2003, 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
Prospectuses. It is intended to provide additional information regarding the
activities and operations of the Funds and should be read in conjunction with
the Prospectuses. The financial statements for the Funds for the fiscal year
ended May 31, 2003 are incorporated herein by reference from INVESCO Combination
Stock & Bond Funds, Inc.'s Annual Report to Shareholders dated May 31, 2003.
You may obtain, without charge, the current Prospectuses, SAI, and annual and
semiannual reports of the Funds by writing to A I M Fund Services, Inc., P.O.
Box 4739, Houston, Texas 77210-4739, or by calling 1-800-347-4246. The
Prospectus of the Investor Class, Class A, B, C, and K shares of the Funds is
also available through the INVESCO Web site at invescofunds.com.
TABLE OF CONTENTS
The Company ................................................................. 55
Investments, Policies, and Risks ............................................ 55
Investment Restrictions...................................................... 80
Management of the Funds ..................................................... 83
Other Service Providers .....................................................132
Brokerage Allocation and Other Practices ....................................133
Capital Stock ...............................................................135
Tax Consequences of Owning Shares of a Fund .................................136
Performance .................................................................139
Proxy Voting.................................................................145
Code of Ethics...............................................................147
Financial Statements ........................................................148
Appendix A ..................................................................149
THE COMPANY
INVESCO Combination Stock & Bond Funds, Inc. (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 Core Equity Fund 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 - Investor
Class, Institutional Class, Class A, B, C, and K; INVESCO Core Equity Fund -
Investor Class, Class A, B, C, and K; and INVESCO Total Return Fund - Investor
Class, Institutional Class, Class A, B, C, and K (each a "Fund" and
collectively, the "Funds"). Additional funds and classes 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.
INVESTMENTS, POLICIES, AND RISKS
The principal investments and policies of the Funds are discussed in the
Prospectuses of the Funds. The Funds also may invest in the following securities
and engage in the following practices.
ADRS AND EDRS -- American Depositary Receipts, or ADRs, are receipts typically
issued by U.S. 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.
European Depositary Receipts, or EDRs, are similar to ADRs, except that they are
typically issued by European banks or trust companies.
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
certificates of deposit ("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,
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.
The Funds may also invest in bankers' acceptances, time deposits, and
certificates of deposit of U.S. branches of foreign banks and foreign branches
of U.S. banks. Investments in instruments of U.S. branches of foreign banks will
be made only with branches that are subject to the same regulations as U.S.
banks. Investments in instruments issued by a foreign branch of a U.S. bank will
be made only if the investment risk associated with such investment is the same
as that involving an investment in instruments issued by the U.S. parent, with
the U.S. parent unconditionally liable in the event that the foreign branch
fails to pay on the investment for any reason.
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 commercial 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' investment advisor,
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 Investors Service, 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.
Although Core Equity Fund may invest up to 15% of its portfolio in lower-rated
debt securities, which are often referred to as "junk bonds," the Fund does not
currently intend to invest more than 5% of its assets in debt securities. These
debt securities will generally be U.S. government and corporate bonds that are
rated investment grade at the time of purchase. Increasing the amount of Fund
assets invested in unrated or lower-grade straight debt securities may increase
the yield produced by a 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 at the time of purchase.
Never, under any circumstances, does Core Equity Fund invest in bonds rated
below Caa by Moody's, or CCC by S&P at the time of purchase. 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 Core Equity Fund may invest in debt
securities assigned lower grade ratings by S&P or Moody's, at the time of
purchase, the Funds' investments have generally been 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. 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 Core Equity Fund's 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, or 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 rated Caa may
be in default or there may be present elements of danger with respect to
principal or interest. Lower-rated bonds by S&P (categories BB, B, CCC) include
those that are regarded, on balance, as predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance with
their terms; BB indicates the lowest degree of speculation and CCC a high degree
of speculation. While such bonds likely will have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Bonds having equivalent ratings from other
rating 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 the Fund until the maturity or call date of a bond, in
order for the 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
CDs and bankers' acceptances which may be purchased by the Funds if an issuing
bank has total assets in excess of $5 billion and the bank otherwise meets the
Funds' credit rating requirements. CDs are issued against deposits in a
commercial bank for a specified period and rate and are normally negotiable.
Eurodollar CDs are certificates issued by a foreign branch (usually London) of a
U.S. domestic bank, and, as such, the credit is deemed to be that of the
domestic bank. Bankers' acceptances are short-term credit instruments evidencing
the promise of the bank (by virtue of the bank's "acceptance") to pay at
maturity a draft which has been drawn on it by a customer (the "drawer").
Bankers' acceptances are used to finance the import, export, transfer, or
storage of goods and reflect the obligation of both the bank and the drawer to
pay the face amount. Both types of securities are subject to the ability of the
issuing bank to meet its obligations, and are subject to risks common to all
debt securities. In addition, banker's acceptances may be subject to foreign
currency risk and certain other risks of investment in foreign securities.
EQUITY SECURITIES -- The Funds may invest in common, preferred, and convertible
preferred stocks, and securities whose values are tied to the price of stocks,
such as rights, warrants, and convertible debt securities. Common stocks and
preferred stocks represent equity ownership in a corporation. Owners of stock,
such as the Funds, share in a corporation's earnings through dividends which may
be declared by the corporation, although the receipt of dividends is not the
principal benefit that the Funds seek when they invest in stocks and similar
instruments.
Instead, the Funds seek to invest in stocks that will increase in market value
and may be sold for more than a Fund paid to buy them. Market value is based
upon constantly changing investor perceptions of what the company is worth
compared to other companies. Although dividends are a factor in the changing
market value of stocks, many companies do not pay dividends, or pay
comparatively small dividends. The principal risk of investing in equity
securities is that their market values fluctuate constantly, often due to
factors entirely outside the control of the Funds or the company issuing the
stock. At any given time, the market value of an equity security may be
significantly higher or lower than the amount paid by a Fund to acquire it.
Owners of preferred stocks are entitled to dividends payable from the
corporation's earnings, which in some cases may be "cumulative" if prior
dividends on the preferred stock have not been paid. Dividends payable on
preferred stock have priority over distributions to holders of common stock, and
preferred stocks generally have a priority on the distribution of assets in the
event of the corporation's liquidation. Preferred stocks may be "participating,"
which means that they may be entitled to dividends in excess of the stated
dividend in certain cases. The holders of a company's debt securities generally
are entitled to be paid by the company before it pays anything to its
stockholders.
Rights and warrants are securities which entitle the holder to purchase the
securities of a company (usually, its common stock) at a specified price during
a specified time period. The value of a right or warrant is affected by many of
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 the investment value, the market value of the convertible
security is governed principally by its investment value. If the conversion
value is near or above the investment value, the market value of the convertible
security generally will rise above the investment value. In such cases, the
market value of the convertible security may be higher than its conversion
value, due to the combination of the convertible security's right to interest
(or dividend preference) and the possibility of capital appreciation from the
conversion feature. However, there is no assurance that any premium above
investment value or conversion value will be recovered because prices change
and, as a result, the ability to achieve capital appreciation through conversion
may be eliminated.
EUROBONDS AND YANKEE BONDS -- The Funds may invest in bonds issued by foreign
branches of U.S. banks ("Eurobonds") and bonds issued by a U.S. branch of a
foreign bank and sold in the United States ("Yankee bonds"). These bonds are
bought and sold in U.S. dollars, but generally carry with them the same risks as
investing in foreign securities.
FOREIGN SECURITIES -- Investments in the securities of foreign companies, or
companies that have their principal business activities outside the United
States, involve certain risks not associated with investments in U.S. companies.
Non-U.S. companies generally are not subject to the same uniform accounting,
auditing, and financial reporting standards that apply to U.S. companies.
Therefore, financial information about foreign companies may be incomplete, or
may not be comparable to the information available on U.S. companies. There may
also be less publicly available information about a foreign company.
Although the volume of trading in foreign securities markets is growing,
securities of many non-U.S. companies may be less liquid and have greater swings
in price than securities of comparable U.S. companies. The costs of buying and
selling securities on foreign securities exchanges are 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. The advisor may use various types of financial instruments, some of
which are derivatives, to attempt to manage the risk of a Fund's 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, the hedge relates to a security or
type of security that the Fund intends to acquire. If the Fund does not
eliminate the hedge by purchasing the security as anticipated, the effect on the
Fund's portfolio is the same as if a long position were entered into. Financial
Instruments may also be used, in certain circumstances, for investment (e.g., as
a substitute for investing in securities).
Financial Instruments on individual securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that a Fund already owns or intends to acquire. Financial Instruments on
indexes, in contrast, generally are used to attempt to hedge all or a portion of
a portfolio against price movements of the securities within a market sector in
which the Fund has invested or expects to invest.
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 advisor 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' Prospectuses or 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
Prospectuses.
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 a Fund. If the advisor
employs a Financial Instrument that correlates imperfectly with a Fund's
investments, a loss could result, regardless of whether or not the intent was to
manage risk. In addition, these techniques could result in a loss if there is
not a liquid market to close out a position that a Fund has entered.
(2) There might be imperfect correlation between price movements of a Financial
Instrument and price movement of the investment(s) being hedged. For example, if
the value of a Financial Instrument used in a short hedge increased by less than
the decline in value of the hedged investment(s), the hedge would not be fully
successful. This might be caused by certain kinds of trading activity that
distorts the normal price relationship between the security being hedged and the
Financial Instrument. Similarly, the effectiveness of hedges using Financial
Instruments on indexes will depend on the degree of correlation between price
movements in the index and price movements in the securities being hedged.
The Funds are authorized to use options and futures contracts related to
securities with issuers, maturities or other characteristics different from the
securities in which it typically invests. This involves a risk that the options
or futures position will not track the performance of a Fund's portfolio
investments.
The direction of options and futures price movements can also diverge from the
direction of the movements of the prices of their underlying instruments, even
if the underlying instruments match a Fund's investments well. Options and
futures prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options and futures markets and the securities
markets, from structural differences in how options and futures and securities
are traded, or from imposition of daily price fluctuation limits or trading
halts. A Fund 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 advisor
projected a decline in the price of a security in the Fund's portfolio, and the
price of that security increased instead, the gain from that increase would
likely be wholly or partially offset by a decline in the value of the short
position in the Financial Instrument. Moreover, if the price of the Financial
Instrument declined by more than the increase in the price of the security, the
Fund could suffer a loss.
(4) A Fund's ability to close out a position in a Financial Instrument prior to
expiration or maturity depends on the degree of liquidity of the market or, in
the absence of such a market, the ability and willingness of the other party to
the transaction (the "counterparty") to enter into a transaction closing out the
position. Therefore, there is no assurance that any position can be closed out
at a time and price that is favorable to a Fund.
(5) As described below, the Funds are required to maintain assets as "cover,"
maintain segregated accounts or make margin payments when they take positions in
Financial Instruments involving obligations to third parties (i.e., Financial
Instruments other than purchased options). If a Fund is unable to close out its
positions in such Financial Instruments, it might be required to continue to
maintain such assets or segregated accounts or make such payments until the
position expired. These requirements might impair a Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time.
COVER. Positions in Financial Instruments, other than purchased options, expose
the Funds to an obligation to another party. A Fund will not enter into any such
transaction unless it owns (1) an offsetting ("covered") position in securities,
currencies or other options, futures contracts or forward contracts, or (2) cash
and liquid assets with a value, marked-to-market daily, sufficient to cover its
obligations to the extent not covered as provided in (1) above. The Funds will
comply with SEC guidelines regarding cover for these instruments and will, if
the guidelines so require, designate cash or liquid assets as segregated in the
prescribed amount as determined daily.
Assets used as cover or held as segregated cannot be sold while the position in
the corresponding Financial Instrument is open unless they are replaced with
other appropriate assets. As a result, the commitment of a large portion of a
Fund's assets to cover or to hold as segregated could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. Each Fund may engage in certain strategies involving options to attempt
to manage the risk of its investments or, in certain circumstances, for
investment (e.g., as a substitute for investing in securities). A call option
gives the purchaser the right to buy, and obligates the writer to sell the
underlying investment at the agreed-upon exercise price during the option
period. A put option gives the purchaser the right to sell, and obligates the
writer to buy the underlying investment at the agreed-upon exercise price during
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 from the transaction.
The Funds' ability to establish and close out positions in options depends on
the existence of a liquid market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. There can be no
assurance that a Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
counterparty, a Fund might be unable to close out an OTC option position at any
time prior to the option's expiration. If a Fund is not able to enter into an
offsetting closing transaction on an option it has written, it will be required
to maintain the securities subject to the call or the liquid assets underlying
the put until a closing purchase transaction can be entered into or the option
expires. However, there can be no assurance that such a market will exist at any
particular time.
If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
OPTIONS ON INDEXES. Puts and calls on indexes are similar to puts and calls on
securities or futures contracts except that all settlements are in cash and
changes in value depend on changes in the index in question. When a Fund writes
a call on an index, it receives a premium and agrees that, prior to the
expiration date, upon exercise of the call, the purchaser will receive from the
Fund an amount of cash equal to the positive difference between the closing
price of the index and the exercise price of the call times a specified multiple
("multiplier"), which determines the total dollar value for each point of such
difference. When a Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When a Fund buys a put on an
index, it pays a premium and has the right, prior to the expiration date, to
require the seller of the put to deliver to the Fund an amount of cash equal to
the positive difference between the exercise price of the put and the closing
price of the index times the multiplier. When a Fund writes a put on an index,
it receives a premium and the purchaser of the put has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash equal to
the positive difference between the exercise price of the put and the closing
level of the index times the multiplier.
The risks of purchasing and selling options on indexes may be greater than
options on securities. Because index options are settled in cash, when a Fund
writes a call on an index it cannot fulfill its potential settlement obligations
by delivering the underlying securities. A Fund can offset some of the risk of
writing a call index option by holding a diversified portfolio of securities
similar to those on which the underlying index is based. However, a Fund cannot,
as a practical matter, acquire and hold a portfolio containing exactly the same
securities as underlie the index and, as a result, bears a risk that the value
of the securities held will vary from the value of the index.
Even if a Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level. As with other kinds of options, a Fund as the call
writer will not learn what it has been assigned until the next business day. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as common stock,
because in that case the writer's obligation is to deliver the underlying
security, not to pay its value as of a moment in the past. In contrast, the
writer of an index call will be required to pay cash in an amount based on the
difference between the closing index value on the exercise date and the exercise
price. By the time a Fund learns what it has been assigned, the index may have
declined. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure.
If a Fund has purchased an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund nevertheless will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with respect
to the underlying instrument, expiration date, contract size, and strike price,
the terms of OTC options (options not traded on exchanges) generally are
established through negotiation with the other party to the option contract.
While this type of arrangement allows a Fund great flexibility to tailor the
option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchange where they are traded.
Generally, OTC foreign currency options used by a Fund are European-style
options. This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. When a Fund purchases or
sells a futures contract, it incurs an obligation respectively to take or make
delivery of a specified amount of the obligation underlying the contract at a
specified time and price. When a Fund writes an option on a futures contract, it
becomes obligated to assume a position in the futures contract at a specified
exercise price at any time during the term of the option. If a Fund writes a
call, on exercise it assumes a short futures position. If it writes a put, on
exercise it assumes a long futures position.
The purchase of futures or call options on futures can serve as a long or an
anticipatory hedge, and the sale of futures or the purchase of put options on
futures can serve as a short hedge. Writing call options on futures contracts
can serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indexes. Similarly, writing put options on
futures contracts can serve as a limited long or anticipatory hedge.
In addition, futures strategies can be used to manage the "duration" (a measure
of anticipated sensitivity to changes in interest rates, which is sometimes
related to the weighted average maturity of a portfolio) and associated interest
rate risk of a Fund's fixed-income portfolio. If the advisor 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
advisor 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.
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 advisor may be incorrect in its expectations as to
the extent of various interest rates, currency exchange rates or stock market
movements or the time span within which the movements take place.
INDEX FUTURES. The risk of imperfect correlation between movements in the price
of index futures and movements in the price of the securities that are the
subject of a hedge increases as the composition of a Fund's portfolio diverges
from the index. The price of the index futures may move proportionately more
than or less than the price of the securities being hedged. If the price of the
index futures moves proportionately less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective. Assuming
the price of the securities being hedged has moved in an unfavorable direction,
as anticipated when the hedge was put into place, the Fund would be in a better
position than if it had not hedged at all, but not as good as if the price of
the index futures moved in full proportion to that of the hedged securities.
However, if the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially offset by movement of the price of
the futures contract. If the price of the futures contract moves more than the
price of the securities, the Fund will experience either a loss or a gain on the
futures contract that will not be completely offset by movements in the price of
the securities that are the subject of the hedge.
Where index futures are purchased in an anticipatory hedge, it is possible that
the market may decline instead. If a Fund then decides not to invest in the
securities at that time because of concern as to possible further market decline
or for other reasons, it will realize a loss on the futures contract that is not
offset by a reduction in the price of the securities it had anticipated
purchasing.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. A Fund may use
options and futures contracts on foreign currencies, as mentioned previously,
and forward currency contracts, as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated or, in certain circumstances, for investment (e.g., as a
substitute for investing in securities denominated in foreign currency).
Currency hedges can protect against price movements in a security that a Fund
owns or intends to acquire that are attributable to changes in the value of the
currency in which it is denominated.
A Fund might seek to hedge against changes in the value of a particular currency
when no Financial Instruments on that currency are available or such Financial
Instruments are more expensive than certain other Financial Instruments. In such
cases, a Fund may seek to hedge against price movements in that currency by
entering into transactions using Financial Instruments on another currency or a
basket of currencies, the value of which the advisor believes will have a high
degree of positive correlation to the value of the currency being hedged. The
risk that movements in the price of the Financial Instrument will not correlate
perfectly with movements in the price of the currency subject to the hedging
transaction may be increased when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the value of
the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such Financial Instruments, a
Fund could be disadvantaged by having to deal in the odd-lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
generally is representative of very large transactions in the interbank market
and thus might not reflect odd-lot transactions where rates might be less
favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
a Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes, and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY DEPOSITS. The Funds may enter
into forward currency contracts to purchase or sell foreign currencies for a
fixed amount of U.S. dollars or another foreign currency. A forward currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days (term) from the date of the
forward currency contract agreed upon by the parties, at a price set at the time
the forward currency contract is entered. Forward currency contracts are
negotiated directly between currency traders (usually large commercial banks)
and their customers.
Such transactions may serve as long or anticipatory hedges. For example, a Fund
may purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Fund intends to acquire.
Forward currency contracts may also serve as short hedges. For example, a Fund
may sell a forward currency contract to lock in the U.S. dollar equivalent of
the proceeds from the anticipated sale of a security or a dividend or interest
payment denominated in a foreign currency.
The Funds may also use forward currency contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. Such a hedge
would tend to offset both positive and negative currency fluctuations, but would
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 advisor anticipates that there will
be a positive correlation between the two currencies.
The cost to a Fund of engaging in forward currency contracts varies with factors
such as the currency involved, the length of the contract period and the market
conditions then prevailing. Because forward currency contracts are usually
entered into on a principal basis, no fees or commissions are involved. When a
Fund enters into a forward currency contract, it relies on the counterparty to
make or take delivery of the underlying currency at the maturity of the
contract. Failure by the counterparty to do so would result in the loss of some
or all of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that a Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, the Fund might be unable to close out a forward
currency contract. In either event, the Fund would continue to be subject to
market risk with respect to the position, and would continue to be required to
maintain a position in securities denominated in the foreign currency or to
segregate cash or liquid assets.
The precise matching of forward currency contract amounts and the value of the
securities, dividends, or interest payments involved generally will not be
possible because the value of such securities, dividends or interest payments,
measured in the foreign currency, will change after the forward currency
contract has been established. Thus, a Fund might need to purchase or sell
foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Forward currency contracts may substantially change a Fund's investment exposure
to changes in currency exchange rates and could result in losses to the Fund if
currencies do not perform as the advisor anticipates. There is no assurance that
the advisor'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.
HOLDRS -- Holding Company Depositary Receipts, or HOLDRs, are trust-issued
receipts that represent a Fund's beneficial ownership of a specific group of
stocks. HOLDRs involve risks similar to the risks of investing in common stock.
For example, a Fund's investment will decline in value if the underlying stocks
decline in value. Because HOLDRs are not subject to concentration limits, the
relative weight of an individual stock may increase substantially, causing the
HOLDRs to be less diverse and creating more risk.
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. A Fund may invest in illiquid securities,
including restricted securities and other investments which are not readily
marketable. A Fund will not purchase any such security if the purchase would
cause the Fund to invest more than 15% of its net assets, measured at the time
of purchase, in illiquid securities. Repurchase agreements maturing in more than
seven days are considered illiquid for purposes of this restriction.
The principal risk of investing in illiquid securities is that a Fund may be
unable to dispose of them at the time desired or at a reasonable price. In
addition, in order to resell a restricted security, a Fund might have to bear
the expense and incur the delays associated with registering the security with
the SEC, and otherwise obtaining listing on a securities exchange or in the
over-the- counter market.
INITIAL PUBLIC OFFERINGS ("IPOS") -- The Funds may invest a portion of their
assets in securities of companies offering shares in IPOs. IPOs may have a
magnified performance impact on a Fund for as long as it has a small asset base.
The impact of IPOs on a Fund's performance likely will decrease as the Fund's
asset size increases, which could reduce the Fund's total returns. IPOs may not
be consistently available to a Fund for investment, particularly as the Fund's
asset base grows. Because IPO shares frequently are volatile in price, a Fund
may hold IPO shares for a very short period of time. This may increase the
turnover of a Fund's portfolio and may lead to increased expenses for the Fund,
such as commissions and transaction costs. By selling shares, the Funds may
realize taxable gains they will subsequently distribute to shareholders. In
addition, the market for IPO shares can be speculative and/or inactive for
extended periods of time. The limited number of shares available for trading in
some IPOs may make it more difficult for a Fund to buy or sell significant
amounts of shares without an unfavorable impact on prevailing prices.
Shareholders in IPO shares can be affected by substantial dilution in the value
of their shares, by sales of additional shares and by concentration of control
in existing management and principal shareholders.
A Fund's investment in IPO shares may include the securities of unseasoned
companies (companies with less than three years of continuous operations), which
present risks considerably greater than common stocks of more established
companies. These companies may have limited operating histories and their
prospects for profitability may be uncertain. These companies may be involved in
new and evolving businesses and may be vulnerable to competition and changes in
technology, markets and economic conditions. They may be more dependent on key
managers and third parties and may have limited product lines.
INTERFUND BORROWING AND LENDING PROGRAM -- Pursuant to an exemptive order issued
by the SEC dated December 21, 1999, a Fund may lend money to, and borrow money
for temporary purposes from, other funds advised by INVESCO or its affiliates. A
Fund will borrow through the program only when the costs are equal to or lower
than the cost of bank loans. Interfund borrowings normally extend overnight, but
can have a maximum duration of seven days. Loans may be called on one day's
notice. A Fund may have to borrow from a bank at a higher interest rate if an
interfund loan is unavailable, called or not renewed.
INVESTMENT COMPANY SECURITIES -- To manage their daily cash positions, the Funds
may invest in securities issued by other investment companies, including
investment companies advised by INVESCO and its affiliates (pursuant to an
exemptive order dated May 12, 1999) 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 Exchange-Traded Funds ("ETFs"). ETFs are
investment companies that are registered under the Investment Company Act of
1940 (the"1940 Act") as open-end funds or Unit Investment Trusts ("UITs"). ETFs
are based on specific domestic and foreign indices. ETF shares are sold and
redeemed at net asset value only in large blocks. In addition, national
securities exchanges list ETF shares for trading, which allows investors to
purchase and sell individual shares among themselves at market prices throughout
the day. The 1940 Act, limits investments in securities of other investment
companies. 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, no more than 5% of its total assets
may be invested in the securities of any one investment company, and a Fund may
not own more than 3% of the outstanding shares of any 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.
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are interests in pools
of mortgage loans that various governmental, government-related, and private
organizations assemble as securities for sale to investors. Unlike most debt
securities, which pay interest periodically and repay principal at maturity or
on specified call dates, mortgage-backed securities make monthly payments that
consist of both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Since homeowners usually have the option of paying either part or
all of the loan balance before maturity, the effective maturity of a
mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers, and the mortgage poolers may insure or
guarantee the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance, and letters of credit. The advisor will consider such
insurance and guarantees and the creditworthiness of the issuers thereof in
determining whether a mortgage-related security meets its investment quality
standards. It is possible that the private insurers or guarantors will not meet
their obligations under the insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA). GNMA is the principal
governmental guarantor of mortgage-related securities. GNMA is a wholly-owned
corporation of the U.S. government and it falls within the Department of Housing
and Urban Development. Securities issued by GNMA are considered the equivalent
of treasury securities and are backed by the full faith and credit of the U.S.
government. GNMA guarantees the timely payment of principal and interest on
securities issued by institutions approved by GNMA and backed by pools of
FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market value
or yield of mortgage-backed securities or the value of the Fund's shares. To buy
GNMA securities, the Fund may have to pay a premium over the maturity value of
the underlying mortgages, which the Fund may lose if prepayment occurs.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA). FNMA is a government-sponsored
corporation owned entirely by private stockholders. FNMA is regulated by the
Secretary of Housing and Urban Development. FNMA purchases conventional
mortgages from a list of approved sellers and service providers, including state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions, and mortgage bankers. Securities issued by
FNMA are agency securities, which means FNMA, but not the U.S. government,
guarantees their timely payment of principal and interest.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC). FHLMC is a stockholder owned
corporation chartered by Congress in 1970 to increase the supply of funds that
mortgage lenders, such as commercial banks, mortgage bankers, savings
institutions, and credit unions, can make available to homebuyers and
multifamily investors. FHLMC issues Participation Certificates (PCs) which
represent interests in conventional mortgages. FHLMC guarantees the timely
payment of interest and ultimate collection of principal, but PCs are not backed
by the full faith and credit of the U.S. government.
COMMERCIAL BANKS, SAVINGS AND LOAN INSTITUTIONS, PRIVATE MORTGAGE INSURANCE
COMPANIES, MORTGAGE BANKERS, AND OTHER SECONDARY MARKET ISSUERS. Commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers, and other secondary market issuers also create pass-through
pools of conventional mortgage loans. In addition to guaranteeing the
mortgage-related security, such issuers may service and/or have originated the
underlying mortgage loans. Pools created by these issuers generally offer a
higher rate of interest than pools created by GNMA, FNMA & FHLMC because they
are not guaranteed by a government agency.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities are
derivative multiple-class mortgage-backed securities. Stripped mortgage-backed
securities usually have two classes that receive different proportions of
interest and principal distributions on a pool of mortgage assets. Typically,
one class will receive some of the interest and most of the principal, while the
other class will receive most of the interest and the remaining principal. In
extreme cases, one class will receive all of the interest ("interest only" or
"IO" class) while the other class will receive the entire principal ("principal
only" or "PO class"). The cash flow and yields on IOs and POs are extremely
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs. Slower
than anticipated prepayments of principal may adversely affect the yield to
maturity of a PO. The yields and market risk of interest only and principal only
stripped mortgage-backed securities, respectively, may be more volatile than
those of other fixed income securities, including traditional mortgage-backed
securities.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs). CMOs are hybrids between
mortgage-backed bonds and mortgage pass-through securities. Similar to a bond,
CMOs usually pay interest monthly and have a more focused range of principal
payment dates than pass-through securities. While whole mortgage loans may
collateralize CMOs, mortgage-backed securities guaranteed by GNMA, FHLMC, or
FNMA and their income streams more typically collateralize them.
A Real Estate Mortgage Investment Conduit ("REMIC") is a CMO that qualifies for
special tax treatment under the Internal Revenue Code of 1986, as amended, and
is an investment in certain mortgages primarily secured by interests in real
property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche of
CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
RISKS OF MORTGAGE-BACKED SECURITIES. Yield characteristics of mortgage-backed
securities differ from those of traditional debt securities in a variety of
ways. For example, payments of interest and principal are more frequent (usually
monthly) and their interest rates are sometimes adjustable. In addition, a
variety of economic, geographic, social, and other factors, such as the sale of
the underlying property, refinancing, or foreclosure, can cause investors to
repay the loans underlying a mortgage-backed security sooner than expected. If
the prepayment rates increase, a Fund may have to reinvest its principal at a
rate of interest that is lower than the rate on existing mortgage-backed
securities.
ASSET-BACKED SECURITIES. These securities are interests in pools of a broad
range of assets other than mortgages, such as automobile loans, computer leases,
and credit card receivables. Like mortgage-backed securities, these securities
are pass-through. In general, the collateral supporting these securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets, which raises the possibility
that recoveries on repossessed collateral may not be available to support
payments on these securities. For example, credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which allow debtors to reduce their
balances by offsetting certain amounts owed on the credit cards. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. Due to the quantity of vehicles involved and
requirements under state laws, asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool in a timely fashion ("liquidity
protection"). In addition, asset-backed securities may include insurance, such
as guarantees, policies, or letters of credit obtained by the issuer or sponsor
from third parties, for some or all of the assets in the pool ("credit
support"). Delinquency or loss more than that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
The Funds may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities depends
in part on the characteristics of the underlying assets, the coupon rates on the
securities, prevailing interest rates, the amount of administrative expenses and
the actual prepayment experience on the underlying assets.
REAL ESTATE INVESTMENT TRUSTS - To the extent consistent with their investment
objectives and policies, the Funds may invest in securities issued by real
estate investment trusts ("REITs").
REITs are trusts which sell equity or debt securities to investors and use the
proceeds to invest in real estate or interests therein. A REIT may focus on
particular projects, such as apartment complexes, or geographic regions, such as
the Southeastern United States, or both.
To the extent that the Funds have the ability to invest in REITs, a Fund could
conceivably own real estate directly as a result of a default on the securities
it owns. The Funds, therefore, may be subject to certain risks associated with
the direct ownership of real estate including difficulties in valuing and
trading real estate, declines in the value of real estate, risks related to
general and local economic conditions, adverse changes in the climate for real
estate, environmental liability risks, increases in property taxes and operating
expenses, changes in zoning laws, casualty or condemnation losses, limitations
on rents, changes in neighborhood values, the appeal of properties to tenants,
and increases in interest rates.
In addition to the risks described above, REITs may be affected by any changes
in the value of the underlying property in their portfolios. REITs are dependent
upon management skill, are not diversified, and are therefore subject to the
risk of financing single or a limited number of projects. REITs are also subject
to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to maintain an exemption from the 1940 Act. Changes in
interest rates may also affect the value of debt securities held by a Fund. By
investing in REITs indirectly through a Fund, a shareholder will bear not only
his/her proportionate share of the expenses of a Fund, but also, indirectly,
similar expenses of the REITs.
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 financial institutions that
are creditworthy under standards established by the Company's board of
directors. The Company's advisor, INVESCO, must use these standards to review
the creditworthiness of any financial institution that is a party to a REPO.
REPOs maturing in more than seven days are considered illiquid securities. A
Fund will not enter into repurchase agreements maturing in more than seven days
if as a result more than 15% of the Fund's net assets would be invested in these
repurchase agreements and other illiquid securities.
As noted above, the Funds use REPOs as a means of investing cash for short
periods of time. Although REPOs are considered to be highly liquid and
comparatively low-risk, the use of REPOs does involve some risks. For example,
if the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss on the sale of the collateral security. If the other party
to the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within the control
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 from time to time loan securities from its
portfolio to brokers, dealers and financial institutions to earn income or
generate cash for liquidity. When the Fund lends securities it will receive
collateral in cash or U.S. Treasury obligations which will be maintained, and
with regard to cash, invested, at all times in an amount equal to at least 100%
of the current market value of the loaned securities. All such loans will be
made according to the guidelines of the SEC and the Company's board of
directors. A Fund may at any time call such loans to obtain the securities
loaned. If the borrower of the securities should default on its obligation to
return the securities borrowed, the value of the collateral may be insufficient
to permit the Fund to reestablish its position by making a comparable investment
due to changes in market conditions or the Fund may be unable to exercise
certain ownership rights. A Fund will be entitled to earn interest paid upon
investment of the cash collateral or to the payment of a premium or fee for the
loan. A Fund may pay reasonable fees in connection with such loans, including
payments to the borrower and to one or more securities lending agents (each an
"Agent").
INVESCO provides the following services in connection with the securities
lending activities of each Fund: (a) oversees participation in the securities
lending program to ensure compliance with all applicable regulatory and
investment guidelines; (b) assists the Agent in determining which specific
securities are available for loan; (c) monitors the Agent's loan activities to
ensure that securities loans are effected in accordance with INVESCO's
instructions and with procedures adopted by the board of directors; (d) prepares
appropriate periodic reports for, and seeks appropriate approvals from, the
board of directors with respect to securities lending activities; (e) responds
to Agent inquiries; and (f) performs such other duties as necessary. INVESCO
intends to seek necessary approvals to enable it to earn compensation for
providing such services.
The Funds have obtained an exemptive order from the SEC allowing them to invest
uninvested cash balances and cash collateral received in connection with
securities lending in money market funds that have INVESCO or an affiliate of
INVESCO as an investment advisor.
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
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 prices 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 others
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 Funds 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 having 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.
UNSEASONED ISSUERS -- The Funds may purchase securities in unseasoned issuers.
Securities in such issuers may provide opportunities for long term capital
growth. Greater risks are associated with investments in securities of
unseasoned issuers than in the securities of more established companies because
unseasoned issuers have only a brief operating history and may have more limited
markets and financial resources. As a result, securities of unseasoned issuers
tend to be more volatile than securities of more established companies.
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 mortgagebacked securities representing part
ownership of a pool of mortgage loans. These loans issued by lenders such as
mortgage bankers, commercial banks, and savings and loan associations are either
insured by the Federal Housing Administration or guaranteed by the Veterans
Administration. A "pool" or group of such mortgages is assembled and, after
being approved by GNMA, is offered to investors through securities dealers. Once
approved by GNMA, the timely payment of interest and principal on each mortgage
is guaranteed by GNMA and backed by the full faith and credit of the U.S.
government. The market value of GNMA Certificates is not guaranteed. GNMA
Certificates are different from bonds because principal is paid back monthly by
the borrower over the term of the loan rather than returned in a lump sum at
maturity, as is the case with a bond. GNMA Certificates are called
"pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the GNMA
Certificate.
Other United States government debt securities, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury. Others, such as bonds issued by Fannie Mae, a federally chartered
private corporation, are supported only by the credit of the corporation. In the
case of securities not backed by the full faith and credit of the United States,
a Fund must look principally to the agency issuing or guaranteeing the
obligation in the event the agency or instrumentality does not meet its
commitments. The U.S. government may choose not to provide financial support to
U.S. government-sponsored agencies or instrumentalities if it is not legally
obligated to do so. A Fund will invest in securities of such instrumentalities
only when INVESCO is satisfied that the credit risk with respect to any such
instrumentality is comparatively minimal.
The U.S. government may choose not to provide financial support to U.S.
government-sponsored agencies or intrumentalities if it is not legally obligated
to do so.
WHEN-ISSUED/DELAYED DELIVERY -- The Funds normally 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 investment restrictions set forth below have been adopted by each respective
Fund and, unless identified as non-fundamental policies, may not be changed
without the affirmative vote of a majority of the outstanding voting securities
of that Fund. As provided in the Investment Company Act of 1940, as amended (the
"1940 Act"), a "vote of a majority of the outstanding voting securities of the
Fund" means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund or (2) 67% or more of the shares present at a
meeting, if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy. Except with respect to borrowing, changes in
values of a particular Fund's assets will not cause a violation of the following
investment restrictions so long as percentage restrictions are observed by such
Fund at the time it purchases any security. Each Fund may not:
1. purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities or municipal securities) if, as a result, more than 25%
of the Fund's total assets would be invested in the securities of companies
whose principal business activities are in the same industry;
2. with respect to 75% of the Fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities, or securities of
other investment companies) if, as a result, (i) more than 5% of the Fund's
total assets would be invested in the securities of that issuer, or (ii)
the 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 1933 Act 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
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. With respect to a Fund that
is not a money market fund, securities issued or guaranteed by a bank or
subject to financial guaranty insurance are not subject to the limitations
set forth in the preceding sentence.
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR
INVESCO, located at 4350 South Monaco Street, Denver, Colorado, is the Company's
investment advisor. INVESCO was founded in 1932 and serves as an investment
advisor to:
INVESCO Bond Funds, Inc.
INVESCO Combination Stock & Bond Funds, Inc.
INVESCO Counselor Series Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Manager Series Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Treasurer's Series Funds, Inc.
INVESCO Variable Investment Funds, Inc.
As of June 30, 2003, INVESCO managed 48 mutual funds having combined assets of
$19.2 billion, on behalf of 2,756,061 shareholder accounts.
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 $347.6 billion in assets under management as of June 30, 2003.
AMVESCAP PLC's North American subsidiaries include:
AMVESCAP Retirement, Inc. ("ARI"), Atlanta, Georgia, develops and provides
domestic and international defined contribution retirement plan services to
plan sponsors, institutional retirement plan sponsors and institutional
plan providers.
AMVESCAP National Trust Company (formerly known as Institutional Trust
Company doing business as INVESCO Trust Company) (ANTC), a wholly
owned subsidiary of ARI, maintains an institutional retirement Trust
containing 34 collective trust funds designed specially for qualified
plans. ANTC provides retirement account custodian and/or trust
services for individual retirement accounts ("IRAs") and other
retirement plan accounts. ANTC acts as directed, non-discretionary
trustee or custodian for such plans.
INVESCO Institutional (N.A.), Inc., Atlanta, Georgia, manages
individualized investment portfolios of equity, fixed-income, and real
estate securities for institutional clients, including mutual funds and
collective investment entities. INVESCO Institutional (N.A.), Inc. includes
the following Groups and Divisions and:
INVESCO Capital Management Group, Atlanta, Georgia, manages
institutional investment portfolios, consisting primarily of
discretionary employee benefit plans for corporations and state and
local governments, and endowment funds.
INVESCO National Asset Management Group, Atlanta, Georgia, provides
investment advisory services to employee pension and profit sharing
plans, endowments and foundations, public plans, unions
(Taft-Hartley), mutual funds and individuals.
INVESCO Fixed Income/Stable Value Division, Louisville, Kentucky,
provides customized low volatility fixed income solutions to 401(k),
457, and other tax qualified retirement plans.
INVESCO Financial Institutions Group, Atlanta, Georgia, provides
investment management services through separately managed account
programs offered by brokerage firms.
INVESCO Structured Products Group, New York, New York, is responsible
for tactical asset allocation and managed futures products, and
quantitative stock selection products. This group develops forecasting
models for domestic stock and bond markets and manages money for
clients in products based on these forecasting models.
INVESCO Realty Advisors Division, Dallas, Texas, is responsible for
providing advisory services to discretionary and non-discretionary
accounts with respect to investments in real estate, mortgages,
private real estate partnership interests, REITs, and publicly traded
stocks of companies deriving substantial revenues from real estate
industry activities.
INVESCO Multiple Asset Strategies Group, Atlanta, Georgia, maintains a
complex set of fundamentally based quantitative models used as a
primary basis for asset allocation decisions. The group's main product
is global asset allocation.
A I M Advisors, Inc., Houston, Texas, provides investment advisory and
administrative services for retail and institutional mutual funds.
A I M Capital Management, Inc., Houston, Texas, provides investment
advisory services to individuals, corporations, pension plans, and other
private investment advisory accounts and also serves as a sub-advisor to
certain retail and institutional mutual funds, one Canadian mutual fund,
and one portfolio of an open-end registered investment company that is
offered to separate accounts of 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 30 Finsbury Square,
London, EC2A 1AG, England.
THE INVESTMENT ADVISORY AGREEMENT
INVESCO serves as investment advisor 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-advisor, 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 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 advisor or any sub-advisor;
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.
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 prospectuses, statements 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; and
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 allocated daily to each class based on the relative proportion
of net assets represented by such class. The fee is calculated at the annual
rate of:
Core Equity 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% of each Fund's average net assets from $700 million;
o 0.45% of each Fund's average net assets from $2 billion;
o 0.40% of each Fund's average net assets from $4 billion;
o 0.375% of each Fund's average net assets from $6 billion; and
o 0.35% of each Fund's average net assets from $8 billion.
Total Return Fund
o 0.75% on the first $500 million of the Fund's average net assets;
o 0.65% on the next $500 million of the Fund's average net assets;
o 0.50% of the Fund's average net assets from $1 billion;
o 0.45% of the Fund's average net assets from $2 billion;
o 0.40% of the Fund's average net assets from $4 billion;
o 0.375% of the Fund's average net assets from $6 billion; and
o 0.35% of 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. Since Total Return Fund's Institutional Class
and Class K shares had not commenced operations as of May 31, 2003, no advisory
fees were paid with respect to Total Return Fund's Institutional Class and Class
K shares as of that date. If applicable, the advisory fees were offset by
credits in the amounts shown, so that the Funds' fees were not in excess of the
expense limitations shown, which have been voluntarily agreed to by the Company
and INVESCO. The fee is allocated daily to each class based on the relative
proportion of net assets represented by such class.
ADVISORY TOTAL EXPENSE TOTAL EXPENSE
FEE DOLLARS REIMBURSEMENTS LIMITATIONS
INVESTOR CLASS
CORE EQUITY FUND
Year Ended May 31, 2003 $12,748,828 $ 0 N/A
Year Ended May 31, 2002 17,273,680 0 N/A
Year Ended May 31, 2001 20,643,362 0 N/A
BALANCED FUND
Year Ended May 31, 2003 $ 3,337,535 $ 319,653 1.25%
Year Ended May 31, 2002 5,055,298 0 1.25%
Year Ended May 31, 2001 5,316,655 0 1.25%
ADVISORY TOTAL EXPENSE TOTAL EXPENSE
FEE DOLLARS REIMBURSEMENTS LIMITATIONS
TOTAL RETURN FUND
Year Ended May 31, 2003 $ 6,147,015 $ 2,080,446 1.24%(1)
Year Ended May 31, 2002 8,260,344 0 N/A
Year Ended May 31, 2001 11,225,060 0 N/A
INSTITUTIONAL CLASS
BALANCED FUND
Year Ended May 31, 2003 $ 1,255,717 $ 0 1.00%
Year Ended May 31, 2002 1,073,659 0 1.00%
Period Ended May 31, 2001(2) 470,865 151,687 1.00%
CLASS A
CORE EQUITY FUND
Year Ended May 31, 2003 $ 14,226 $ 0 1.50%
Period Ended May 31, 2002(3) 104 0 1.50%
BALANCED FUND
Year Ended May 31, 2003 $ 1,446 $ 2,966 1.35%(4)
Period Ended May 31, 2002(3) 31 0 1.50%
TOTAL RETURN FUND
Year Ended May 31, 2003 $ 3,059 $ 2,592 1.34%(5)
Period Ended May 31, 2002(3) 51 0 1.50%
CLASS B
CORE EQUITY FUND
Year Ended May 31, 2003 $ 2,950 $ 2,300 2.15%
Period Ended May 31, 20023 109 0 2.15%
BALANCED FUND
Year Ended May 31, 2003 $ 822 $ 3,523 2.00%(6)
Period Ended May 31, 2002(3) 33 0 2.15%
ADVISORY TOTAL EXPENSE TOTAL EXPENSE
FEE DOLLARS REIMBURSEMENTS LIMITATIONS
TOTAL RETURN FUND
Year Ended May 31, 2003 $ 1,903 $ 3,513 1.99%(7)
Period Ended May 31, 2002(3) 51 0 2.15%
CLASS C
CORE EQUITY FUND
Year Ended May 31, 2003 $ 40,955 $ 0 N/A
Year Ended May 31, 2002 49,474 0 N/A
Year Ended May 31, 2001 29,146 0 N/A
BALANCED FUND
Year Ended May 31, 2003 $ 15,976 $ 20,720 2.00%
Year Ended May 31, 2002 34,005 4,670 2.00%
Year Ended May 31, 2001 33,542 0 2.00%
TOTAL RETURN FUND
Year Ended May 31, 2003 $ 4,908 $ 8,666 1.99%(8)
Year Ended May 31, 2002 4,615 0 N/A
Year Ended May 31, 2001 1,481 0 N/A
CLASS K
CORE EQUITY FUND
Year Ended May 31, 2003 $ 103,385 $ 130,653 2.20%(8)
Year Ended May 31, 2002 70,870 0 N/A
Period Ended May 31,2001(9) 2 0 N/A
BALANCED FUND
Year Ended May 31, 2003 $ 53,494 $ 5,723 1.45%
Year Ended May 31, 2002 39,594 0 1.45%
Period Ended May 31,2001(9) 2 7 1.45%
(1) Effective June 28, 2002.
(2) For the period July 3, 2000, commencement of operations, through May 31,
2001.
(3) For the period April 1, 2002, commencement of operations, through May 31,
2002.
(4) 1.35% as of August 1, 2002. 1.50% prior to August 1, 2002.
(5) 1.34% as of August 1, 2002. 1.50% prior to August 1, 2002.
(6) 2.00% as of August 1, 2002. 2.15% prior to August 1, 2002.
(7) 1.99% as of August 1, 2002. 2.15% prior to August 1, 2002.
(8) Effective August 1, 2002.
(9) For the period December 14, 2000, commencement of operations, through
May 31, 2001.
BOARD RENEWAL OF ADVISORY AGREEMENT
In renewing the Advisory Agreement, the board primarily considered, with respect
to each Fund, the nature, quality, and extent of the services provided under the
Agreement and the overall fairness of the Agreement. The board requested and
evaluated information from INVESCO that addressed specific factors designed to
assist in the board's consideration of these issues.
With respect to the nature and quality of the services provided, the board
reviewed, among other things (1) the overall performance results of the Funds in
comparison to relevant indices, (2) a summary for each Fund of the performance
of a peer group of investment companies pursuing broadly similar strategies
prepared by an independent data service, and (3) the degree of risk undertaken
by INVESCO as reflected by a risk/return summary, also prepared by the
independent data service. The board considered INVESCO's resources and
responsiveness with respect to Funds that have experienced performance
difficulties and discussed the efforts being made to improve the performance
records of such Funds. The board also considered the advantages to each Fund of
having an advisor that is associated with a global investment management
organization. In connection with its review of the quality of the execution of
the Funds' trades, the board considered INVESCO's use in fund transactions of
brokers or dealers that provided research and other services to INVESCO or its
affiliates, and the benefits derived from such services to the Funds and to
INVESCO. The board also considered the quality of the shareholder and
administrative services provided by INVESCO, as well as the firm's positive
compliance history.
With respect to the overall fairness of the Agreement, the board primarily
considered the fairness of fee arrangements and the profitability and any
fall-out benefits to INVESCO and its affiliates from their association with the
Funds. The board reviewed information from an independent data service about the
rates of compensation paid to investment advisors and overall expense ratios,
for funds comparable in size, character, and investment strategy to the Funds.
In concluding that the benefits accruing to INVESCO and its affiliates by virtue
of their relationships with the Funds were reasonable in comparison with the
costs of providing investment advisory services and the benefits accruing to
each Fund, the board reviewed specific data as to INVESCO's profit or loss on
each Fund, and carefully examined INVESCO's cost allocation methodology. In this
connection, the board requested that the Funds' independent auditors review
INVESCO's methodology for appropriateness. The board concluded that renewal of
the Agreement was in the best interest of the Funds' shareholders. These matters
were considered by directors who are not affiliated with INVESCO (the
"Independent Directors") working with experienced 1940 Act counsel that is
independent of INVESCO.
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 dated June 1, 2000, as amended February
10, 2003, with the Company.
The Administrative Services Agreement requires INVESCO to provide the following
services to the Funds:
o such sub-accounting and recordkeeping services and functions as are
reasonably necessary for the operation of the Funds; and
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 0.045% per year of the average net assets of each
Fund.
TRANSFER AGENCY AGREEMENT
INVESCO also performs transfer agent, dividend disbursing agent, and registrar
services for the Funds pursuant to a Transfer Agency Agreement dated June 1,
2000, as amended February 10, 2003, with the Company.
The Transfer Agency Agreement provides that each Fund pays INVESCO an annual fee
of $22.50 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
During the periods outlined in the table below, the Funds paid the following
fees to INVESCO (if applicable, prior to the voluntary absorption of certain
Fund expenses by INVESCO). The fees are allocated daily to each class based on
the relative proportion of net assets represented by such class. Since Total
Return Fund's Institutional Class and Class K shares had not commenced
operations as of May 31, 2003, no fees were paid with respect to Total Return
Fund's Institutional Class and Class K shares for the periods shown. INVESCO is
entitled to reimbursement by a Fund if such reimbursement does not cause the
Fund to exceed the current expense limitations and the reimbursement is made
within three years after INVESCO incurred the expense.
ADMINISTRATIVE TRANSFER
ADVISORY SERVICES AGENCY
INVESTOR CLASS
CORE EQUITY FUND
Year Ended May 31, 2003 $12,748,828 $ 1,134,166 $ 5,196,034
Year Ended May 31, 2002 17,273,680 1,586,100 6,170,161
Year Ended May 31, 2001 20,643,362 1,937,357 6,177,732
BALANCED FUND
Year Ended May 31, 2003 $ 3,337,535 $ 273,809 $ 2,305,641
Year Ended May 31, 2002 5,055,298 424,666 3,068,332
Year Ended May 31, 2001 5,316,655 444,344 1,779,714
TOTAL RETURN FUND
Year Ended May 31, 2003 $ 6,147,015 $ 401,453 $ 3,868,389
Year Ended May 31, 2002 8,260,344 214,921 6,536,082
Year Ended May 31, 2001 11,225,060 287,476 6,745,155
INSTITUTIONAL CLASS
BALANCED FUND
Year Ended May 31, 2003 $ 1,255,717 $ 102,906 $ 690,836
Year Ended May 31, 2002 1,073,659 90,137 639,743
Period Ended May 31, 2001(1) 470,865 39,512 432,611
CLASS A
CORE EQUITY FUND
Year Ended May 31, 2003 $ 14,225 $ 1,261 $ 4,158
Period Ended May 31, 2002(2) 104 9 21
BALANCED FUND
Year Ended May 31, 2003 $ 1,446 $ 118 $ 1,058
Period Ended May 31, 2002(2) 31 3 8
ADMINISTRATIVE TRANSFER
ADVISORY SERVICES AGENCY
TOTAL RETURN FUND
Year Ended May 31, 2003 $ 3,059 $ 199 $ 739
Period Ended May 31, 2002(2) 51 2 6
CLASS B
CORE EQUITY FUND
Year Ended May 31, 2003 $ 2,950 $ 262 $ 1,945
Period Ended May 31, 2002(2) 109 10 22
BALANCED FUND
Year Ended May 31, 2003 $ 821 $ 67 $ 660
Period Ended May 31, 2002(2) 33 3 9
TOTAL RETURN FUND
Year Ended May 31, 2003 $ 1,903 $ 124 $ 714
Period Ended May 31, 2002(2) 51 3 11
CLASS C
CORE EQUITY FUND
Year Ended May 31, 2003 $ 40,955 $ 3,643 $ 34,617
Year Ended May 31, 2002 49,474 4,542 25,164
Year Ended May 31, 2001 29,146 2,728 8,074
BALANCED FUND
Year Ended May 31, 2003 $ 15,976 $ 1,311 $ 22,286
Year Ended May 31, 2002 34,005 2,857 20,966
Year Ended May 31, 2001 33,542 2,812 8,645
TOTAL RETURN FUND
Year Ended May 31, 2003 $ 4,908 $ 320 $ 6,950
Year Ended May 31, 2002 4,615 120 4,985
Year Ended May 31, 2001 1,481 37 1,515
ADMINISTRATIVE TRANSFER
ADVISORY SERVICES AGENCY
CLASS K
CORE EQUITY FUND
Year Ended May 31, 2003 $ 103,385 $ 9,203 $ 319,176
Year Ended May 31, 2002 70,870 6,489 20,273
Period Ended May 31,2001(3) 2 0 9
BALANCED FUND
Year Ended May 31, 2003 $ 53,494 $ 4,388 $ 37,166
Year Ended May 31, 2002 39,594 3,320 20,201
Period Ended May 31, 2001(3) 2 0 9
(1) For the period July 3, 2000, commencement of operations, through May 31,
2001.
(2) For the period April 1, 2002, commencement of operations, through May 31,
2002.
(3) For the period December 14, 2000, commencement of operations, through
May 31, 2001.
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 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.
The tables below provide information about each of the Company's directors and
officers. The first table provides information for the Independent Directors,
and the second table provides information for the directors who are "interested
persons" of the Company as defined in Section 2(a)(19) of the 1940 Act (the
"Interested Directors"). For the Interested Directors, information about their
principal occupations and other directorships reflects their affiliations with
INVESCO and its affiliated companies.
INDEPENDENT DIRECTORS
Name, Address, and Age Position(s) Held Principal Occupation(s) Number of Other Directorships
With Company, Term During Past Five Years2 Funds in the Held by Director
of Office(1) and Fund Complex
Length of Time Overseen by
Served(2) Director
Bob R. Baker Vice Chairman of the Consultant (2000-present). 48
(3)(4)(5)(9)(10)(11)(12) Board (2003-present) Formerly, President and Chief
37 Castle Pines Dr. N. Executive Officer (1988-2000)
Castle Rock, Colorado of AMC Cancer Research
Age: 66 Center, Denver, Colorado;
until mid-December 1988, Vice
Chairman of the Board of
First Columbia Financial
Corporation, Englewood,
Colorado; formerly, Chairman
of the Board and Chief
Executive Officer of First
Columbia Financial
Corporation.
Sueann Ambron, Ph.D.(5) Director (since Dean of the Business School, 48
University of Colorado 2003) College of Business,
at Denver University of Colorado at
1250 14th Street Denver (2000-present).
Denver, Colorado Formerly, President and Chief
Age 58 Executive Officer of Avulet,
Inc., Sunnyvale, California
(1998-1999), and formerly,
Vice President and General
Manager, Multimedia Services
Division, Motorola, Inc.,
Schaumburg, Illinois
(1996-1998).
Victor L. Andrews, Ph.D. Director Professor Emeritus, Chairman 48
(5)(7)(10)(11) Emeritus and Chairman and CFO
34 Seawatch Drive of the Roundtable of the
Savannah, Georgia Department of Finance of
Age: 73 Georgia State University; and
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.
Name, Address, and Age Position(s) Held Principal Occupation(s) Number of Other Directorships
With Company, Term During Past Five Years2 Funds in the Held by Director
of Office(1) and Fund Complex
Length of Time Overseen by
Served(2) Director
Lawrence H. Budner Director Trust Consultant. Formerly, 48
(3)(6)(10)(11) Senior Vice President and
7608 Glen Albens Circle Senior Trust Officer of
Dallas, Texas InterFirst Bank, Dallas,
Age: 73 Texas.
James T. Bunch Director (since Co-President and Founder of 48
(4)(5)(6)(8)(9)(12) 2000) Green, Manning & Bunch Ltd.,
3600 Republic Plaza Denver, Colorado
370 Seventeenth Street (1988-present); Director and
Denver, Colorado Vice President of Western
Age: 60 Golf Association and Evans
Scholars Foundation.
Executive Committee, United
States Golf Association.
Formerly, General Counsel and
Director of Boettcher & Co.,
Denver, Colorado; and
formerly, Chairman and
Managing Partner of Davis,
Graham & Stubbs, Denver,
Colorado.
Gerald J. Lewis Director (since Chairman of Lawsuit 48 Director of General
(3)(7)(8)(9) 2000) Resolution Services, San Chemical Group,
701 "B: Street Diego, California Inc., Hampdon, New
Suite 2100 (1987-present). Formerly, Hampshire (1996 to
San Diego, California Associate Justice of the present). Director
Age: 69 California Court of Appeals; of Wheelabrator
and Of Counsel, Latham & Technologies, Inc.,
Watkins, San Diego, Fisher Scientific,
California (1987 to 1997). Inc., Henley
Manufacturing, Inc.,
and California
Coastal Properties,
Inc.
Name, Address, and Age Position(s) Held Principal Occupation(s) Number of Other Directorships
With Company, Term During Past Five Years2 Funds in the Held by Director
of Office(1) and Fund Complex
Length of Time Overseen by
Served(2) Director
John W. McIntyre Director Retired. Trustee of Gables 48
(3)(4)(6)(8)(12) Residential Trust; Trustee
7 Piedmont Center and Chairman of the J.M. Tull
Suite 100 Charitable Foundation;
Atlanta, Georgia Director of Kaiser Foundation
Age: 72 Health Plans of Georgia, Inc.
Formerly, Vice Chairman of
the Board of Directors of The
Citizens and Southern
Corporation and Chairman of
the Board and Chief Executive
Officer of The Citizens and
Southern Georgia Corp. and
The Citizens and Southern
National Bank; formerly,
Trustee of INVESCO Global
Health Sciences Fund and
Trustee of Employee's
Retirement System of GA,
Emory University.
Larry Soll, Ph.D. Director (since Retired. Formerly, Chairman 48 Director of Synergen
(5)(7)(9)(10)(11) 1997) of the Board (1987-1994), since incorporation
2358 Sunshine Canyon Drive Chief Executive Officer in 1982; Director of
Boulder, Colorado (1982-1989 and 1993-1994), Isis
Age: 61 and President (1982-1989) of Pharmaceuticals,
Synergen Inc.; and formerly, Inc.
Trustee of INVESCO Global
Health Sciences Fund.
INTERESTED DIRECTORS AND OFFICERS.
Messrs. Cunningham and Healey are Interested Directors by virtue of the fact
that they are officers of INVESCO. Mr. Williamson is an Interested Director by
virtue of the fact that he is an officer of AMVESCAP PLC, the parent company of
INVESCO.
Name, Address, and Age Position(s) Held Principal Occupation(s) Number of Other Directorships
With Company, Term During Past Five Years2 Funds in the Held by Director
of Office(1) and Fund Complex
Length of Time Overseen by
Served(2) Director
Mark H. Williamson(4) Chairman of the President and Chief Executive 48 Board of INVESCO
4350 South Monaco Street Board (since 1999). Officer of A I M Investment Funds Group, Inc.
Denver, Colorado Formerly, President Management and Chief Executive and INVESCO
Age: 52 1998-2002) and Chief Officer of A I M Division of Distributors, Inc.
Executive Officer AMVESCAP PLC (2003-present).
(1998-2002). Formerly, Chief Executive
Officer, Managed Products
Division, AMVESCAP PLC
(2001-2002). Formerly,
Chairman of the Board
(1998-2002), President
(1998-2002), and Chief
Executive Officer (1998-2002)
of INVESCO Funds Group, Inc.
and of INVESCO Distributors,
Inc. Formerly, Chief Operating
Officer and Chairman of the
Board of INVESCO Global Health
Sciences Fund; formerly,
Chairman and Chief Executive
Officer of NationsBanc
Advisors, Inc.; and formerly,
Chairman of NationsBanc
Name, Address, and Age Position(s) Held Principal Occupation(s) Number of Other Directorships
With Company, Term During Past Five Years2 Funds in the Held by Director
of Office(1) and Fund Complex
Length of Time Overseen by
Served(2) Director
Raymond R. Cunningham(11)(12) President President (2003-present) and 48 Director of INVESCO
4350 South Monaco Street (2003-present), Chief Executive Officer Funds Group, Inc.
Denver, Colorado Chief Executive (2003-present) of INVESCO and INVESCO
Age: 52 Officer Funds Group, Inc.; Chairman of Distributors, Inc.
(2003-present) and the Board (2003-present),
Director President (2003-present) and
(2001-present). Chief Executive Officer
Formerly, Vice (2003-present) of INVESCO
President Distributors, Inc. Formerly,
(2001-2002). Chief Operating Officer
(2002-2003) and Senior Vice
President (1999-2002) of
INVESCO Funds Group, Inc. and
INVESCO Distributors, Inc.;
and formerly, Senior Vice
President of GT Global - North
America (1992-1998).
Director of INVESCO
Richard W. Healey Director (since 2000) Senior Vice President of 40 Funds Group, Inc.
4350 South Monaco Street INVESCO Funds Group, Inc.; and INVESCO
Denver, Colorado Senior Vice President of Distributors, Inc.
Age: 48 INVESCO Distributors, Inc.
Formerly, Senior Vice
President of GT Global -North
America (1996-1998) and The
Boston Company (1993-1996).
Name, Address, and Age Position(s) Held Principal Occupation(s) Number of Other Directorships
With Company, Term During Past Five Years2 Funds in the Held by Director
of Office(1) and Fund Complex
Length of Time Overseen by
Served(2) Director
Glen A. Payne Secretary Senior Vice President, General
4350 South Monaco Street Counsel and Secretary of
Denver, Colorado INVESCO Funds Group, Inc.;
Age: 55 Senior Vice President,
Secretary and General Counsel
of INVESCO Distributors, Inc.
Formerly, Secretary of INVESCO
Global Health Sciences Fund;
General Counsel of INVESCO
Trust Company (1989-1998); and
employee of a U.S. regulatory
agency, Washington, D.C.
(1973-1989).
Ronald L. Grooms Chief Accounting Senior Vice President and
4350 South Monaco Street Officer, Chief Treasurer of INVESCO Funds
Denver, Colorado Financial Officer Group, Inc.; and Senior Vice
Age: 56 and Treasurer President and Treasurer of
INVESCO Distributors, Inc.
Formerly, Treasurer and
Principal Financial and
Accounting Officer of INVESCO
Global Health Sciences Fund;
and Senior Vice President and
Treasurer of INVESCO Trust
Company (1988-1998).
Name, Address, and Age Position(s) Held Principal Occupation(s) Number of Other Directorships
With Company, Term During Past Five Years2 Funds in the Held by Director
of Office(1) and Fund Complex
Length of Time Overseen by
Served(2) Director
William J. Galvin, Jr. Assistant Senior Vice President and
4350 South Monaco Street Secretary Assistant Secretary of INVESCO
Denver, Colorado Funds Group, Inc.; and Senior
Age: 46 Vice President and Assistant
Secretary of INVESCO
Distributors, Inc. Formerly,
Trust Officer of INVESCO Trust
Company (1995-1998).
Pamela J. Piro Assistant Vice President and Assistant
4350 South Monaco Street Treasurer Treasurer of INVESCO Funds
Denver, Colorado Group, Inc.; and Assistant
Age: 42 Treasurer of INVESCO
Distributors, Inc. Formerly,
Assistant Vice President
(1996-1997).
Tane' T. Tyler Assistant Secretary Vice President and Assistant
4350 South Monaco Street (since 2002) General Counsel of INVESCO
Denver, Colorado Funds Group, Inc.
Age: 38
(1) Each director shall hold office until his or her successor shall have been
duly chosen and qualified, or until he or she shall have resigned or shall
have been removed in the manner provided by law. Each officer shall hold
office until the first meeting of the board of directors after the annual
meeting of the shareholders next following his or her election or, if no
such annual meeting of the shareholders is held, until the annual meeting of
the board of directors in the year following his or her election, and, until
his or her successor is chosen and qualified or until he or she shall have
resigned or died, or until he or she shall have been removed as provided in
the Company's bylaws. The board of directors has adopted a retirement policy
providing for mandatory retirement of a Fund director at the end of the
calendar quarter in which the director becomes 75, with a director being
afforded the opportunity to retire voluntarily upon reaching age 72 or at
any time between ages 72 and 75.
(2) Except as otherwise indicated, each individual has held the position(s)
shown for at least the last five years.
(3) Member of the audit committee of the Company.
(4) 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.
(5) Member of the investments and management liaison committee of the Company.
(6) Member of the brokerage committee of the Company.
(7) Member of the derivatives committee of the Company.
(8) Member of the legal committee of the Company.
(9) Member of the nominating committee of the Company.
(10) Member of the compensation committee of the Company.
(11) Member of the retirement plan committee of the Company.
(12) Member of the valuation committee of the Company.
BOARD OF DIRECTORS STANDING COMMITTEES
The board of directors has an audit committee comprised of four directors who
are 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. This committee held __ meetings
during the fiscal year ended May 31, 2003.
The Company has an investments and 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. This committee held __ meetings during the fiscal year ended May
31, 2003.
The Company has a 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. This committee
held 4 meetings during the fiscal year ended May 31, 2003.
The Company has a derivatives committee. The committee meets quarterly to review
derivatives investments made by the Funds. It monitors the use of derivatives by
the Funds and the procedures utilized by INVESCO to ensure that the use of such
instruments follows the policies adopted by the Company's board of directors.
The committee reports on these matters to the Company's board of directors. It
held 4 meetings during the fiscal year ended May 31, 2003.
The Company has a valuation committee, a legal committee, a compensation
committee, and a retirement plan committee. These committees meet when necessary
to review valuation, legal, compensation, and retirement plan matters of
importance to the Company. During the fiscal year ended May 31, 2003, the legal
committee met 3 times, the compensation committee met 2 times, and the
valuation, and retirement plan committees did not meet.
The Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors. The nominating committee will consider
nominees recommended by shareholders. If a shareholder desires to nominate a
candidate, he or she must submit a request in writing to the Chairman of the
nominating committee. All requests should be sent to The President, INVESCO
Funds Group, Inc., 4350 South Monaco Street, Denver, CO 80237. During the fiscal
year ended May 31, 2003, the nominating committee met 4 times.
The following table provides information regarding the dollar range of equity
securities beneficially owned by each director in each Fund and in the
investment companies in the INVESCO Complex that are overseen by the director,
as a whole, as of December 31, 2002:
- ----------------------------------------------------------------------------------------------------
Director Dollar Range of Equity Securities Owned in Each Fund(1) Aggregate Dollar
Range of Equity
Securities in All
Registered
Investment
Companies Overseen
by the director in
the INVESCO Funds(1)
- ----------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- ----------------------------------------------------------------------------------------------------
Bob R. Baker INVESCO Core Equity Fund $1-$10,000 $50,001-$100,000
INVESCO Balanced Fund $1-$10,000
INVESCO Total Return Fund $1-$10,000
- ----------------------------------------------------------------------------------------------------
Sueann Ambron INVESCO Core Equity Fund $0 $0
INVESCO Balanced Fund $0
INVESCO Total Return Fund $0
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Director Dollar Range of Equity Securities Owned in Each Fund(1) Aggregate Dollar
Range of Equity
Securities in All
Registered
Investment
Companies Overseen
by the director in
the INVESCO Funds(1)
- ----------------------------------------------------------------------------------------------------
Victor L. Andrews INVESCO Core Equity Fund $1-$10,000 Over $100,000
INVESCO Balanced Fund $1-$10,000
INVESCO Total Return Fund $1-$10,000
- ----------------------------------------------------------------------------------------------------
Lawrence H. Budner INVESCO Core Equity Fund $50,001-$100,000 Over $100,000
INVESCO Balanced Fund $1-$10,000
INVESCO Total Return Fund $1-$10,000
- ----------------------------------------------------------------------------------------------------
James T. Bunch INVESCO Core Equity Fund $1-$10,000 $50,001-$100,000
INVESCO Balanced Fund $1-$10,000
INVESCO Total Return Fund $1-$10,000
- ----------------------------------------------------------------------------------------------------
Gerald J. Lewis INVESCO Core Equity Fund $1-$10,000 $50,001-$100,000
INVESCO Balanced Fund $1-$10,000
INVESCO Total Return Fund $1-$10,000
- ----------------------------------------------------------------------------------------------------
John W. McIntyre INVESCO Core Equity Fund Over $100,000 Over $100,000
INVESCO Balanced Fund Over $100,000
INVESCO Total Return Fund $1-$10,000
- ----------------------------------------------------------------------------------------------------
Larry Soll INVESCO Core Equity Fund $1-$10,000 Over $100,000
INVESCO Balanced Fund $1-$10,000
INVESCO Total Return Fund $10,001-$50,000
- ----------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
- ----------------------------------------------------------------------------------------------------
Mark H. Williamson INVESCO Core Equity Fund None Over $100,000
INVESCO Balanced Fund None
INVESCO Total Return Fund None
- ----------------------------------------------------------------------------------------------------
Raymond R. Cunningham INVESCO Core Equity Fund None Over $100,000
INVESCO Balanced Fund None
INVESCO Total Return Fund None
- ----------------------------------------------------------------------------------------------------
Richard Healey INVESCO Core Equity Fund Over $100,000 Over $100,000
INVESCO Balanced Fund None
INVESCO Total Return Fund None
- ----------------------------------------------------------------------------------------------------
(1) All valuations of Fund shares are as of December 31, 2002.
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
Retirement 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 fiscal year ended May 31, 2003.
In addition, the table sets forth the total compensation paid by all of the
INVESCO Funds to these directors for services rendered in their capacities as
directors during the year ended December 31, 2002. As of December 31, 2002,
there were 48 INVESCO Funds.
- ----------------------------------------------------------------------------------------------------
Name of Person Aggregate Benefits Accrued Estimated Annual Total
and Position Compensation From As Part of Benefits Upon Compensation From
Company(1) Company Expenses(2) Retirement(3) INVESCO Funds
Paid To Directors(7)
- ----------------------------------------------------------------------------------------------------
Bob R. Baker, $27,113 $0 $7,570 $138,000
Vice Chairman of
the Board
- ----------------------------------------------------------------------------------------------------
Sueann Ambron4 $10,139 $0 $0 $0
- ----------------------------------------------------------------------------------------------------
Victor L. Andrews $23,415 $0 $7,570 $127,500
- ----------------------------------------------------------------------------------------------------
Lawrence H. Budner $22,070 $6,363 $7,570 $121,500
- ----------------------------------------------------------------------------------------------------
James T. Bunch $23,063 $0 $0 $124,625
- ----------------------------------------------------------------------------------------------------
Fred A. Deering(5) $19,243 $0 $8,238 $140,500
- ----------------------------------------------------------------------------------------------------
Wendy L. Gramm(5) $0 $0 $0 $74,875
- ----------------------------------------------------------------------------------------------------
Gerald J. Lewis $22,363 $0 $0 $116,500
- ----------------------------------------------------------------------------------------------------
John W. McIntyre $23,857 $6,363 $7,570 $124,000
- ----------------------------------------------------------------------------------------------------
Larry Soll $23,529 $0 $0 $126,000
- ----------------------------------------------------------------------------------------------------
Total $194,792 $12,726 $38,518 $1,093,500
- ----------------------------------------------------------------------------------------------------
% of Net Assets 0.0046%(6) 0.0003%(6) 0.0060%(7)
- ----------------------------------------------------------------------------------------------------
(1) The vice chairman of the board, the chairs 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 Retirement Plan
and Deferred Retirement Plan Account Agreement 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. With
the exception of Dr. Ambron and Messrs. Bunch and Lewis, each of 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 Retirement Plan.
(4) Dr. Ambron commenced her service as a director of the Company on January 1,
2003.
(5) Dr. Gramm resigned as a director of the Company on February 7, 2002. Mr.
Deering retired as a director of the Company on March 31, 2003.
(6) Total as a percentage of the Company's net assets as of May 31, 2003.
(7) Total as a percentage of the net assets of the INVESCO Funds as of December
31, 2002.
Messrs. Cunningham, Healey, and Williamson, as Interested Directors 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.
PARTICIPATION IN CERTAIN PLANS AND AGREEMENTS
The boards of directors of the INVESCO Funds have adopted a Retirement Plan (the
"Plan") and a Deferred Retirement Plan Account Agreement (the "Agreement").
Certain of the Independent Directors of the Company participate either in the
Plan or in the Agreement. Under the Plan and Agreement, each participating
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
"Participating Qualified Director") is entitled to receive a benefit.
THE PLAN
Commencing with attainment of age 72 by a Participating Qualified Director who
has elected to participate in the Plan and who voluntarily retires prior to
reaching age 72, and commencing with the date of retirement of a Participating
Qualified Director who retires upon reaching age 72 or at any time subsequent to
age 72 up to the mandatory retirement age of 75, a Participating Qualified
Director shall receive quarterly payments at an annual rate of $34,000 (the
"Annual Benefit"). Directors who became Participating Qualified Directors on or
before January 1, 2001 who retire upon reaching age 72 (or at age 73 or 74, if
the Director extends his retirement date for one to two years, but less than
three years) are entitled to payment for one year of twice the Annual Benefit.
Payment of the Annual Benefit will continue for the remainder of the
Participating Qualified Director's life or ten years, whichever is longer. If a
Participating Qualified Director becomes disabled before the date upon which his
or her Annual Benefit payments would normally commence, such benefit payments
will begin. If a Participating Qualified Director dies prior to the receipt of
the Annual Benefit for ten years, the Annual Benefit will be paid to his/her
beneficiary or estate until an aggregate of ten years of payments has been
received. A Participating Qualified Director who has elected to participate in
the Plan receives no benefits from the Agreement. The Plan is administered by a
committee of four directors, including at least 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 an earlier Plan to former director Daniel D.Chabris as of
October 1, 1998 and to former director Kenneth T. King as of January 1, 2000.
Messrs. Chabris and King are entitled to receive quarterly payments at an annual
rate equal to 50% of the annual retainer fees and annual board meeting fees
which are paid to an active Fund director. Annual payments made to Messrs.
Chabris and King exceed $34,000 per year.
THE AGREEMENT
A Participating Qualified Director who has elected to participate in the
Agreement receives no benefits from the Plan. Pursuant to the terms of the
Agreement, a deferred retirement account is established for a Qualified
Participating Director (the "Account"). The dollar amount credited to the
Account is in an amount which, based upon an assumed account appreciation rate
of 6.25% per annum, will provide the Participating Qualified Director with an
account value of $340,000 upon reaching age 72. Once the initial dollar amount
of the Account is established, Account proceeds are invested in shares of one or
more of the INVESCO Funds. The value of the Account fluctuates with the
appreciation or depreciation in the shares of the Funds owned by the Account and
Account shares are increased by the amount of any dividends and capital gains
distributions paid with respect to the shares. Upon retirement, a Participating
Qualified Director is entitled to receive the value in the Account either in a
lump sum payment or in payments over a stipulated number of months. The Account
value continues to fluctuate as long as monthly payments are made. If a
Participating Qualified Director becomes disabled or dies prior to his or her
retirement and if, at the time of disability or death, the value of a
Participating Qualified Director's Account is less than $340,000, the Director
or the Director's beneficiary or estate will not be paid the value in the
Account but will receive $34,000 per annum for ten years. If, at the time of the
Participating Qualified Director's death or disability prior to retirement, the
value in the director's Account is $340,000 or more, the Participating Qualified
Director or his or her estate or beneficiary will receive the value in the
Account either in a lump sum or in quarterly installments. The cost of providing
the initial dollar amount to be allocated to a Participating Qualified
Director's Account and the cost of payment of any death or disability benefit
that aggregates more than the Account value will be allocated among the INVESCO
Funds in a manner determined to be fair and equitable by a committee appointed
to administer the Agreement. The committee is composed of three interested
Directors and one Independent Director of the Funds.
The Company has no stock options, pension, or retirement plans for affiliated
directors of the INVESCO Funds or for management or other personnel, and pays no
salary or compensation to any of its officers.
DEFERRED COMPENSATION PLAN
The Independent Directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of 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 INVESCO
Fund, in addition to any INVESCO Fund shares the Independent Director may own
either directly or beneficially. Each of the Independent Directors has agreed to
invest a minimum of $100,000 of his or her own resources in shares of the
INVESCO Funds. Compensation contributed to a deferred compensation plan may
constitute all or a portion of this $100,000 commitment.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of July 31, 2003 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:
CORE EQUITY FUND
INVESTOR CLASS
- --------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Charles Schwab & Co. Inc. Beneficial 11.82%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
Charles Schwab & Co., Inc. Beneficial 54.78%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
CLASS K
- --------------------------------------------------------------------------------
Delaware Charter Guarantee Beneficial 72.55%
& Trust
Principal Financial Group
Attn RIS NPIO Trade Desk
711 High St
Des Moines IA 50392-0001
- --------------------------------------------------------------------------------
Transamerica Life Ins Beneficial 19.28%
& Annuity Co.
Attn Daisy Lo
Retirement Services-Separate Acct
PO Box 30368
Los Angeles, CA 90030-0368
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Saxon & Co Beneficial 6.45%
FBO 20-01-302-9912426
PO Box 7780-1888
Philadelphia, PA 19182-0001
- --------------------------------------------------------------------------------
BALANCED FUND
INVESTOR CLASS
- --------------------------------------------------------------------------------
Charles Schwab & Co., Inc. Beneficial 11.28%
Special Custody Acct for the
Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
FIIOC Agent Beneficial 5.03%
Employee Benefit Plans
100 Magellan Way KWIC
Covington, KY 41015-1987
- --------------------------------------------------------------------------------
State Street Bank & Trust Co. Beneficial 9.11%
Cust
State of Michigan 401K Plan
105 Rosemont Rd
Westwood, MA 02090-2318
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
National Automobile Dealers & Beneficial 100.00%
Associates Retirement Trusts
Attn: Marianne Williams
8400 Westpark Dr.
McLean, VA 22102-5116
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
Charles Schwab & Co Inc Beneficial 23.80%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
Raymond James & Assoc Inc. Beneficial 11.05%
FBO Parker P/S
Bin#88864509
880 Carrillon Pkwy
St. Petersburg FL
- --------------------------------------------------------------------------------
Raymond James & Assoc Inc. Beneficial 5.45%
FBO Balmer IRA
Bin#87481700
880 Carrillon Pkwy
St. Petersburg FL
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
CLASS K
- --------------------------------------------------------------------------------
Saxon & Co. Beneficial 98.90%
FBO 20-01-302-9912426
P.O. Box 7780-1888
Philadelphia, PA 19182-0001
- --------------------------------------------------------------------------------
TOTAL RETURN FUND
INVESTOR CLASS
- --------------------------------------------------------------------------------
Charles Schwab & Co., Inc. Beneficial 13.16%
Special Custody Acct for the
Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
FIIOC Agent Beneficial 7.80%
Employee Benefit Plans
100 Magellan Way KWIC
Covington, KY 41015-1987
- --------------------------------------------------------------------------------
American Express Trust Beneficial 10.33%
Retirement Services Plans
Attn Chris Hunt
P.O. Box 534
Minneapolis, MN 55440-0534
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Minnesota State Beneficial 10.64%
Defferred Compensation Plan Tr
State of Minnesota
c/o Great West Recordkeeper
8515 E. Orchard Rd. #2T2
Englewood, CO 80111-5037
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INSTITUTIONAL
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None
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CLASS A
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Charles Schwab & Co., Inc. Beneficial 6.63%
Special Custody Acct for the
Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
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Prudential Securities Inc. Beneficial 12.55%
ACCT 910-4U4559-000
ATTN: Mutual Funds
1 New York Plaza
New York, NY 10004-1901
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UBS Financial Services Inc. Beneficial 6.82%
UBS Painewebber CDN FBO
Emilio Alonso
P.O. Box 3321
Weehawken, NJ 07086-8154
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American Enterprise Beneficial 5.47%
Investment Svcs
FBO 198056391
PO Box 9446
Minneapolis, MN 55440-9446
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American Enterprise Beneficial 7.44%
Investment Svcs
FBO 216410711
PO Box 9446
Minneapolis, MN 55440-9446
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American Enterprise Beneficial 5.96%
Investment Svcs
FBO 220542661
PO Box 9446
Minneapolis, MN 55440-9446
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American Enterprise Beneficial 5.23%
Investment Svcs
FBO 222200321
PO Box 9446
Minneapolis, MN 55440-9446
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Raymond James & Assoc Inc. Beneficial 5.89%
FBO Dharte Jr IRA
Bin#73817948
880 Carrillon Pkwy
St. Petersburg FL 33716-1100
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National Investor Services Beneficial 8.92%
FBO
538-92781-19
55 Water Street, 32nd Floor
New York, NY 10041-0028
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CLASS B
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Merrill Lynch Beneficial 14.40%
Security #97MN6
4800 Deer Lake Drive East
Jacksonville, FL 32246-6486
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Juneau Volunteer Fire Record 8.87%
Department
820 Glacier Ave
Juneau, AK
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American Enterprise Beneficial 5.62%
Investment Svcs
FBO 187786881
PO Box 9446
Minneapolis, MN 55440-9446
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American Enterprise Beneficial 10.80%
Investment Svcs
FBO 209998841
PO Box 9446
Minneapolis, MN 55440-9446
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CLASS C
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AMVESCAP Natl TC Cust Beneficial 5.52%
IRA R/O
Sheila P. Evans
4318 Highborne Dr NE
Marietta, GA 30066-2429
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UBS Financial Services, Inc. Beneficial 13.74%
Sacred Heart Church
Father Paul Manderfield
P.O. Box 546
Calumet, MI 49913-0546
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American Enterprise Beneficial 5.22%
Investment Svcs
FBO 568163581
PO Box 9446
Minneapolis, MN 55440-9446
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CLASS K
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None
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As of August 1, 2003, officers and directors of the Company, as a group,
beneficially owned less than 1% of any Fund's outstanding shares.
DISTRIBUTOR
Effective July 1, 2003, A I M Distributors, Inc. ("ADI") became the distributor
of the Funds. ADI 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 (each individually a "Plan" and collectively,
the "Plans"), which have been adopted by each Fund pursuant to Rule 12b-1 under
the 1940 Act. Prior to July 1, 2003, INVESCO Distributors, Inc. ("IDI") was the
distributor of the Funds.
INVESTOR CLASS. The Company has adopted a Master Plan and Agreement of
Distribution - Investor Class (the "Investor Class Plan") with respect to
Investor Class shares, which provides that the Investor Class shares of each
Fund will make monthly payments to ADI computed at an annual rate no greater
than 0.25% of average net assets attributable to Investor Class shares. These
payments permit ADI, at its discretion, to engage in certain activities and
provide services in connection with the distribution of a Fund's Investor Class
shares to investors. Payments by a Fund under the Investor Class Plan, for any
month, may be made to compensate ADI for permissible activities engaged in and
services provided.
CLASS A. The Company has adopted a Master Distribution Plan and Agreement -
Class A pursuant to Rule 12b-1 under the 1940 Act relating to the Class A shares
of the Funds (the "Class A Plan"). Under the Class A Plan, Class A shares of the
Funds pay compensation to ADI at an annual rate of 0.35% per annum of the
average daily net assets attributable to Class A shares for the purpose of
financing any activity which is primarily intended to result in the sale of
Class A shares. During any period in which a Fund is closed due to high asset
levels, the Class A shares of the Fund will reduce this payment of 0.35% to
0.25% per annum.
The Class A Plan is designed to compensate ADI, on a monthly basis, for certain
promotional and other sales-related costs, and to implement a financial
intermediary incentive program which provides for periodic payments to selected
financial intermediaries that have entered into service agreements and furnish
continuing personal shareholder services to their customers who purchase and own
Class A shares of the Funds. The service fees payable to selected financial
intermediaries are calculated at the annual rate of 0.25% of the average daily
net asset value of those Fund shares that are held in such financial
intermediaries' customers' accounts.
Of the aggregate amount payable under the Class A Plan, payments to financial
intermediaries that provide continuing personal shareholder services to their
customers who purchase and own Class A shares of the Funds, in amounts up to
0.25% of the average daily net assets of the Class A shares of each Fund
attributable to the customers of such financial intermediaries, are
characterized as service fees. Payments to financial intermediaries in excess of
such amount and payments to ADI would be characterized as an asset-based sales
charge pursuant to the Class A Plan. The Class A Plan also imposes a cap on the
total amount of sales charges, including asset-based sales charges, that may be
paid by the Company with respect to the Class A shares of a Fund.
CLASS B. The Company has adopted a Master Distribution Plan and Agreement -
Class B pursuant to Rule 12b-1 under the 1940 Act relating to Class B shares of
the Funds (the "Class B Plan"). Under the Class B Plan, Class B shares of the
Funds pay compensation monthly to ADI at an annual rate of 1.00% per annum of
the average daily net assets attributable to Class B shares for the purpose of
financing any activity which is primarily intended to result in the sale of
Class B shares. Of such amount, each Fund pays a service fee of 0.25% of the
average daily net assets attributable to Class B shares to selected financial
intermediaries that have entered into service agreements with respect to Class B
shares of the Funds and that provide continuing personal shareholder services to
their customers who purchase and own Class B shares. Any amounts not paid as a
service fee would constitute an asset-based sales charge pursuant to the Class B
Plan. The Class B Plan imposes a cap on the total amount of sales charges,
including asset-based sales charges, that may be paid by the Company with
respect to the Class B shares of a Fund.
The Class B Plan may obligate the Class B shares to continue to make payments to
ADI following termination of the Class B Plan with respect to Class B shares
sold by or attributable to the distribution efforts of ADI unless there has been
a complete termination of the Class B Plan (as defined in such Plan).
Additionally, the Class B Plan expressly authorizes ADI to assign, transfer or
pledge its rights to payments pursuant to the Class B Plan. As a result, the
contingent deferred sales charge (CDSC) on Class B shares will continue to be
applicable even in the event of a complete termination of the Class B Plan (as
defined in such Plan).
CLASS C. The Company has adopted a Master Distribution Plan and Agreement -
Class C 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 monthly to ADI 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 ADI for certain
promotional and other sales-related costs, and to implement a financial
intermediary incentive program which provides for periodic payments to selected
financial intermediaries that have entered into service agreements and furnish
continuing personal shareholder services to their customers who purchase and own
Class C shares of a Fund.
Of the aggregate amount payable under the Class C Plan, payments to financial
intermediaries 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 each Fund
attributable to the customers of such financial intermediaries, are
characterized as a service fee. Payments to financial intermediaries in excess
of such amount and payments to ADI would be characterized as an asset-based
sales charge pursuant to the Class C Plan. The Class C Plan also imposes a cap
on the total amount of sales charges, including asset-based sales charges, that
may be paid by the Company with respect to the Class C shares of a Fund.
Distributor may pay sales commissions to financial intermediaries that 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 financial intermediary, and will consist of an asset-based sales charge
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. Distributor 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
distributor under the Class C Plan which constitutes an asset-based sales charge
(0.75%) is intended in part to permit Distributor to recoup a portion of
on-going sales commissions to dealers plus financing costs, if any. After the
first thirteen months, distributor will make such payments quarterly to
financial intermediaries based on the average net asset value of Class C shares
which are attributable to shareholders for whom the financial intermediaries are
designated as dealers of record. These commissions are not paid on sales to
investors who may not be subject to payment of the CDSC and in circumstances
where distributor grants an exemption on particular transactions. Should the
financial intermediary elect to waive the sales commission, the 12b-1 fees will
begin to be paid by Distributor to the financial intermediary immediately.
CLASS K. The Company has adopted a Master Distribution Plan and Agreement -
Class K pursuant to Rule 12b-1 under the 1940 Act relating to Class K shares
(the "Class K Plan"). Under the Class K Plan, Class K shares of the Funds pay
compensation monthly to ADI at an annual rate of 0.45% of average net assets
attributable to Class K shares for the purpose of financing any activity which
is primarily intended to result in the sale of Class K shares. The Class K Plan
is designed to compensate ADI for certain promotional and other sales-related
costs, and to implement a financial intermediary incentive program which
provides for periodic payments to selected financial intermediaries that have
entered into service agreements and furnish continuing personal shareholder
services to their customers who purchase and own Class K shares of a Fund.
Of the aggregate amount payable under the Class K Plan, payments to financial
intermediaries that provide continuing personal shareholder services to their
customers who purchase and own Class K shares of a Fund may be characterized as
a service fee.
ALL PLANS. Activities appropriate for financing under the Plans include, but are
not limited to, the following: printing of prospectuses and statements of
additional information and reports for other than existing shareholders;
preparation and distribution of advertising material and sales literature;
expenses of organizing and conducting sales seminars; and supplemental payments
to financial intermediaries such as asset-based sales charges or as payments of
service fees under shareholder service arrangements.
A significant expenditure under the Plans is compensation paid to financial
intermediaries, 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 from selected financial intermediaries
which may enter into agreements with ADI. Payments will be made by ADI to
financial intermediaries who sell shares of a Fund and may be made to banks,
savings and loan associations and other depository institutions ("Banks").
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 ADI, 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 advisor will give any
preference to Banks which enter into such arrangements when selecting
investments to be made by a Fund.
Since Total Return Fund's Class K shares had not commenced operations as of May
31, 2003, no payments were made under that Plan for the periods shown below.
Effective July 1, 2003, ADI became the distributor of the Funds. Prior to July
1, 2003, IDI was the distributor of the Funds and, as such, the Funds made
payments to IDI under the Investor Class, Class A, Class B, Class C, and Class K
Plans during the fiscal year ended May 31, 2003 in the following amounts:
FUND INVESTOR CLASS CLASS A CLASS B CLASS C CLASS K
- ---- -------------- ------- ------- ------- -------
Core Equity Fund $6,417,074 $ 8,414 $ 4,898 $ 81,386 $ 94,082
Balanced Fund $1,540,443 $ 797 $ 1,290 $ 29,887 $ 44,231
Total Return Fund $2,234,883 $ 1,373 $ 2,316 $ 6,790 N/A(1)
(1) Class K had not commenced operations as of May 31, 2003.
In addition, as of the fiscal year ended May 31, 2003 the following distribution
accruals had been incurred by the Funds and will be paid during the fiscal year
ended May 31, 2004:
FUND INVESTOR CLASS CLASS A CLASS B CLASS C CLASS K
- ---- -------------- ------- ------- ------- -------
Core Equity Fund $ 519,300 $ 1,316 $ 992 $ 7,263 $ 8,046
Balanced Fund $ 112,036 $ 108 $ 197 $ 2,181 $ 3,271
Total Return Fund $ 171,386 $ 164 $ 407 $ 638 N/A(1)
(1) Class K shares had not commenced operations as of May 31, 2003.
For the fiscal year ended May 31, 2003, allocation of 12b-1 amounts paid by the
Funds for the following categories of expenses were:
INVESTOR
CLASS CLASS A CLASS B CLASS C CLASS K
-------- ------- ------- ------- -------
CORE EQUITY FUND
Advertising $ 761 $ 0 $ 0 $ 0 $ 0
Sales literature, printing, and
postage $ 492,103 $ 0 $ 0 $ 0 $ 0
Public Relations/Promotion $ 718,977 $ 0 $ 0 $ 0 $ 0
Compensation to securities
dealers and other organizations $2,633,551 $ 8,414 $ 4,898 $ 81,386 $ 94,082
Marketing personnel $2,571,682 $ 0 $ 0 $ 0 $ 0
INVESTOR
CLASS CLASS A CLASS B CLASS C CLASS K
-------- ------- ------- ------- -------
BALANCED FUND
Advertising $ 117 $ 0 $ 0 $ 0 $ 0
Sales literature, printing,
and postage $ 78,152 $ 0 $ 0 $ 0 $ 0
Public Relations/Promotion $ 113,431 $ 0 $ 0 $ 0 $ 0
Compensation to securities
dealers and other organizations $ 948,000 $ 797 $ 1,290 $ 29,887 $ 44,231
Marketing personnel $ 400,743 $ 0 $ 0 $ 0 $ 0
TOTAL RETURN FUND
Advertising $ 176 $ 0 $ 0 $ 0 N/A(1)
Sales literature, printing,
and postage $ 112,082 $ 0 $ 0 $ 0 N/A(1)
Public Relations/Promotion $ 166,247 $ 0 $ 0 $ 0 N/A(1)
Compensation to securities
dealers and other organizations $1,360,722 $ 1,373 $ 2,316 $ 6,790 N/A
Marketing personne(l) $ 595,656 $ 0 $ 0 $ 0 N/A(1)
(1) Class K shares had not commenced operations as of May 31, 2003.
The services which are provided by securities dealers and other organizations
may vary by financial intermediary 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 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 a 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's
respective class of shares, 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, ADI or a
Fund, the latter by vote of a majority of the Independent Directors, or a
majority of the holders of the relevant class of a Fund's outstanding voting
securities, may terminate such agreement without penalty upon thirty 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 ADI shall terminate
automatically, in the event of such "assignment." In this event, a Fund may
continue to make payments pursuant to a Plan only upon the approval of new
arrangements regarding the use of the amounts authorized to be paid by a Fund
under a Plan. Such new arrangements must be approved by the directors, including
a majority of the Independent Directors, by a vote cast in person at a meeting
called for such purpose. These new arrangements might or might not be with ADI.
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 class of a 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 Plans are the officers and directors of the
Company who are also officers either of ADI or other companies affiliated with
ADI. 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.
SALES CHARGES AND DEALER CONCESSIONS
SALES CHARGES
Class A shares of the Funds are currently sold with a sales charge ranging from
5.50% to 2.00% of the offering price on purchases of less than $1,000,000.
Dealer
Concession
Investor's Sales Charge ----------
----------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) Price Invested Price
- ------------------ ----- --------- -----
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $ 1,000,000 2.00 2.04 1.60
(1) There is no sales charge on purchases of $1,000,000 or more; however, ADI
may pay a dealer concession and/or advance a service fee on such
transactions as set forth below.
ADI may elect to re-allow the entire initial sales charge to financial
intermediaries for all sales with respect to which orders are placed with ADI
during a particular period. Financial intermediaries to whom substantially the
entire sales charge is re-allowed may be deemed to be "underwriters" as that
term is defined under the Securities Act of 1933.
In addition to amounts paid to financial intermediaries as a dealer concession
out of the initial sales charge paid by investors, ADI may, from time to time,
at its expense or as an expense for which it may be compensated under a Plan, if
applicable, pay a bonus or other consideration or incentive to financial
intermediaries who sell a minimum dollar amount of the shares of the INVESCO
Funds during a specified period of time. At the option of the financial
intermediaries, such incentives may take the form of payment for travel
expenses, including lodging, incurred in connection with trips taken by
qualifying financial intermediaries and their families to places within or
outside the United States. The total amount of such additional bonus payments or
other consideration shall not exceed 0.25% of the public offering price of the
shares sold. Any such bonus or incentive programs will not change the price paid
by investors for the purchase of a Fund's shares or the amount a Fund will
receive as proceeds from such sales. Financial intermediaries may not use sales
of a Fund's shares to qualify for any incentives to the extent that such
incentives may be prohibited by the laws of any state.
ADI may pay sales commissions to financial intermediaries that sell Class B
shares of the Funds at the time of such sales. Payments with respect to Class B
shares will equal 4.00% of the purchase price of the Class B shares sold by the
financial intermediaries, and will consist of a sales commission equal to 3.75%
of the purchase price of the Class B shares sold plus an advance of the first
year service fee of 0.25% with respect to such shares. The portion of the
payments to ADI under the Class B Plan which constitutes an asset-based sales
charge (0.75%) is intended in part to permit ADI to recoup a portion of such
sales commissions plus financing costs.
ADI may pay sales commissions to financial intermediaries that 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
financial intermediary, and will consist of an asset-based sales charge 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. ADI will retain all payments
received by it relating to Class C shares for the first twelve months after they
are purchased. The portion of the payments to ADI under the Class C Plan which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
ADI to recoup a portion of on-going sales commissions to financial
intermediaries plus financing costs, if any. After the first twelve months, ADI
will make such payments quarterly to financial intermediaries based on the
average net asset value of Class C shares which are attributable to shareholders
for whom the financial intermediaries are designated as dealers of record. These
commissions are not paid on sales to investors who may not be subject to payment
of the CDSC and in circumstances where ADI grants an exemption on particular
transactions. Should the financial intermediary elect to waive the asset-based
sales charge, the 12b-1 fees will begin to be paid by ADI to the financial
intermediary immediately.
DEALER CONCESSIONS (CLASS A AND CLASS K ONLY)
Investors who purchase $1,000,000 or more of Class A shares do not pay an
initial sales charge. ADI may pay financial intermediaries for share purchases
(measured on an annual basis) by non-qualified investors and qualified plans of
Class A and Class K shares of the Funds as follows.
Non-Qualified Investors. ADI may pay financial intermediaries for share
purchases of $1,000,000 or more of Class A shares of the Funds sold at net asset
value to non-qualified investors as follows: 1.00% of the first $2 million of
such purchases, 0.80% on the next $1 million of such purchases, 0.50% on the
next $17 million of such purchases, and 0.25% of amounts in excess of $20
million on such purchases.
Qualified Plans. ADI may pay financial intermediaries for Class A and Class K
share purchases as follows:
Class A - Option 1: For qualified plans of $1,000,000 or more, 0.50% of the
first $20 million and 0.25% of amounts in excess of $20 million. The trail
commission will be paid out beginning in the 13th month.
Class A - Option 2: No additional fee is paid to financial intermediaries;
however, the trail commission will begin to accrue immediately.
Class K - Option 1: For qualified plans of $1,000,000 or more, 0.70% of the
first $5 million and 0.45% of amounts in excess of $5 million. The trail
commission will be paid out beginning in the 13th month.
Class K - Option 2: No additional fee is paid to financial intermediaries;
however, the trail commission will begin to accrue immediately.
REDUCTIONS IN INITIAL SALES CHARGES (CLASS A ONLY)
Reductions in the initial sales charges shown in the sales charges table
(quantity discounts) apply to purchases of Class A shares of the Funds that are
otherwise subject to an initial sales charge, provided that such purchases are
made by a "Purchaser" as hereinafter defined.
The term "Purchaser" means:
o an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a
pension, profit-sharing, or other benefit plan established exclusively
for the benefit of any such person, such as an IRA, Roth IRA, a
single-participant money purchase/profit sharing plan, or an individual
participant in a 403(b) Plan (unless such 403(b) plan qualifies as the
purchaser as defined below);
o a 403(b) plan, the employer/sponsor of which is an organization
described under Section 501(c)(3) of the Internal Revenue Code of 1986,
as amended (the "Code"), if:
a. the employer/sponsor submits contributions for all participating
employees in a single contribution transmittal (i.e., the Funds will
not accept contributions submitted with respect to individual
participants);
b. each transmittal is accompanied by a single check or wire transfer;
and
c. all new participants are added to the 403(b) plan by submitting an
application on behalf of each new participant with the contribution
transmittal;
o a trustee or fiduciary purchasing for a single trust, estate, or single
fiduciary account (including a pension, profit-sharing, or other
employee benefit trust created pursuant to a plan qualified under
Section 401 of the Code) and 457 plans, if more than one beneficiary or
participant is involved;
o a Simplified Employee Pension (SEP), Salary Reduction and other Elective
Simplified Employee Pension account (SAR-SEP) or Savings Incentive Match
Plans for Employees IRA (SIMPLE IRA), where the employer has notified
ADI in writing that all of its related employee SEP, SAR-SEP or SIMPLE
IRA accounts should be linked; or
o any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months
and has some purpose other than the purchase at a discount of redeemable
securities of a registered investment company.
Investors or financial intermediaries seeking to qualify orders for a reduced
initial sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. ADI reserves the right to determine
whether any purchaser is entitled, by virtue of the foregoing definition, to the
reduced sales charge. No person or entity may distribute Class A shares of the
INVESCO Funds without payment of the applicable sales charge other than to
persons or entities that qualify for a reduction in the sales charge as provided
herein.
1. LETTER OF INTENT (CLASS A ONLY). A purchaser, as previously defined, may pay
reduced initial sales charges by completing the appropriate section of the
account application and by fulfilling a Letter of Intent ("LOI"). The LOI
confirms such purchaser's intention as to the total investment to be made in
shares of the Funds within the following thirteen consecutive months. By marking
the LOI section on the account application and by signing the account
application, the purchaser indicates that he/she understands and agrees to the
terms of the LOI and is bound by the provisions described below.
Each purchase of fund shares normally subject to an initial sales charge made
during the thirteen-month period will be made at the public offering price
applicable to a single transaction of the total dollar amount indicated by the
LOI, as described under "Sales Charges and Dealer Concessions." It is the
purchaser's responsibility at the time of purchase to specify the account
numbers that should be considered in determining the appropriate sales charge.
The offering price may be further reduced as described under "Right of
Accumulation" if the Transfer Agent is advised of all other accounts at the time
of the investment. Shares acquired through reinvestment of dividends and capital
gains distributions will not be applied to the LOI. At any time during the
thirteen-month period after meeting the original obligation, a purchaser may
revise his or her intended investment amount upward by submitting a written and
signed request. Such a revision will not change the original expiration date. By
signing an LOI, a purchaser is not making a binding commitment to purchase
additional shares, but if purchases made within the thirteen-month period do not
total the amount specified, the Purchaser will pay the increased amount of sales
charge as described below. Purchases made within ninety days before signing an
LOI will be applied toward completion of the LOI. The LOI effective date will be
the date of the first purchase within the ninety-day period. The transfer agent
will process necessary adjustments upon the expiration or completion date of the
LOI. Purchases made more than ninety days before signing an LOI will be applied
toward completion of the LOI based on the value of the shares purchased
calculated at the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the initial
purchase (or subsequent purchases if necessary) the transfer agent will escrow
in the form of shares an appropriate dollar amount (computed to the nearest full
share). All dividends and any capital gain distributions on the escrowed shares
will be credited to the purchaser. All shares purchased, including those
escrowed, will be registered in the purchaser's name. If the total investment
specified under this LOI is completed within the thirteen-month period, the
escrowed shares will be promptly released. If the intended investment is not
completed, the purchaser will pay the transfer agent the difference between the
sales charge on the specified amount and the amount actually purchased. If the
purchaser does not pay such difference within twenty days of the expiration
date, he/she irrevocably constitutes and appoints the transfer agent as his/her
attorney to surrender for redemption any or all shares, to make up such
difference within sixty days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes to cancel
the agreement, he/she must give written notice to ADI. If at any time before
completing the LOI Program the purchaser requests the transfer agent to
liquidate or transfer beneficial ownership of his/her total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the transfer agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
2. RIGHTS OF ACCUMULATION (CLASS A ONLY). A Purchaser, may also qualify for
reduced initial sales charges based upon such Purchaser's existing investment in
Class A shares of the Funds at the time of the proposed Purchase. To determine
whether a reduced initial sales charge applies to a proposed purchase, ADI takes
into account not only the money which is invested upon such proposed purchase,
but also the value of all Class A shares of the Funds owned by such Purchaser,
calculated at the then current public offering price. If a Purchaser so
qualifies for a reduced sales charge, the reduced sales charge applies to the
total amount of money then being invested by such Purchaser, calculated at the
then current public offering price, and not just to the portion that exceeds the
breakpoint above which a reduced sales charge applies. For example, if a
Purchaser already owns Class A shares with a value of $20,000 and wishes to
invest an additional $20,000 in Class A shares, with a maximum initial sales
charge of 5.50%, the reduced initial sales charge of 5.25% will apply to the
full $20,000 purchase and not just to the $15,000 in excess of the $25,000
breakpoint. To qualify for obtaining the discount applicable to a particular
purchase, the Purchaser or his financial intermediary must furnish ADI with a
list of the account numbers and the names in which such accounts of the
Purchaser are registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE (CLASS A ONLY). Purchases of Class A shares of the
Funds at net asset value (without payment of an initial sales charge) may be
made in connection with: (a) the reinvestment of dividends and distributions
from a Fund; (b) exchanges of shares of certain funds; (c) use of the
reinstatement privilege; or (d) a merger, consolidation, or acquisition of
assets of a fund.
The following purchasers will not pay initial sales charges on purchases of
Class A shares because there is a reduced sales effort involved in sales to
these Purchasers:
o INVESCO and its affiliates, or their clients;
o Any current or retired officer, director, or employee (and members of
their immediate family) of INVESCO, its affiliates or the INVESCO Funds
and any foundation, trust, or employee benefit plan established
exclusively for the benefit of, or by, such persons;
o Sales representatives and employees (and members of their immediate
family) of selling group members or financial institutions that have
arrangements with such selling group members;
o Financial intermediaries that place trades for their own accounts or the
accounts of their clients and that charge a management, consulting or
other fee for their services; and clients of such financial
intermediaries who place trades for their own accounts if the accounts
are linked to the master account of such financial intermediary on the
books and records of a broker or agent;
o Employee benefit plans designated as purchasers as defined above, and
non-qualified plans offered in conjunction therewith, provided the
initial investment in the plan(s) is at least $1 million; the sponsor
signs a $1 million LOI; the employer-sponsored plan(s) has at least 100
eligible employees; or all plan transactions are executed through a
single omnibus account and the financial intermediary has entered into
the appropriate agreements with ADI. Section 403(b) plans sponsored by
public educational institutions are not eligible for a sales charge
exception based on the aggregate investment made by the plan or the
number of eligible employees. Purchases of the Funds by such plans are
subject to initial sales charges; and
o A shareholder of a fund that merges or consolidates with a Fund or that
sells its assets to a Fund in exchange for shares of that Fund.
As used above, immediate family includes an individual and his or her spouse,
children, parents, and parents of spouse.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS
In addition to the exceptions described in the Investor Class, Class A, B, C,
and K Prospectus, CDSCs will not apply to the following:
o Redemptions following the death or post-purchase disability of (1) any
registered shareholders on an account or (2) a settlor of a living
trust, of shares held in the account at the time of death or initial
determination of post-purchase disability;
o Certain distributions from individual retirement accounts, Section
403(b) retirement plans, Section 457 deferred compensation plans and
Section 401 qualified plans, where redemptions result from (i) required
minimum distributions to plan participants or beneficiaries who are age
70-1/2 or older, and only with respect to that portion of such
distributions that does not exceed 10% annually of the participant's or
beneficiary's account value in a fund; (ii) in kind transfers of assets
where the participant or beneficiary notifies the distributor of the
transfer not later than the time the transfer occurs; (iii) tax-free
rollovers or transfers of assets to another plan of the type described
above invested in Class A, Class B, Class C or Class K shares of a Fund;
(iv) tax-free returns of excess contributions or returns of excess
deferral amounts; and (v) distributions on the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of the
participant or beneficiary;
o Liquidation by a Fund when the account value falls below the minimum
required account size of $250;
o Investment account(s) of INVESCO; and
o Class C shares if the investor's financial intermediary notifies ADI
prior to the time of investment that the financial intermediary waives
the payment otherwise payable to it.
Upon the redemption of Class A shares purchased in amounts of $1 million or
more, no CDSC will be applied in the following situations:
o Redemptions from employee benefit plans designated as qualified
purchasers, as defined above, where the redemptions are in connection
with employee terminations or withdrawals, provided the total amount
invested in the plan is at least $1,000,000; the sponsor signs a $1
million LOI; or the employer-sponsored plan has at least 100 eligible
employees; provided, however, that 403(b) plans sponsored by public
educational institutions shall qualify for the CDSC waiver on the basis
of the value of each plan participant's aggregate investment in a Fund,
and not on the aggregate investment made by the plan or on the number of
eligible employees;
o Private foundations or endowment funds;
o Redemption of shares by the investor where the investor's financial
intermediary waives the amounts otherwise payable to it by ADI and
notifies ADI prior to the time of investment; and
SHARE PRICES AND NET ASSET VALUE (ALL CLASSES)
Each Fund's shares are bought or sold at a price that is the Fund's NAV per
share, less any applicable sales charge. The NAV for each Fund is calculated by
subtracting total liabilities from total assets (the market value of the
securities the Fund holds plus cash and other assets). Each Fund's per share NAV
is calculated by dividing its NAV by the number of Fund shares outstanding and
rounding the result to the nearest full cent. Each Fund calculates its NAV as of
the close of regular trading on the New York Stock Exchange ("NYSE"), normally
4:00 p.m. Eastern time, on each day the NYSE is open.
Each Fund values securities (including options) listed on the NYSE, the American
Stock Exchange, or other national securities exchanges and other securities for
which market quotations are readily available at the last reported sale price on
the day the securities are being valued. Securities traded primarily on the
Nasdaq Stock Market ("Nasdaq") are normally valued by each Fund at the Nasdaq
Official Closing Price ("NOCP") provided by Nasdaq each business day. The NOCP
is the most recently reported price as of 4:00:02 p.m., Eastern time, unless
that price is outside the range of the "inside" bid and asked prices (i.e., the
bid and asked prices that dealers quote to each other when trading for their own
accounts); in that case, Nasdaq will adjust the price to equal the inside bid or
asked price, whichever is closer. Because of dalays in reporting trades, the
NOCP may not be based onthe price of the last trade to occur before the market
closes.
If there is no reported sale of a security on a particular day, the security is
valued at the closing bid price on that day. Foreign securities prices are
translated from the local currency into U.S. dollars using current exchange
rates. The Funds value all other securities and assets, including restricted
securities, by a method that the Board believes accurately reflects fair value.
If INVESCO believes that the price of a security obtained under a Fund's
valuation procedures (as described above) does not represent the amount that the
Fund reasonably expects to receive on a current sale of the security, the Fund
will value the security based on a method that the Board believes accurately
reflects fair value.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of the Funds may be
purchased appears in the Prospectuses under the caption "How To Buy Shares."
The sales charge normally deducted on purchases of Class A shares of the Funds
is used to compensate ADI and participating financial intermediaries for their
expenses incurred in connection with the distribution of such shares. Since
there is little expense associated with unsolicited orders placed directly with
ADI by persons, who because of their relationship with the Funds or with INVESCO
and its affiliates, are familiar with the Funds, or whose programs for purchase
involve little expense (e.g., because of the size of the transaction and
shareholder records required), ADI believes that it is appropriate and in the
Funds' best interests that such persons be permitted to purchase Class A shares
of the Funds through ADI without payment of a sales charge. The persons who may
purchase Class A shares of the Funds without a sales charge are set forth herein
under the Caption "Reductions in Initial Sales Charges - Purchases at Net Asset
Value."
The following formula may be used by an investor to determine the public
offering price per Class A share of an investment:
Net Asset Value / (1 - Sales Charge as % of Offering Price) = Offering Price
Information concerning redemption of a Fund's shares is set forth in the
Prospectuses under the caption "How To Sell Shares." Shares of the Funds may be
redeemed directly through ADI or through any financial intermediary who has
entered into an agreement with ADI. In addition to the Funds' obligation to
redeem shares, ADI may also repurchase shares as an accommodation to the
shareholders. To effect a repurchase, those financial intermediaries who have
executed agreements with ADI must phone orders to the order desk of the Funds at
1-800-347-4246 and guarantee delivery of all required documents in good order. A
repurchase is effected at the net asset value of each Fund next determined after
such order is received. Such arrangement is subject to timely receipt by ADI of
all required documents in good order. If such documents are not received within
a reasonable time after the order is placed, the order is subject to
cancellation. While there is no charge imposed by the Funds or by ADI (other
than any applicable CDSC) when shares are redeemed or repurchased, financial
intermediaries may charge a fair service fee for handling the transaction.
INVESCO intends to redeem all shares of the Funds in cash.
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the New York Stock Exchange ("NYSE") is restricted, as determined
by applicable rules and regulations of the SEC, (b) the NYSE is closed for other
than customary weekend and holiday closings, (c) the SEC has by order permitted
such suspension, or (d) an emergency as determined by the SEC exists making
disposition of portfolio securities or the valuation of the net assets of a Fund
not reasonably practicable.
OTHER SERVICE PROVIDERS
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1670 Broadway, Suite 1000, Denver, Colorado, are the
independent accountants of the Company. The independent accountants are
responsible for auditing the financial statements of the Funds.
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, 4350 South Monaco Street, 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 & Gorell LLP, 1225 17th Street, Suite 2900, Denver,
Colorado, acts as special counsel to the Company.
BROKERAGE ALLOCATION AND OTHER PRACTICES
As the investment advisor 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.
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.
BROKERAGE COMMISSIONS AND UNDERWRITING DISCOUNTS
The aggregate dollar amount of brokerage commissions and underwriting discounts
paid by each Fund for the periods outlined in the table below were:
Core Equity Fund
Year Ended May 31, 2003 $3,612,006
Year Ended May 31, 2002 3,311,832
Year Ended May 31, 2001 4,259,894
Balanced Fund
Year Ended May 31, 2003 $1,939,611
Year Ended May 31, 2002 2,340,425
Year Ended May 31, 2001 2,176,628
Total Return Fund
Year Ended May 31, 2003 $1,195,392
Year Ended May 31, 2002 1,773,116
Year Ended May 31, 2001 731,557
For the fiscal years ended May 31, 2003, 2002 and 2001, brokers providing
research services received $4,249,375, $3,890,606 and $5,180,962, respectively,
in commissions on portfolio transactions effected for the Funds. The aggregate
dollar amount of such portfolio transactions was $2,561,585,406, $2,593,865,429
and $3,905,310,017, respectively. Commissions totaling $0, $0 and $0, were
allocated to certain brokers in recognition of their sales of shares of the
Funds on portfolio transactions of the Funds effected during the fiscal years
ended May 31, 2003, 2002 and 2001, respectively.
At May 31, 2003, each Fund held debt and equity securities of its regular
brokers or dealers, or their parents, as follows:
- --------------------------------------------------------------------------------
Fund Broker or Dealer Value of Securities
at May 31, 2003
================================================================================
Core Equity State Street Boston $24,999,076
- --------------------------------------------------------------------------------
State Street Bank & Trust 1,915,000
- --------------------------------------------------------------------------------
Citicorp 40,000,000
- --------------------------------------------------------------------------------
New Center Asset Trust 39,998,511
- --------------------------------------------------------------------------------
American International Group, Inc. 27,620,336
- --------------------------------------------------------------------------------
Citigroup Inc. 64,286,544
- --------------------------------------------------------------------------------
General Electric Co. 49,596,470
- --------------------------------------------------------------------------------
JP Morgan Chase & Co. 72,903,196
- --------------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 51,480,481
- --------------------------------------------------------------------------------
Merrill Lynch & Co. Inc. 44,568,690
- --------------------------------------------------------------------------------
Balanced State Street Boston 7,999,704
- --------------------------------------------------------------------------------
State Street Bank & Trust 1,900,000
- --------------------------------------------------------------------------------
Citigroup Inc. 18,184,166
- --------------------------------------------------------------------------------
Citigroup Inc. Notes 3,146,271
- --------------------------------------------------------------------------------
American International Group, Inc. 10,586,252
- --------------------------------------------------------------------------------
General Electric Co. 12,197,500
- --------------------------------------------------------------------------------
Goldman Sachs Group 5,101,900
- --------------------------------------------------------------------------------
JP Morgan Chase & Co. 18,007,280
- --------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 9,006,400
- --------------------------------------------------------------------------------
Total Return New Center Asset Trust 22,999,144
- --------------------------------------------------------------------------------
State Street Corp. 291,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fund Broker or Dealer Value of Securities
at May 31, 2003
================================================================================
Citigroup Inc. 16,334,164
- --------------------------------------------------------------------------------
Citigroup Inc. Notes 3,146,271
- --------------------------------------------------------------------------------
American International Group, Inc. 6,523,076
- --------------------------------------------------------------------------------
General Electric Co. 17,395,070
- --------------------------------------------------------------------------------
JP Morgan Chase & Co. 4,633,260
- --------------------------------------------------------------------------------
Lehman Brothers Holdings 18,172,531
- --------------------------------------------------------------------------------
Merrill Lynch & Co. 14,198,070
- --------------------------------------------------------------------------------
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-dealer that executes transactions for the Funds.
CAPITAL STOCK
The Company is authorized to issue up to 7.5 billion shares of common stock with
a par value of $0.01 per share. As of June 30, 2003, the following shares of
each Fund were outstanding:
Core Equity Fund - Investor Class 239,809,721
Core Equity Fund- Class A 460,255
Core Equity Fund - Class B 128,472
Core Equity Fund - Class C 885,453
Core Equity Fund - Class K 2,247,721
Balanced Fund - Institutional Class 20,682,223
Balanced Fund - Investor Class 41,184,937
Balanced Fund - Class A 30,853
Balanced Fund - Class B 20,838
Balanced Fund - Class C 194,107
Balanced Fund - Class K 574,351
Total Return Fund - Investor Class 36,611,534
Total Return Fund - Class A 27,758
Total Return Fund - Class B 26,860
Total Return Fund - Class C 36,860
Total Return Fund - Class K 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 for that class, other distributions and the proceeds of any
liquidation of a class of that Fund. However, due to the differing expenses of
the classes, dividends and liquidation proceeds on Institutional Class, Investor
Class, Class A, B, C, and K 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 relates 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.
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 taxes on the
amount that is not distributed. If a Fund does not qualify as a regulated
investment company, it will be subject to income tax on its net investment
income and net capital gains at the corporate tax rates.
Dividends paid by a Fund from net investment income as well as distributions of
net realized short-term capital gains and net realized gains from certain
foreign currency transactions are taxable for federal income tax purposes as
ordinary income to shareholders. After the end of each calendar year, the Funds
send shareholders information regarding the amount and character of dividends
paid in the year, including the dividends eligible for the
dividends-received-deduction for corporations. Dividends eligible for the
dividends-received-deduction will be limited to the aggregate amount of
qualifying dividends that a Fund derives from its portfolio investments.
A Fund realizes a capital gain or loss when it sells a portfolio security for
more or less than it paid for that security. Capital gains and losses are
divided into short-term and long-term, depending on how long the Fund held the
security which gave rise to the gain or loss. If the security was held one year
or less the gain or loss is considered short-term, while holding a security for
more than one year will generate a long-term gain or loss. A capital gain
distribution consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest as ordinary income and are paid to shareholders as dividends, as
discussed above. If total long-term gains on sales exceed total short-term
losses, including any losses carried forward from previous years, a Fund will
have a net capital gain. Distributions by a Fund of net capital 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 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. If a shareholder reinvests the distribution in a Fund, the
shareholder's basis in the Fund increases by the amount of the distribution and
the value of the Fund's investment is unchanged by the distribution.
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.
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. Even if you have reported gains or losses for a Fund
in past years using another basis method, you may be able to use the average
cost method for determining gains or losses in the current year. However, once
you have elected to use the average cost method, you must continue to use it
unless you apply to the IRS for permission to change methods. Likewise, changing
to any basis method other than the average cost method requires IRS approval.
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. Similarly, if you sell Fund shares at a loss after holding them for six
months or less, your loss will be disallowed to the extent of any exempt
interest dividents that you may have received on those shares. If you pay a
sales charge to acquire shares, that sales charge is generally treated as part
of your cost basis for determining gain or loss upon disposition of those
shares. However, if you exchange your shares within ninety days of acquisition
and the sales charge was paid on the original shares, then the sales charge is
not treated as part of your cost basis on the original shares, but instead
carries over to be included as part of your cost basis in the new or replacement
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
From time to time, the Funds' advertising and/or sales literature may include
discussions of general economic conditions, interest rates or generic topics
pertaining to the mutual fund industry.
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). Most advertisements of the Funds will disclose the maximum
front-end sales charge imposed on purchases of a Fund's Class A shares and/or
the applicable CDSC imposed on redemptions of a Fund's Class B and Class C
shares. If any advertised performance data does not reflect the maximum
front-end sales charge (if any), or the applicable CDSC, such advertisement will
disclose that the sales charge or CDSC has not been deducted in computing the
performance data, and that, if reflected, such charges would reduce the
performance quoted.
Each Fund's total return is calculated in accordance with a standardized formula
for computation of annualized total return. Standardized total return for Class
A shares reflects the deduction of the maximum front-end sales charge at the
time of purchase. Standardized total return for Class B and Class C shares
reflects the deduction of the maximum applicable CDSC on a redemption of shares
held for the period. A 1% - 5% CDSC may be charged on redemptions of Class B
shares held six years or less, other than shares acquired through reinvestment
of dividends and other distributions. A 1% CDSC may be charged on redemptions of
Class C shares held thirteen months or less, other than shares acquired through
reinvestment of dividends and other distributions. Please see the section
entitled "Distributor" for additional information on CDSCs. Total returns quoted
in advertising reflect all aspects of a Fund's return, including the effect of
reinvesting dividends and capital gain distributions, and any change in the
Fund's net asset value per share over the period. Average annual returns are
calculated by determining the growth or decline in value of a hypothetical
investment in a Fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value has been constant over the period. Because average
annual returns tend to even out variations in a Fund's returns, investors should
realize that the Fund's performance is not constant over time, but changes from
year to year, and that average annual returns do not represent the actual
year-to-year performance of the Fund.
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. 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. Total returns may be quoted with or without
taking a Fund's maximum applicable Class A front-end sales charge or Class B or
Class C CDSC into account. Excluding sales charges from a total return
calculation produces a higher total return figure.
We may also advertise Core Equity, Balanced and Total Return Funds' "30-day SEC
yield." "30-day SEC yield" is based on historical earnings and is not intended
to indicate future performance. The "30-day SEC yield" of a Fund refers to the
income generated by an investment in the Fund over a 30-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that period is assumed
to be generated each 30-day period over a 52-week period and is shown as a
percentage of the investment.
The "30-day SEC yield" for Core Equity, Balanced, and Total Return Funds for the
30 days ended May 31, 2003 was:
Investor Institutional
Fund Class Class Class A Class B Class C Class K
- ---- ----- ----- ------- ------- ------- -------
Core Equity 0.83% N/A 0.65% 0.00% 0.00% 0.00%
Balanced 0.64% 1.01% 0.57% 0.01% 0.00% 0.48%
Total Return 1.29% N/A 1.15% 0.65% 0.63% N/A(1)
(1) Class K shares had not commenced operations as of May 31, 2003.
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 telephone number or address on the back
cover of the Funds' Prospectuses.
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 is not provided for Total Return Fund's
Institutional Class and Class K shares since Institutional Class and Class K
shares of the Fund had not commenced operations as of May 31, 2003. Average
annual total return performance for the one-, five-, and ten- (or since
inception) years ended May 31, 2003 were:
10 YEARS
1 YEAR 5 YEARS OR SINCE INCEPTION
INVESTOR CLASS
Core Equity Fund
Return Before Taxes (9.18%) (0.83%) 7.36%
Return After Taxes on Distributions (9.53%) (2.76%) 4.78%
Return After Taxes on Distributions
and Sale of Fund Shares (5.65%) (2.72%) 5.12%
Balanced Fund
Return Before Taxes (4.78%) (0.22%) 8.72%(1)
Return After Taxes on Distributions (5.14%) (1.31%) 6.54%(1)
Return After Taxes on Distributions
and Sale of Fund Shares (2.94%) (0.72%) 6.31%(1)
Total Return Fund
Return Before Taxes (4.85%) (1.58%) 7.11%
Return After Taxes on Distributions (6.28%) (3.07%) 5.44%
Return After Taxes on Distributions
and Sale of Fund Shares (2.64%) (2.02%) 5.28%
INSTITUTIONAL CLASS
Balanced Fund
Return Before Taxes (4.52%) N/A (8.05%)(2)
Return After Taxes on Distributions (5.24%) N/A (9.00%)(2)
Return After Taxes on Distributions
and Sale of Fund Shares (2.80%) N/A (7.27%)2
CLASS A - RETURN BEFORE TAXES (INCLUDING SALES CHARGE)
Core Equity Fund (14.07%) N/A (16.50%)(3)
Balanced Fund (10.13%) N/A (12.01%)(3)
Total Return Fund (10.21%) N/A (11.66%)(3)
10 YEARS
1 YEAR 5 YEARS OR SINCE INCEPTION
CLASS B - RETURN BEFORE TAXES (INCLUDING CDSC)
Core Equity Fund (15.11%) N/A (16.83%)(3)
Balanced Fund (10.46%) N/A (11.69%)(3)
Total Return Fund (10.54%) N/A (11.33%)(3)
CLASS C - RETURN BEFORE TAXES (INCLUDING CDSC)
Core Equity Fund (11.17%) N/A (5.79%)(4)
Balanced Fund (6.52%) N/A (7.17%)(4)
Total Return Fund (6.91%) N/A (3.06%)(4)
CLASS K - RETURN BEFORE TAXES
Core Equity Fund (10.07%) N/A (10.82%)(5)
Balanced Fund (4.96%) N/A (10.03%)(5)
(1) The Fund (Investor Class shares) commenced investment operations on
December 1, 1993.
(2) Institutional Class shares commenced operations on July 3, 2000.
(3) Class A and Class B shares commenced operations April 1, 2002. Not
annualized.
(4) Class C shares commenced operations on February 15, 2000.
(5) Class K shares commenced operations on December 14, 2000.
Average annual total return before taxes 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:
n
P(1 + T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
Average annual total return after taxes on distributions and after taxes on
distributions and sale of Fund shares was computed by finding the average annual
compounded rates of return that would equate the initial amount invested to the
ending value, according to the following formula:
After taxes on distributions:
n
P(1 + T) = ATV
D
where: P = a hypothetical initial payment of $1,000
T = average annual total return (after taxes on distributions)
n = number of years
ATVD = ending value of a hypothetical $1,000 payment made at the
beginning of the 1-, 5-, or 10-year periods at the end of
the 1-, 5-, or 10-year periods (or fractional portion)
after taxes on fund distributions but not after taxes on
redemptions.
After taxes on distributions and redemption:
n
P(1 + T) = ATV
DR
where: P = a hypothetical initial payment of $1,000
T = average annual total return (after taxes on distributions
and redemption)
n = number of years
ATVDR = ending value of a hypothetical $1,000 payment made at the
beginning of the 1-, 5-, or 10-year periods at the end
of the 1-, 5-, or 10-year periods (or fractional
portion) after taxes on fund distributions and
redemptions.
The average annual total return performance figures shown above were determined
by solving the above formula for "T" for each time period indicated.
The "30-day SEC yield" is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
(a-b) 6
Yield = 2[----- + 1) - 1]
(cd)
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
In conjunction with performance reports, comparative data between a Fund's
performance for a given period and other types of investment vehicles, including
certificates of deposit, may be provided to prospective investors and
shareholders.
In conjunction with performance reports and/or analyses of shareholder services
for a Fund, comparative data between that Fund's performance for a given period
and recognized indices of investment results for the same period, and/or
assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company, 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:
LIPPER MUTUAL
FUND FUND CATEGORY
Core Equity 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
ARIZONA REPUBLIC
BANXQUOTE
BARRON'S
BLOOMBERG NEWS
BOSTON GLOBE
BUSINESS WEEK
CNBC
CNN
CHICAGO SUN-TIMES
CHICAGO TRIBUNE
DENVER BUSINESS JOURNAL
DENVER POST
DOW JONES NEWS WIRE
FINANCIAL TIMES
FORBES
FORTUNE
IBBOTSON ASSOCIATES, INC.
INSTITUTIONAL INVESTOR
INVESTOR'S BUSINESS DAILY
KIPLINGER'S PERSONAL FINANCE
LIPPER INC.'S MUTUAL FUND PERFORMANCE ANALYSIS
LOS ANGELES TIMES
MONEY MAGAZINE
MORNINGSTAR
MUTUAL FUNDS MAGAZINE
NEW YORK TIMES
ROCKY MOUNTAIN NEWS
SMART MONEY
TIME
U.S. NEWS AND WORLD REPORT
USA TODAY
WALL STREET JOURNAL
WASHINGTON POST
WIESENBERGER INVESTMENT COMPANIES SERVICES
PROXY VOTING
The Boards of Directors of the INVESCO Mutual Funds have expressly delegated to
INVESCO Funds Group, Inc. ("INVESCO") the responsibility to vote proxies related
to the securities held in the Funds' portfolios. Under this authority, INVESCO
is required by the Boards of Directors to act solely in the interests of
shareholders of the Funds. Other INVESCO clients who have delegated proxy voting
authority to INVESCO similarly require that proxy votes be cast in the best
interests of the client.
On behalf of the Funds and its other clients, INVESCO acquires and holds a
company's securities in the portfolios it manages in the expectation that they
will be a good investment and appreciate in value. As such, INVESCO votes
proxies with a focus on the investment implications of each matter upon which a
vote is solicited.
A copy of the description of the Funds' proxy voting policy and procedures as
administered by INVESCO is available without charge by calling 1-800-347-4246.
It is also available on the website of the Securities and Exchange Commission,
at www.sec.gov, and on the Funds' website, www.invescofunds.com.
PROXY VOTING ADMINISTRATION -- INVESCO's proxy review and voting process, which
has been in place for many years, meets INVESCO's obligations to all of its
clients, including the Funds.
To discharge its responsibilities to the Funds, INVESCO has established a Proxy
Committee that establishes guidelines and generally oversees the proxy voting
process. The Committee consists of INVESCO's General Counsel, its Chief
Investment Officer, its Vice President of Investment Operations and INVESCO's
Proxy Administrator. In addition to INVESCO's knowledge of its portfolio
companies, the Committee relies upon independent research provided by third
parties in fulfilling its responsibilities.
INVESCO has engaged a third party, Institutional Shareholder Services ("ISS"),
to act as its agent for the administrative and ministerial aspects of proxy
voting of portfolio securities, as well as to provide independent research. ISS
votes proxies for the Funds on routine matters in accordance with guidelines
established by INVESCO and the Funds. These guidelines are reviewed periodically
by the Proxy Committee and the Funds' Boards of Directors; accordingly, they are
subject to change. Although it occurs infrequently, the guidelines may be
overridden by INVESCO in any particular vote, depending upon specific factual
circumstances. ISS also serves as the proxy voting record keeper for INVESCO.
Issues that are not covered by INVESCO's proxy voting guidelines, or that are
determined by INVESCO on a case-by-case basis, are referred to INVESCO's Chief
Investment Officer, who has been granted the ultimate authority and
responsibility by the Proxy Committee and the Funds' Boards of Directors to
decide how the proxies shall be voted on these issues. The INVESCO Chief
Investment Officer, through the Proxy Administrator, is responsible for
notifying ISS how to vote on these issues.
GUIDELINES AND POLICIES -- Overview -- As part of its investment process,
INVESCO examines the management of all portfolio companies. The ability and
judgment of management is, in INVESCO's opinion, critical to the investment
success of any portfolio company. INVESCO generally will not hold securities of
companies whose management it questions, and accords substantial weight to
management opinions. Not surprisingly, INVESCO casts most of its proxy votes,
particularly on routine matters, in accordance with portfolio company management
recommendations.
At the same time, when INVESCO believes that the position of the management of a
portfolio company may not be in the best interests of shareholders, the
Committee or an individual portfolio manager can vote against the management
recommendation. In certain cases, INVESCO consistently will vote against
management in furtherance of established guidelines on specific matters.
As a general rule, INVESCO votes against any proposals which would reduce the
rights or options of shareholders, reduce shareholder influence over the board
of directors and management, reduce the alignment of interests between
management and shareholders, or reduce the value of shareholders' investments.
In addition, absent specific prior authorization from INVESCO's General Counsel,
INVESCO does not:
o Engage in conduct that involves an attempt to change or influence the
control of a portfolio company.
o Announce its voting intentions and the reasons therefor.
o Participate in a proxy solicitation or otherwise seek proxy-voting
authority from any other portfolio company shareholder.
o Act in concert with other portfolio company shareholders in connection
with any proxy issue or other activity involving the control or
management of a portfolio company.
Although INVESCO reserves the right to vote proxy issues on behalf of the Funds
on a case-by-case basis if facts and circumstances so warrant, it will usually
vote on issues in the manner described below.
ROUTINE MATTERS -- INVESCO generally votes in favor of ratification of
accountants, changing corporate names and similar matters. It generally
withholds voting authority on unspecified "other matters" that may be listed on
a proxy card.
BOARDS OF DIRECTORS -- INVESCO generally votes for management's slate of
director nominees. However, it votes against incumbent nominees with poor
attendance records, or who have otherwise acted in a manner INVESCO believes is
not in the best interests of shareholders.
INVESCO generally opposes attempts to classify boards of directors to eliminate
cumulative voting.
COMPENSATION -- INVESCO believes that it is important that a company's
equity-based compensation plan is aligned with the interests of shareholders,
including the Funds and its other clients. Many compensation plans are examined
on a case-by-case basis by INVESCO, and INVESCO generally opposes packages that
it believes provide excessive awards or create excessive shareholder dilution.
INVESCO usually opposes proposals to reprice options because the underlying
stock has fallen in value.
ANTI-TAKEOVER AND SIMILAR CORPORATE GOVERNANCE ISSUES -- INVESCO generally
opposes poison pills, unequal voting rights plans, provisions requiring
supermajority approval of a merger and other matters that are designed to limit
the ability of shareholders to approve merger transactions. INVESCO generally
votes in favor of increases in authorized shares.
SOCIAL ISSUES -- INVESCO believes that it is management's responsibility to
handle such issues, and generally votes with management on these types of
issues, or abstains. INVESCO will oppose issues that it believes will be a
detriment to the investment performance of a portfolio company.
CONFLICTS OF INTEREST -- Historically, INVESCO has not had situations in which
the interests of its Fund shareholders or other clients are at variance with
INVESCO's own interests. In routine matters, INVESCO votes proxies in accordance
with established guidelines, and the opportunity for conflict simply does not
arise.
In matters that INVESCO examines on a case-by-case basis, or where parties may
seek to influence INVESCO's vote (for example, a merger proposal), or in any
instance where INVESCO believes there may be an actual or perceived conflict of
interest, INVESCO votes the proxy in what it believes to be in the best
investment interests of its Fund shareholders and other clients. In such
matters, INVESCO's Chief Investment Officer makes the decision, which is
reviewed by INVESCO's General Counsel.
Matters in which INVESCO votes against its established guidelines, or matters in
which INVESCO believes there may be an actual or perceived conflict of interest,
together with matters in which INVESCO votes against management recommendations,
are reported to the Funds' Boards of Directors on a quarterly basis, together
with the reasons for such votes.
CODE OF ETHICS
INVESCO and ADI permit investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires INVESCO's and ADI's personnel to
conduct their personal investment activities in a manner that INVESCO and ADI
believe is not detrimental to the Funds or INVESCO's other advisory clients. The
Code of Ethics is on file with, and may be obtained from, the Commission.
FINANCIAL STATEMENTS
The financial statements for the Funds for the fiscal year ended May 31, 2003
are incorporated herein by reference from INVESCO Combination Stock & Bond
Funds, Inc.'s Annual Report to Shareholders dated May 31, 2003.
APPENDIX A
BOND RATINGS
The following is a description of Moody's and S&P's bond ratings:
MOODY'S CORPORATE BOND RATINGS
Investment Grade
- ----------------
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.
Non-Investment Grade
- --------------------
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
Investment Grade
- ----------------
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.
Non-Investment Grade
- --------------------
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.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
INVESCO Combination Stock & Bond Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of INVESCO Balanced Fund, INVESCO Core
Equity Fund, and INVESCO Total Return Fund (constituting INVESCO Combination
Stock & Bond Funds, Inc., hereafter referred to as the "Fund") at May 31, 2003,
the results of each of their operations for the year then ended, the changes in
each of their net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at May 31, 2003 by correspondence with the custodian
and the application of alternative auditing procedures where securities
purchased had not been received, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
June 27, 2003
FS-1
INVESTMENT HOLDINGS
STATEMENT OF INVESTMENT SECURITIES
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
MAY 31, 2003
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
65.76 COMMON STOCKS
1.33 AEROSPACE & DEFENSE
United Technologies 158,300 $ 10,803,975
============================================================================================
1.29 ALUMINUM
Alcoa Inc 426,400 10,493,704
============================================================================================
1.72 APPLICATION SOFTWARE
SAP AG Sponsored ADR Representing 1/4 Ord Shr 148,600 4,232,128
Software HOLDRs Trust(a) 309,600 9,755,496
============================================================================================
13,987,624
2.76 BANKS
Bank of New York 348,300 10,079,802
Wells Fargo & Co 255,000 12,316,500
============================================================================================
22,396,302
2.79 BIOTECHNOLOGY
Amgen Inc(b) 189,000 12,230,190
Biotech HOLDRs Trust(a) 86,300 10,381,890
============================================================================================
22,612,080
1.56 BREWERS
Anheuser-Busch Cos 240,400 12,652,252
============================================================================================
0.50 CABLE & SATELLITE OPERATORS
EchoStar Communications Class A Shrs(b) 121,600 4,083,328
============================================================================================
0.52 CASINOS & GAMING
Harrah's Entertainment(b) 105,000 4,209,450
============================================================================================
0.95 COMPUTER STORAGE & PERIPHERALS
EMC Corp(b) 711,100 7,694,102
============================================================================================
1.95 DATA PROCESSING SERVICES
First Data 177,900 7,368,618
Fiserv Inc(b) 254,400 8,418,096
============================================================================================
15,786,714
0.87 DIVERSIFIED CHEMICALS
Dow Chemical 222,000 7,059,600
============================================================================================
5.90 DIVERSIFIED FINANCIAL SERVICES
American Express 157,800 6,573,948
Citigroup Inc 443,300 18,184,166
Goldman Sachs Group 62,600 5,101,900
JP Morgan Chase & Co 548,000 18,007,280
============================================================================================
47,867,294
1.23 ELECTRICAL COMPONENTS & EQUIPMENT
SPX Corp(b) 258,800 9,971,564
============================================================================================
1.27 GENERAL MERCHANDISE STORES
Target Corp 280,100 10,260,063
============================================================================================
FS-2
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
1.88 HEALTH CARE EQUIPMENT
Boston Scientific(b) 127,400 $ 6,637,540
Medtronic Inc 176,600 8,605,718
============================================================================================
15,243,258
1.43 HYPERMARKETS & SUPER CENTERS
Wal-Mart Stores 220,400 11,595,244
============================================================================================
1.50 INDUSTRIAL CONGLOMERATES
General Electric 425,000 12,197,500
============================================================================================
0.71 INDUSTRIAL MACHINERY
Illinois Tool Works 92,900 5,764,445
============================================================================================
2.26 INTEGRATED OIL & GAS
BP PLC Sponsored ADR Representing 6 Ord Shrs 104,100 4,360,749
Exxon Mobil 384,400 13,992,160
============================================================================================
18,352,909
1.22 INTEGRATED TELECOMMUNICATION SERVICES
BellSouth Corp 113,700 3,014,187
SBC Communications 134,500 3,424,370
Verizon Communications 92,200 3,489,770
============================================================================================
9,928,327
1.89 INVESTMENT ADVISER/BROKER DEALER SERVICES
Janus Capital Group 407,900 6,342,845
Merrill Lynch & Co 208,000 9,006,400
============================================================================================
15,349,245
2.65 INVESTMENT COMPANIES
DIAMONDS Trust Series I Shrs(c) 117,900 10,474,236
Nasdaq-100 Trust Series 1 Shrs(b) 369,400 11,004,426
============================================================================================
21,478,662
0.67 IT CONSULTING & SERVICES
Affiliated Computer Services Class A Shrs(b) 117,100 5,426,414
============================================================================================
1.30 MOVIES & ENTERTAINMENT
AOL Time Warner(b) 344,800 5,247,856
Viacom Inc Class B Shrs(b) 116,700 5,312,184
============================================================================================
10,560,040
1.31 MULTI-LINE INSURANCE
American International Group 182,900 10,586,252
============================================================================================
1.11 NETWORKING EQUIPMENT
Cisco Systems(b) 553,400 9,009,352
============================================================================================
0.59 OIL & GAS EQUIPMENT & SERVICES
Baker Hughes 145,600 4,812,080
============================================================================================
1.09 OIL & GAS EXPLORATION, PRODUCTION &
TRANSPORTATION
Apache Corp 133,845 8,823,062
============================================================================================
1.21 PAPER PRODUCTS
International Paper 267,300 9,801,891
============================================================================================
FS-3
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
0.64 PERSONAL PRODUCTS
Avon Products 85,200 $ 5,192,088
============================================================================================
7.99 PHARMACEUTICALS
Abbott Laboratories 239,500 10,669,725
Forest Laboratories(b) 117,600 5,938,800
Johnson & Johnson 171,900 9,342,765
Merck & Co 179,900 9,998,842
Pfizer Inc 411,800 12,774,036
Teva Pharmaceutical Industries Ltd Sponsored ADR
Representing Ord Shrs 114,200 5,788,684
Wyeth 235,300 10,317,905
============================================================================================
64,830,757
0.69 PROPERTY & CASUALTY INSURANCE
Allstate Corp 155,700 5,603,643
============================================================================================
0.99 RAILROADS
Norfolk Southern 365,500 8,011,760
============================================================================================
0.52 RESTAURANTS
Starbucks Corp(b) 170,200 4,193,898
============================================================================================
1.24 SEMICONDUCTOR EQUIPMENT
Applied Materials(b) 643,700 10,015,972
============================================================================================
3.16 SEMICONDUCTORS
Intel Corp 442,500 9,221,700
Semiconductor HOLDRs Trust(a) 282,400 8,457,880
Texas Instruments 388,200 7,958,100
============================================================================================
25,637,680
1.47 SOFT DRINKS
Coca-Cola Co 260,800 11,884,656
============================================================================================
3.60 SYSTEMS SOFTWARE
Microsoft Corp 534,100 13,144,201
Oracle Corp(b) 513,900 6,685,839
VERITAS Software(b) 337,400 9,362,850
============================================================================================
29,192,890
TOTAL COMMON STOCKS (COST $488,841,979) 533,370,077
============================================================================================
30.22 FIXED INCOME SECURITIES
13.51 US GOVERNMENT OBLIGATIONS
US Treasury Notes
5.875%, 11/15/2004 $ 20,000,000 21,342,960
5.750%, 11/15/2005 $ 20,000,000 22,080,460
3.875%, 2/15/2013 $ 10,000,000 10,442,580
3.000%, 11/15/2007 $ 10,000,000 10,375,390
1.625%, 1/31/2005 $ 25,000,000 25,167,975
1.625%, 4/30/2005 $ 20,000,000 20,124,220
============================================================================================
TOTAL US GOVERNMENT OBLIGATIONS
(Amortized Cost $106,510,241) 109,533,585
============================================================================================
FS-4
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
9.86 US Government Agency Obligations
Fannie Mae, Gtd Mortgage Pass-Through Certificates
4.500%, 5/1/2018 $ 7,964,993 $ 8,179,223
4.500%, 6/1/2018 $ 25,000,000 25,672,414
Government National Mortgage Association I
Gtd Mortgage Pass-Through Certificates
5.000%, 11/15/2017 $ 9,548,440 9,986,281
5.000%, 2/15/2018 $ 12,269,305 12,828,959
Government National Mortgage Association I & II
Single Issuer
5.500%, 12/15/2031 $ 9,005,124 9,425,348
5.000%, 2/15/2018 $ 12,343,716 12,906,765
5.000%, 3/15/2018 $ 944,137 987,203
============================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Amortized Cost $78,762,693) 79,986,193
============================================================================================
6.85 CORPORATE BONDS
0.32 AUTOMOBILE MANUFACTURERS
General Motors Acceptance, Sr Notes, 6.125%,
8/28/2007 $ 2,500,000 2,622,423
============================================================================================
0.54 BANKS
Washington Mutual, Sr Notes, 4.375%, 1/15/2008 $ 1,000,000 1,062,219
Wells Fargo & Co, Notes, 5.250%, 12/1/2007 $ 3,000,000 3,316,668
============================================================================================
4,378,887
0.37 CABLE & SATELLITE OPERATORS
Continental Cablevision, Sr Deb, 9.500%, 8/1/2013 $ 2,500,000 3,004,920
============================================================================================
0.39 DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc, Notes, 4.125%, 6/30/2005 $ 3,000,000 3,146,271
============================================================================================
3.96 ELECTRIC UTILITIES
Cleveland Electric Illuminating, Secured Notes
Series D, 7.880%, 11/1/2017 $ 1,000,000 1,282,432
Commonwealth Edison, 1st Mortgage Notes
Series 76, 8.250%, 10/1/2006 $ 1,000,000 1,185,528
Consumers Energy, 1st & Refunding Mortgage Notes
7.375%, 9/15/2023 $ 2,500,000 2,621,583
El Paso Electric, 1st Mortgage Notes, Series E,
9.400%, 5/1/2011 $ 2,000,000 2,329,506
Jersey Central Power & Light, 1st Mortgage
Medium-Term Notes, Series C, 7.980%, 2/16/2023 $ 2,000,000 2,092,926
Niagara Mohawk Power, 1st Mortgage Notes, 7.750%,
5/15/2006 $ 4,000,000 4,577,608
Pennsylvania Power, 1st Mortgage Notes, 8.500%,
7/15/2022 $ 2,500,000 2,609,110
Public Service of New Mexico, Sr Notes
Series A, 7.100%, 8/1/2005 $ 5,000,000 5,440,935
Series B, 7.500%, 8/1/2018 $ 5,000,000 5,818,520
Texas Utilities Electric, 1st Mortgage Notes &
Collateral Trust, 7.875%, 4/1/2024 $ 4,000,000 4,182,412
============================================================================================
32,140,560
0.10 FOREST PRODUCTS
Weyerhaeuser Co, Notes, 6.750%, 3/15/2012 $ 695,000 801,992
============================================================================================
FS-5
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
0.20 HOUSEHOLD PRODUCTS
Procter & Gamble, Notes, 4.750%, 6/15/2007 $ 1,500,000 $ 1,632,597
============================================================================================
0.42 INTEGRATED TELECOMMMUNICATION SERVICES
Verizon Global Funding, Notes, 6.125%, 6/15/2007 $ 3,000,000 3,393,066
============================================================================================
0.09 PAPER PRODUCTS
International Paper, Notes, 5.850%, 10/30/2012 $ 670,000 741,418
============================================================================================
0.32 RAILROADS
Burlington Northern Santa Fe, Notes, 6.125%,
3/15/2009 $ 1,100,000 1,270,888
Union Pacific, Notes, 6.650%, 1/15/2011 $ 1,100,000 1,293,652
============================================================================================
2,564,540
0.14 SOFT DRINKS
Coca-Cola Enterprises, Notes, 4.375%, 9/15/2009 $ 1,075,000 1,151,025
============================================================================================
TOTAL CORPORATE BONDS (Amortized Cost $50,577,271) 55,577,699
============================================================================================
TOTAL FIXED INCOME SECURITIES
(AMORTIZED COST $235,850,205) 245,097,477
============================================================================================
1.22 SHORT-TERM INVESTMENTS
0.99 COMMERCIAL PAPER
0.99 DIVERSIFIED FINANCIAL SERVICES
State Street Boston, Discount Notes, 1.330%,
6/2/2003 (Amortized Cost $7,999,704) $ 8,000,000 7,999,704
============================================================================================
0.23 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated
5/30/2003 due 6/2/2003 at 1.220%, repurchased
at $1,900,193 (Collateralized by Federal Farm
Credit Bank, Bonds, due 12/15/2004 at 3.875%,
value $1,944,099) (Cost $1,900,000) $ 1,900,000 1,900,000
============================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $9,899,704) 9,899,704
============================================================================================
97.20 TOTAL INVESTMENTS AT VALUE
(COST $734,591,888) 788,367,258
============================================================================================
2.80 OTHER ASSETS LESS LIABILITIES 22,728,518
============================================================================================
100.00 NET ASSETS AT VALUE $ 811,095,776
============================================================================================
CORE EQUITY FUND
95.93 COMMON STOCKS
2.85 AEROSPACE & DEFENSE
L-3 Communications Holdings(b) 412,800 $ 17,894,880
Lockheed Martin 517,600 24,026,992
United Technologies 453,400 30,944,550
============================================================================================
72,866,422
1.36 ALUMINUM
Alcoa Inc 1,415,900 34,845,299
============================================================================================
0.49 APPLICATION SOFTWARE
PeopleSoft Inc(b) 759,100 12,418,876
============================================================================================
FS-6
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
9.16 BANKS
Bank of America 547,500 $ 40,624,500
Bank of New York 1,601,600 46,350,304
Charter One Financial 1,740,445 53,013,955
Wachovia Corp 1,062,600 42,695,268
Wells Fargo & Co 1,066,800 51,526,440
============================================================================================
234,210,467
3.09 BREWERS
Anheuser-Busch Cos 1,500,000 78,945,000
============================================================================================
1.63 CASINOS & GAMING
Harrah's Entertainment(b) 695,100 27,866,559
Park Place Entertainment(b) 1,800,000 13,716,000
============================================================================================
41,582,559
3.06 COMPUTER HARDWARE
Hewlett-Packard Co 2,162,500 42,168,750
International Business Machines 408,700 35,981,948
============================================================================================
78,150,698
1.03 DIVERSIFIED CHEMICALS
Dow Chemical 827,000 26,298,600
============================================================================================
5.37 DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc 1,567,200 64,286,544
JP Morgan Chase & Co 2,218,600 72,903,196
============================================================================================
137,189,740
2.34 ELECTRIC UTILITIES
Dominion Resources 420,600 26,497,800
Exelon Corp 106,700 6,113,910
FPL Group 410,300 27,272,641
============================================================================================
59,884,351
0.74 ELECTRICAL COMPONENTS & EQUIPMENT
SPX Corp(b) 490,000 18,879,700
============================================================================================
1.25 ENVIRONMENTAL SERVICES
Waste Management 1,252,300 31,896,081
============================================================================================
2.44 GENERAL MERCHANDISE STORES
Target Corp 1,700,000 62,271,000
============================================================================================
0.52 HEALTH CARE SUPPLIES
Alcon Inc 310,100 13,179,250
============================================================================================
1.49 HYPERMARKETS & SUPER CENTERS
Wal-Mart Stores 725,000 38,142,250
============================================================================================
1.94 INDUSTRIAL CONGLOMERATES
General Electric 1,728,100 49,596,470
============================================================================================
2.77 INDUSTRIAL MACHINERY
Danaher Corp 467,000 31,251,640
Illinois Tool Works 639,000 39,649,950
============================================================================================
70,901,590
FS-7
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
6.15 INTEGRATED OIL & GAS
BP PLC Sponsored ADR Representing 6 Ord Shrs 1,100,000 $ 46,079,000
Exxon Mobil 2,060,000 74,984,000
Occidental Petroleum 1,067,800 36,027,572
============================================================================================
157,090,572
2.95 INTEGRATED TELECOMMUNICATION SERVICES
BellSouth Corp 572,000 15,163,720
SBC Communications 1,028,300 26,180,518
Verizon Communications 900,000 34,065,000
============================================================================================
75,409,238
5.37 INVESTMENT ADVISER/BROKER DEALER SERVICES
Janus Capital Group 2,655,600 41,294,580
Lehman Brothers Holdings 718,700 51,480,481
Merrill Lynch & Co 1,029,300 44,568,690
============================================================================================
137,343,751
1.40 IT CONSULTING & SERVICES
Accenture Ltd(b) 2,040,800 35,754,816
============================================================================================
1.25 LIFE & HEALTH INSURANCE
John Hancock Financial Services 1,052,800 31,847,200
============================================================================================
1.08 MULTI-LINE INSURANCE
American International Group 477,200 27,620,336
============================================================================================
1.31 OIL & GAS EQUIPMENT & SERVICES
Baker Hughes 572,200 18,911,210
Schlumberger Ltd 298,400 14,508,208
============================================================================================
33,419,418
2.29 OIL & GAS EXPLORATION, PRODUCTION &
TRANSPORTATION
Apache Corp 469,560 30,953,395
Kerr-McGee Corp 578,500 27,525,030
============================================================================================
58,478,425
3.28 PACKAGED FOODS & MEATS
Hershey Foods 350,300 24,906,330
H.J. Heinz 716,500 23,694,655
Kellogg Co 1,000,000 35,200,000
============================================================================================
83,800,985
1.19 PAPER PACKAGING
Temple-Inland Inc 650,000 30,316,000
============================================================================================
1.90 PAPER PRODUCTS
Bowater Inc 750,000 29,392,500
International Paper 526,300 19,299,421
============================================================================================
48,691,921
2.63 PERSONAL PRODUCTS
Gillette Co 2,000,000 67,220,000
============================================================================================
7.84 PHARMACEUTICALS
Bristol-Myers Squibb 1,592,700 40,773,120
Eli Lilly & Co 682,000 40,763,140
FS-8
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
Merck & Co 839,600 $ 46,664,968
Pfizer Inc 2,324,880 72,117,778
============================================================================================
200,319,006
4.26 PUBLISHING & PRINTING
Gannett Co 452,000 35,708,000
Knight-Ridder Inc 220,900 15,560,196
McGraw-Hill Cos 911,000 57,584,310
============================================================================================
108,852,506
1.81 RAILROADS
Kansas City Southern(b) 950,000 11,333,500
Norfolk Southern 1,596,000 34,984,320
============================================================================================
46,317,820
1.08 RESTAURANTS
McDonald's Corp 1,477,100 27,666,083
============================================================================================
1.08 SEMICONDUCTOR EQUIPMENT
Applied Materials(b) 1,783,200 27,746,592
============================================================================================
3.78 SEMICONDUCTORS
Intel Corp 2,633,400 54,880,056
Texas Instruments 2,039,700 41,813,850
============================================================================================
96,693,906
1.96 SYSTEMS SOFTWARE
Microsoft Corp 2,037,100 50,133,031
============================================================================================
1.79 TELECOMMUNICATIONS EQUIPMENT
Nokia Corp Sponsored ADR Representing Ord Shrs 2,533,600 45,706,144
============================================================================================
TOTAL COMMON STOCKS (COST $2,017,501,665) 2,451,686,103
============================================================================================
0.10 FIXED INCOME SECURITIES -- CORPORATE BONDS
0.10 ELECTRIC UTILITIES
El Paso Electric, 1st Mortgage Notes, Series D,
8.900%, 2/1/2006 (Amortized Cost $2,247,438) $ 2,215,000 2,496,314
============================================================================================
4.18 SHORT-TERM INVESTMENTS
4.11 COMMERCIAL PAPER
1.57 BANKS
Citicorp, 1.260%, 6/4/2003 $ 40,000,000 40,000,000
============================================================================================
1.56 CONSUMER RECEIVABLES
New Center Asset Trust, Series 1, Discount Notes
1.340%, 6/2/2003 $ 40,000,000 39,998,511
============================================================================================
0.98 DIVERSIFIED FINANCIAL SERVICES
State Street Boston, Discount Notes, 1.330%,
6/2/2003 $ 25,000,000 24,999,076
============================================================================================
TOTAL COMMERCIAL PAPER (Amortized Cost $104,997,587) 104,997,587
============================================================================================
0.07 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated
5/30/2003 due 6/2/2003 at 1.220%, repurchased at
$1,915,195 (Collateralized by Fannie Mae,
Discount Notes, due 7/2/2003, value $1,957,898)
(Cost $1,915,000) $ 1,915,000 1,915,000
============================================================================================
FS-9
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $106,912,587) $ 106,912,587
============================================================================================
100.21 TOTAL INVESTMENTS AT VALUE
(COST $2,126,661,690) 2,561,095,004
============================================================================================
(0.21) OTHER ASSETS LESS LIABILITIES (5,353,082)
============================================================================================
100.00 NET ASSETS AT VALUE $2,555,741,922
============================================================================================
TOTAL RETURN FUND
68.97 COMMON STOCKS
2.77 AEROSPACE & DEFENSE
L-3 Communications Holdings(b) 100,300 $ 4,348,005
Lockheed Martin 169,000 7,844,980
United Technologies 150,700 10,285,275
============================================================================================
22,478,260
1.44 ALUMINUM
Alcoa Inc 476,700 11,731,587
============================================================================================
0.35 APPLICATION SOFTWARE
PeopleSoft Inc(b) 176,300 2,884,268
============================================================================================
1.00 AUTO PARTS & EQUIPMENT
Advance Auto Parts(b) 136,800 8,136,864
============================================================================================
6.58 BANKS
Bank of America 215,700 16,004,940
Mellon Financial 364,200 9,895,314
Wachovia Corp 228,700 9,189,166
Wells Fargo & Co 380,000 18,354,000
============================================================================================
53,443,420
2.38 BREWERS
Anheuser-Busch Cos 367,300 19,330,999
============================================================================================
2.51 COMPUTER HARDWARE
Hewlett-Packard Co 531,600 10,366,200
International Business Machines 114,100 10,045,364
============================================================================================
20,411,564
0.51 CONSTRUCTION MACHINERY, FARM
MACHINERY & HEAVY TRUCKS
Navistar International(b) 134,700 4,151,454
============================================================================================
1.11 DIVERSIFIED CHEMICALS
Dow Chemical 284,800 9,056,640
============================================================================================
2.58 DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc 398,200 16,334,164
JP Morgan Chase & Co 141,000 4,633,260
============================================================================================
20,967,424
1.41 ELECTRIC UTILITIES
Dominion Resources 44,200 2,784,600
Exelon Corp 34,600 1,982,580
FS-10
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
FPL Group 101,000 $ 6,713,470
============================================================================================
11,480,650
1.10 ELECTRICAL COMPONENTS & EQUIPMENT
SPX Corp(b) 232,000 8,938,960
============================================================================================
2.47 GENERAL MERCHANDISE STORES
Target Corp 548,000 20,073,240
============================================================================================
0.73 HOUSEHOLD PRODUCTS
Procter & Gamble 64,200 5,894,844
============================================================================================
2.14 INDUSTRIAL CONGLOMERATES
General Electric 606,100 17,395,070
============================================================================================
1.43 INDUSTRIAL GASES
Praxair Inc 193,200 11,590,068
============================================================================================
3.59 INDUSTRIAL MACHINERY
Danaher Corp 152,200 10,185,224
Illinois Tool Works 193,100 11,981,855
Timken Co 425,700 6,972,966
============================================================================================
29,140,045
1.32 INSURANCE BROKERS
Marsh & McLennan 214,400 10,747,872
============================================================================================
3.24 INTEGRATED OIL & GAS
BP PLC Sponsored ADR Representing 6 Ord Shrs 244,200 10,229,538
Exxon Mobil 441,600 16,074,240
============================================================================================
26,303,778
3.63 INTEGRATED TELECOMMUNICATION SERVICES
BellSouth Corp 154,900 4,106,399
SBC Communications 332,700 8,470,542
Verizon Communications 446,500 16,900,025
============================================================================================
29,476,966
4.76 INVESTMENT ADVISER/BROKER DEALER SERVICES
Janus Capital Group 408,700 6,355,285
Lehman Brothers Holdings 253,700 18,172,531
Merrill Lynch & Co 327,900 14,198,070
============================================================================================
38,725,886
0.88 IT CONSULTING & SERVICES
Accenture Ltd(b) 408,000 7,148,160
============================================================================================
0.80 MULTI-LINE INSURANCE
American International Group 112,700 6,523,076
============================================================================================
0.76 OIL & GAS EQUIPMENT & SERVICES
Baker Hughes 186,500 6,163,825
============================================================================================
1.06 OIL & GAS EXPLORATION, PRODUCTION &
TRANSPORTATION
Kerr-McGee Corp 181,800 8,650,044
============================================================================================
1.75 PACKAGED FOODS & MEATS
H.J. Heinz 200,000 6,614,000
FS-11
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
Hershey Foods 106,800 $ 7,593,480
============================================================================================
14,207,480
2.07 PAPER PRODUCTS
Bowater Inc 246,000 9,640,740
International Paper 196,100 7,190,987
============================================================================================
16,831,727
5.58 PHARMACEUTICALS
Bristol-Myers Squibb 252,400 6,461,440
Eli Lilly & Co 81,700 4,883,209
Merck & Co 263,500 14,645,330
Pfizer Inc 624,000 19,356,480
============================================================================================
45,346,459
0.36 PROPERTY & CASUALTY INSURANCE
St Paul 79,300 2,900,794
============================================================================================
2.05 PUBLISHING & PRINTING
Knight-Ridder Inc 71,600 5,043,504
McGraw-Hill Cos 184,200 11,643,282
============================================================================================
16,686,786
1.05 RAILROADS
Union Pacific 139,900 8,532,501
============================================================================================
1.12 RESTAURANTS
McDonald's Corp 486,900 9,119,637
============================================================================================
0.62 SEMICONDUCTOR EQUIPMENT
Applied Materials(b) 325,000 5,057,000
============================================================================================
2.64 SEMICONDUCTORS
Intel Corp 520,900 10,855,556
Texas Instruments 515,500 10,567,750
============================================================================================
21,423,306
1.18 TELECOMMUNICATIONS EQUIPMENT
Nokia Corp Sponsored ADR Representing Ord Shrs 530,300 9,566,612
============================================================================================
TOTAL COMMON STOCKS (COST $552,815,989) 560,517,266
============================================================================================
28.66 FIXED INCOME SECURITIES
6.73 US GOVERNMENT OBLIGATIONS
US Treasury Notes
3.875%, 2/15/2013 $ 8,600,000 8,980,619
2.875%, 6/30/2004 $ 7,500,000 7,638,870
1.625%, 1/31/2005 $ 25,000,000 25,167,975
1.625%, 4/30/2005 $ 12,800,000 12,879,501
============================================================================================
TOTAL US GOVERNMENT OBLIGATIONS
(Amortized Cost $54,296,787) 54,666,965
============================================================================================
16.44 US GOVERNMENT AGENCY OBLIGATIONS
Fannie Mae, Gtd Mortgage Pass-Through Certificates
5.000%, 1/1/2017 $ 17,266,787 17,939,122
4.500%, 5/1/2018 $ 19,912,481 20,448,058
4.500%, 6/1/2018 $ 10,000,000 10,268,966
FS-12
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
Government National Mortgage Association I
Gtd Mortgage Pass-Through Certificates
6.000%, 7/15/2028 $ 6,462,714 $ 6,783,902
6.000%, 4/15/2029 $ 5,741,281 6,023,807
5.500%, 1/15/2017 $ 16,181,359 16,983,095
5.000%, 2/15/2018 $ 41,205,517 43,085,074
5.000%, 3/15/2018 $ 2,832,411 2,961,609
Government National Mortgage Association I & II
Single Issuer, 5.500%, 1/15/2032 $ 8,746,293 9,153,427
============================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Amortized Cost $129,509,646) 133,647,060
============================================================================================
5.49 CORPORATE BONDS
0.64 AUTOMOBILE MANUFACTURERS
General Motors Acceptance, Notes, 6.125%, 2/1/2007 $ 5,000,000 5,229,585
============================================================================================
1.26 BANKS
SunTrust Banks, Sr Notes, 6.250%, 6/1/2008 $ 5,000,000 5,853,410
Washington Mutual, Sr Notes, 4.375%, 1/15/2008 $ 1,000,000 1,062,219
Wells Fargo & Co, Notes, 5.250%, 12/1/2007 $ 3,000,000 3,316,668
============================================================================================
10,232,297
1.10 BREWERS
Anheuser-Busch Cos, Notes, 5.375%, 9/15/2008 $ 8,000,000 8,982,024
============================================================================================
0.39 DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc, Notes, 4.125%, 6/30/2005 $ 3,000,000 3,146,271
============================================================================================
0.11 FOREST PRODUCTS
Weyerhaeuser Co, Notes, 6.750%, 3/15/2012 $ 760,000 876,999
============================================================================================
0.20 HOUSEHOLD PRODUCTS
Procter & Gamble, Notes, 4.750%, 6/15/2007 $ 1,500,000 1,632,597
============================================================================================
0.42 INTEGRATED TELECOMMUNICATION SERVICES
Verizon Global Funding, Notes, 6.125%, 6/15/2007 $ 3,000,000 3,393,066
============================================================================================
0.68 PACKAGED FOODS & MEATS
CPC International, Notes, Series C, 6.150%,
1/15/2006 $ 5,000,000 5,509,055
============================================================================================
0.10 PAPER PRODUCTS
International Paper, Notes, 5.850%, 10/30/2012 $ 730,000 807,814
============================================================================================
0.43 RAILROADS
Burlington Northern Santa Fe, Notes, 6.125%,
3/15/2009 $ 3,000,000 3,466,059
============================================================================================
0.16 SOFT DRINKS
Coca-Cola Enterprises, Notes, 4.375%, 9/15/2009 $ 1,250,000 1,338,401
============================================================================================
TOTAL CORPORATE BONDS (Amortized Cost $40,808,634) 44,614,168
============================================================================================
TOTAL FIXED INCOME SECURITIES
(AMORTIZED COST $224,615,067) 232,928,193
============================================================================================
5.40 SHORT-TERM INVESTMENTS
1.90 US Government Agency Obligations
Fannie Mae, Benchmark Notes, 5.125%, 2/13/2004
(Amortized Cost $14,837,148) $ 15,000,000 15,409,425
============================================================================================
FS-13
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
0.63 CORPORATE BONDS -- DIVERSIFIED FINANCIAL SERVICES
Associates Corp of North America, Sr Notes,
5.500%, 2/15/2004
(Amortized Cost $4,995,925) $ 5,000,000 $ 5,150,515
============================================================================================
2.83 COMMERCIAL PAPER -- CONSUMER RECEIVABLES
New Center Asset Trust, Series 1, Discount
Notes, 1.340%, 6/2/2003 (Amortized Cost
$22,999,144) $ 23,000,000 22,999,144
============================================================================================
0.04 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 5/30/2003 due 6/2/2003 at 1.220%,
repurchased at $291,030 (Collateralized
by Federal Home Loan Bank, Bonds, due
3/29/2004 at 1.400%, value $301,003)
(Cost $291,000) $ 291,000 291,000
============================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $43,123,217) 43,850,084
============================================================================================
103.03 TOTAL INVESTMENTS AT VALUE
(COST $820,554,273) 837,295,543
============================================================================================
(3.03) OTHER ASSETS LESS LIABILITIES (24,605,674)
============================================================================================
100.00 NET ASSETS AT VALUE $ 812,689,869
============================================================================================
(a) HOLDRs - Holding Company Depositary Receipts.
(b) Security is non-income producing.
(c) DIAMONDS Trust Series 1 is a unit investment trust that issues securities
called "DIAMONDS". DIAMONDS represent an undivided ownership interest in a
portfolio of all the common stocks of the Dow Jones Industrial Average.
See Notes to Financial Statements
FS-14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
MAY 31, 2003
CORE
BALANCED EQUITY
FUND FUND
- --------------------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 734,591,888 $ 2,126,661,690
============================================================================================
At Value(a) $ 788,367,258 $ 2,561,095,004
Cash 558,787 34,541
Receivables:
Investment Securities Sold 24,219,797 3,489,218
Fund Shares Sold 658,905 971,350
Dividends and Interest 2,324,794 4,769,122
Loans to Affiliated Fund (Note 6) 0 2,702,000
Prepaid Expenses and Other Assets 71,256 256,802
============================================================================================
TOTAL ASSETS 816,200,797 2,573,318,037
============================================================================================
LIABILITIES
Payables:
Distributions to Shareholders 3,808 408,416
Investment Securities Purchased 4,269,554 14,492,140
Fund Shares Repurchased 631,812 1,621,293
Accrued Distribution Expenses
Investor Class 112,036 519,300
Class A 108 1,316
Class B 197 992
Class C 2,181 7,263
Class K 3,271 8,046
Accrued Expenses and Other Payables 82,054 517,349
============================================================================================
TOTAL LIABILITIES 5,105,021 17,576,115
============================================================================================
NET ASSETS AT VALUE $ 811,095,776 $ 2,555,741,922
============================================================================================
NET ASSETS
Paid-in Capital(b) $ 1,100,589,202 $ 2,375,076,580
Accumulated Undistributed Net Investment
Income (Loss) 641,155 (288,750)
Accumulated Undistributed Net Realized
Loss on Investment Securities (343,909,951) (253,479,222)
Net Appreciation of Investment Securities 53,775,370 434,433,314
============================================================================================
NET ASSETS AT VALUE, Applicable to Shares
Outstanding $ 811,095,776 $ 2,555,741,922
============================================================================================
NET ASSETS AT VALUE:
Institutional Class $ 261,560,380 --
============================================================================================
Investor Class $ 537,542,996 $ 2,518,440,996
============================================================================================
Class A $ 376,364 $ 4,673,885
============================================================================================
Class B $ 255,409 $ 1,264,255
============================================================================================
Class C $ 2,877,576 $ 8,912,370
============================================================================================
Class K $ 8,483,051 $ 22,450,416
============================================================================================
FS-15
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
MAY 31, 2003
CORE
BALANCED EQUITY
FUND FUND
(CONTINUED) (CONTINUED)
- --------------------------------------------------------------------------------------------
Shares Outstanding
Institutional Class 20,469,404 --
Investor Class 41,332,600 241,368,536
Class A 29,812 451,386
Class B 20,550 123,154
Class C 220,821 861,637
Class K 658,739 2,190,538
============================================================================================
NET ASSET VALUE PER SHARE:
Institutional Class, Offering and Redemption
Price per Share $ 12.78 --
Investor Class, Offering and Redemption Price
per Share $ 13.01 $ 10.43
Class A
Redemption Price per Share $ 12.62 $ 10.35
Offering Price per Share (Maximum sales
charge of 5.50%) $ 13.35 $ 10.95
Class B, Offering and Redemption Price
per Share $ 12.43 $ 10.27
Class C, Offering and Redemption Price
per Share $ 13.03 $ 10.34
Class K, Offering and Redemption Price
per Share $ 12.88 $ 10.25
============================================================================================
(a) Investment securities at cost and value at May 31, 2003 include repurchase agreements
of $1,900,000 and $1,915,000 for Balanced and Core Equity Funds, respectively.
(b) The INVESCO Combination Stock & Bond Funds, Inc. have 7.5 billion authorized
shares of common stock, par value of $0.01 per share. Of such shares, 700 million
have been allocated to Balanced Fund and 5 billion to Core Equity Fund: 200
million to Balanced Fund - Investor Class, 100 million to each additional class
of Balanced Fund and 1 billion to each class of Core Equity Fund.
See Notes to Financial Statements
FS-16
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
MAY 31, 2003
TOTAL RETURN
FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 820,554,273
================================================================================
At Value(a) $ 837,295,543
Cash 661,095
Receivables:
Investment Securities Sold 1,133,180
Fund Shares Sold 1,021,595
Dividends and Interest 2,952,911
Prepaid Expenses and Other Assets 124,740
================================================================================
TOTAL ASSETS 843,189,064
================================================================================
LIABILITIES
Payables:
Distributions to Shareholders 82,497
Investment Securities Purchased 16,793,034
Fund Shares Repurchased 13,271,979
Accrued Distribution Expenses
Investor Class 171,386
Class A 164
Class B 407
Class C 638
Accrued Expenses and Other Payables 179,090
================================================================================
TOTAL LIABILITIES 30,499,195
================================================================================
NET ASSETS AT VALUE $ 812,689,869
================================================================================
NET ASSETS
Paid-in Capital(b) $ 846,270,108
Accumulated Undistributed Net Investment Loss (23,154)
Accumulated Undistributed Net Realized Loss
on Investment Securities (50,298,355)
Net Appreciation of Investment Securities 16,741,270
================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 812,689,869
================================================================================
NET ASSETS AT VALUE:
Investor Class $ 810,787,002
================================================================================
Class A $ 546,166
================================================================================
Class B $ 569,733
================================================================================
Class C $ 786,968
================================================================================
FS-17
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
MAY 31, 2003
TOTAL RETURN
FUND
(CONTINUED)
- --------------------------------------------------------------------------------
Shares Outstanding
Investor Class 36,923,936
Class A 25,439
Class B 26,741
Class C 36,652
================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and Redemption Price per Share $ 21.96
Class A
Redemption Price per Share $ 21.47
Offering Price per Share (Maximum sales charge of 5.50%) $ 22.72
Class B, Offering and Redemption Price per Share $ 21.31
Class C, Offering and Redemption Price per Share $ 21.47
================================================================================
(a) Investment securities at cost and value at May 31, 2003 includes a
repurchase agreement of $291,000.
(b) The INVESCO Combination Stock & Bond Funds, Inc. have 7.5 billion
authorized shares of common stock, par value of $0.01 per share. Of such
shares, 1.3 billion have been allocated to Total Return Fund: 300 million
to each class.
See Notes to Financial Statements
FS-18
STATEMENT OF OPERATIONS
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
YEAR ENDED MAY 31, 2003
CORE
BALANCED EQUITY
FUND FUND
- --------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 6,876,181 $ 44,239,439
Dividends from Affiliated Investment Companies 22,089 95,457
Interest 14,498,434 8,087,971
Foreign Taxes Withheld (31,236) (312,360)
============================================================================================
TOTAL INCOME 21,365,468 52,110,507
============================================================================================
EXPENSES
Investment Advisory Fees 4,664,989 12,910,344
Distribution Expenses 1,555,775 6,432,973
Transfer Agent Fees 3,057,647 5,555,930
Administrative Services Fees 382,599 1,148,535
Custodian Fees and Expenses 112,798 300,939
Directors' Fees and Expenses 75,730 210,840
Interest Expenses 1,456 0
Professional Fees and Expenses 73,033 162,181
Registration Fees and Expenses
Institutional Class 11,621 --
Investor Class 22,485 34,474
Class A 650 675
Class B 647 646
Class C 1,581 1,556
Class K 1,944 1,934
Reports to Shareholders 140,704 817,612
Other Expenses 52,387 138,714
============================================================================================
TOTAL EXPENSES 10,156,046 27,717,353
Fees and Expenses Absorbed/Reimbursed by
Investment Adviser (352,585) (132,953)
Fees and Expenses Paid Indirectly (1,433) (281,367)
============================================================================================
NET EXPENSES 9,802,028 27,303,033
============================================================================================
NET INVESTMENT INCOME 11,563,440 24,807,474
============================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on Investment Securities (115,948,604) (211,794,329)
Change in Net Appreciation/Depreciation of
Investment Securities 44,906,678 (136,219,795)
============================================================================================
NET LOSS ON INVESTMENT SECURITIES (71,041,926) (348,014,124)
============================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS $ (59,478,486) $ (323,206,650)
============================================================================================
See Notes to Financial Statements
FS-19
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
YEAR ENDED MAY 31, 2003
TOTAL RETURN
FUND
================================================================================
INVESTMENT INCOME
INCOME
Dividends $ 12,122,216
Interest 15,452,484
Securities Loaned Income 15,284
Foreign Taxes Withheld (67,567)
================================================================================
TOTAL INCOME 27,522,417
================================================================================
EXPENSES
Investment Advisory Fees 6,156,885
Distribution Expenses 2,185,927
Transfer Agent Fees 3,876,792
Administrative Services Fees 402,096
Custodian Fees and Expenses 113,868
Directors' Fees and Expenses 80,775
Interest Expenses 4,049
Professional Fees and Expenses 79,210
Registration Fees and Expenses
Investor Class 24,273
Class A 684
Class B 655
Class C 1,537
Reports to Shareholders 87,009
Other Expenses 51,128
================================================================================
TOTAL EXPENSES 13,064,888
Fees and Expenses Absorbed/Reimbursed by Investment Adviser (2,095,217)
Fees and Expenses Paid Indirectly (707)
================================================================================
NET EXPENSES 10,968,964
================================================================================
NET INVESTMENT INCOME 16,553,453
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on Investment Securities (45,793,592)
Change in Net Appreciation/Depreciation of Investment Securities (34,951,619)
================================================================================
NET LOSS ON INVESTMENT SECURITIES (80,745,211)
================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (64,191,758)
================================================================================
See Notes to Financial Statements
FS-20
STATEMENT OF CHANGES IN NET ASSETS
BALANCED FUND
YEAR ENDED MAY 31
- --------------------------------------------------------------------------------
2003 2002
(Note 1)
OPERATIONS
Net Investment Income $ 11,563,440 $ 18,818,249
Net Realized Loss (115,948,604) (139,683,855)
Change in Net Appreciation/Depreciation 44,906,678 (31,166,727)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS (59,478,486) (152,032,333)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Institutional Class (4,506,597) (4,989,827)
Investor Class (6,060,708) (13,983,728)
Class A (10,306) (1,242)
Class B (7,524) (511)
Class C (3,968) (24,293)
Class K (63,377) (248,610)
================================================================================
TOTAL DISTRIBUTIONS (10,652,480) (19,248,211)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Institutional Class 68,497,284 129,018,119
Investor Class 199,821,783 308,633,173
Class A 455,606 128,640
Class B 190,715 59,318
Class C 6,934,087 8,474,793
Class K 1,982,015 14,504,827
Reinvestment of Distributions
Institutional Class 4,506,597 4,989,827
Investor Class 5,972,502 13,828,226
Class A 9,666 1,242
Class B 6,127 511
Class C 3,455 19,826
Class K 63,378 248,610
================================================================================
288,443,215 479,907,112
Amounts Paid for Repurchases of Shares
Institutional Class (25,851,555) (28,508,579)
Investor Class (394,606,971) (483,435,395)
Class A (210,703) 0
Class B (2,096) 0
Class C (8,047,522) (11,537,947)
Class K (4,888,173) (1,803,768)
================================================================================
(433,607,020) (525,285,689)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (145,163,805) (45,378,577)
================================================================================
TOTAL DECREASE IN NET ASSETS (215,294,771) (216,659,121)
NET ASSETS
Beginning of Period 1,026,390,547 1,243,049,668
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income
(Loss) of $641,155 and ($26,898),
respectively) $ 811,095,776 $1,026,390,547
================================================================================
See Notes to Financial Statements
FS-21
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
CORE EQUITY FUND
YEAR ENDED MAY 31
- --------------------------------------------------------------------------------
2003 2002
(Note 1)
OPERATIONS
Net Investment Income $ 24,807,474 $ 44,815,277
Net Realized Loss (211,794,329) (33,245,896)
Change in Net Appreciation/Depreciation (136,219,795) (511,535,308)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS (323,206,650) (499,965,927)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (24,864,139) (165,670,113)
Class A (52,765) (2,047)
Class B (7,356) (1,781)
Class C 0 (359,720)
Class K (25,622) (739,296)
================================================================================
TOTAL DISTRIBUTIONS (24,949,882) (166,772,957)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 1,296,519,272 603,172,593
Class A 7,869,888 303,006
Class B 1,058,736 262,620
Class C 9,600,440 13,639,460
Class K 8,695,901 29,970,996
Reinvestment of Distributions
Investor Class 22,900,224 154,372,395
Class A 49,151 1,436
Class B 5,441 1,309
Class C 0 349,517
Class K 25,622 739,271
================================================================================
1,346,724,675 802,812,603
Amounts Paid for Repurchases of Shares
Investor Class (1,642,243,200) (1,028,601,609)
Class A (3,731,262) (46)
Class B (89,621) 0
Class C (9,306,189) (12,826,301)
Class K (10,996,919) (1,534,657)
================================================================================
(1,666,367,191) (1,042,962,613)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (319,642,516) (240,150,010)
================================================================================
TOTAL DECREASE IN NET ASSETS (667,799,048) (906,888,894)
NET ASSETS
Beginning of Period 3,223,540,970 4,130,429,864
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss of
($288,750) and ($146,342),
respectively) $ 2,555,741,922 $3,223,540,970
================================================================================
See Notes to Financial Statements
FS-22
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
TOTAL RETURN FUND
YEAR ENDED MAY 31
- --------------------------------------------------------------------------------
2003 2002
(Note 1)
OPERATIONS
Net Investment Income $ 16,553,453 $ 19,651,747
Net Realized Gain (Loss) (45,793,592) 40,509,373
Change in Net Appreciation/Depreciation (34,951,619) (129,974,628)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS (64,191,758) (69,813,508)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (42,820,938) (55,124,752)
Class A (25,176) (1,067)
Class B (21,711) (973)
Class C (20,992) (17,443)
================================================================================
TOTAL DISTRIBUTIONS (42,888,817) (55,144,235)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 196,083,892 312,906,719
Class A 2,060,140 93,238
Class B 495,653 91,181
Class C 4,119,897 9,997,919
Reinvestment of Distributions
Investor Class 42,329,594 54,393,521
Class A 22,066 1,067
Class B 15,749 413
Class C 20,775 17,443
================================================================================
245,147,766 377,501,501
Amounts Paid for Repurchases of Shares
Investor Class (400,808,650) (624,755,474)
Class A (1,616,139) 0
Class B (23,368) 0
Class C (3,899,641) (9,695,008)
================================================================================
(406,347,798) (634,450,482)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (161,200,032) (256,948,981)
================================================================================
TOTAL DECREASE IN NET ASSETS (268,280,607) (381,906,724)
NET ASSETS
Beginning of Period 1,080,970,476 1,462,877,200
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss of
($23,154) and ($107,081), respectively) $ 812,689,869 $1,080,970,476
================================================================================
See Notes to Financial Statements
FS-23
NOTES TO FINANCIAL STATEMENTS
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Combination
Stock & Bond Funds, Inc. is incorporated in Maryland and presently consists of
three separate funds: Balanced Fund, Core Equity Fund and Total Return Fund
(individually the "Fund" and collectively, the "Funds"). The investment
objectives of the Funds are: to achieve a high total return on investments
through growth and current income. INVESCO Combination Stock & Bond Funds, Inc.
is registered under the Investment Company Act of 1940 (the "Act") as a
diversified, open-end management investment company.
Effective April 1, 2002, the Funds began offering two additional classes of
shares, referred to as Class A and Class B shares. Total Return Fund's Class K
shares were effective September 30, 2001. Income, expenses (other than those
attributable to a specific class) and realized and unrealized gains and losses
are allocated daily to each class of shares based on the relative proportion of
net assets represented by such class. Operating expenses directly attributable
to a specific class are charged against operations of that class. Class A shares
are sold with a front-end sales charge ranging from 5.50% to 2.00% of the
offering price on purchases of less than $1,000,000. Class B shares and Class C
shares are subject to a contingent deferred sales charge paid by the redeeming
shareholder. Class B shares convert to Class A shares after eight years along
with a pro rata portion of its reinvested dividends and distributions.
Effective April 1, 2002, the Investor Class shares are offered only to
grandfathered investors who have established and maintained an account in any of
the funds managed and distributed by INVESCO Funds Group, Inc. ("IFG") in
Investor Class shares prior to April 1, 2002.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Domestic (U.S.) equity securities traded on national
securities exchanges or in the over-the-counter market are valued at the last
sales price at the close of the regular trading day on the exchange (generally
4:00 p.m. Eastern time) where such securities are primarily traded. If last
sales prices are not available, securities are valued at the closing bid price
for the regular trading day as obtained from one or more dealers making a market
for such securities or by a pricing service approved by the Fund's board of
directors.
Debt securities are valued at evaluated bid prices as determined by a pricing
service approved by the Fund's board of directors. If evaluated bid prices are
not available, debt securities are valued by averaging the bid prices obtained
from one or more dealers making a market for such securities.
Foreign equity securities are valued at the closing price. The closing price is
designated by the principal stock exchange in the country in which the
securities are traded. In the event that closing prices are not available for
foreign securities, a snapshot of prices will be obtained from the principal
stock exchange at or prior to the close of the New York Stock Exchange. Foreign
currency exchange rates are determined daily prior to the close of the New York
Stock Exchange.
Investments in shares of investment companies are valued at the net asset value
of the respective fund as calculated each day.
FS-24
If market quotations or pricing service valuations are not readily available, or
events or circumstances that may affect the value of portfolio securities are
identified between the closing of their principal markets and the time that the
net asset value per share is determined, securities are valued at fair value as
determined in good faith under procedures established by the Fund's board of
directors.
Short-term securities are stated at amortized cost (which approximates market
value) if maturity is 60 days or less at the time of purchase, or market value
if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the date of valuation.
B. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by securities issued by the U.S. Government, its agencies or
instrumentalities and such collateral is in the possession of the Fund's
custodian. The collateral is evaluated daily to ensure its market value exceeds
the current market value of the repurchase agreements including accrued
interest. In the event of default on the obligation to repurchase, the Fund has
the right to liquidate the collateral and apply the proceeds in satisfaction of
the obligation.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income, which may be comprised of stated coupon rate,
market discount, original issue discount or amortized premium, is recorded on
the accrual basis. Discounts or premiums on debt securities purchased are
amortized over the life of the respective security as adjustments to interest
income. Cost is determined on the specific identification basis. Certain
dividends from foreign securities will be recorded as soon as the Fund is
informed of the dividend if such information is obtained subsequent to the
ex-dividend date. Investment income received from foreign sources may be subject
to foreign withholding taxes. Dividend and interest income is shown gross of
foreign withholding taxes in the accompanying financial statements. Income and
expenses on foreign securities are translated into U.S. dollars at rates of
exchange prevailing when accrued. The cost of foreign securities is translated
into U.S. dollars at the rates of exchange prevailing when such securities are
acquired.
Each Fund may invest in securities issued by other INVESCO investment companies
that invest in short-term debt securities and seek to maintain a net asset value
of one dollar per share. During the year ended May 31, 2003, Balanced and Core
Equity Funds invested in INVESCO Treasurer's Series Money Market Reserve Fund.
During that same period there were no such investments by Total Return Fund. The
income from this investment is recorded in the Statement of Operations.
The Fund may have elements of risk due to investments in specific industries or
foreign issuers located in a specific country. Such investments may subject the
Fund to additional risks resulting from future political or economic conditions
and/or possible impositions of adverse foreign governmental laws or currency
exchange restrictions. Net realized and unrealized gain or loss from investment
securities includes fluctuations from currency exchange rates and fluctuations
in market value.
The Fund's use of short-term forward foreign currency contracts may subject it
to certain risks as a result of unanticipated movements in foreign exchange
rates. The Fund does not hold short-term forward foreign currency contracts for
trading purposes. The Fund may hold foreign currency in anticipation of settling
foreign security transactions and not for investment purposes.
Investments in securities of U.S. Government agencies or instrumentalities may
only be guaranteed by the respective agency's limited authority to borrow from
the U.S. Government and may not be guaranteed by the full faith and credit of
the U.S. Government.
FS-25
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded by the Fund on the ex-dividend/distribution date. The
Fund distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers.
E. TAX INFORMATION -- The Fund has complied, and continues to comply, with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and, accordingly, has made or intends to make sufficient distributions
of net investment income and net realized capital gains, if any, to relieve it
from all federal and state income taxes and federal excise taxes.
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders. The tax composition of distributions from
ordinary income, long-term capital gains and of the ordinary income
distributions declared for the year ended May 31, 2003, and amounts qualifying
for the dividends received deduction available to the Fund's corporate
shareholders were as follows:
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 2003 MAY 31, 2003 MAY 31, 2003 MAY 31, 2002 MAY 31, 2002
ORDINARY INCOME LONG-TERM CAPITAL QUALIFYING ORDINARY INCOME LONG-TERM CAPITAL
FUND DISTRIBUTIONS GAIN DISTRIBUTIONS PERCENTAGE DISTRIBUTIONS GAIN DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------
Balanced Fund $ 10,652,480 $ 0 57.99% $ 19,248,211 $ 0
Core Equity Fund 24,949,882 0 99.99% 44,706,262 122,066,695
Total Return Fund 23,578,246 19,310,571 48.13% 19,208,537 35,935,698
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from accounting prinicples generally accepted
in the United States.
The tax components of the Fund at May 31, 2003 include:
COST OF GROSS TAX GROSS TAX NET TAX
INVESTMENTS FOR UNREALIZED UNREALIZED APPRECIATION
FUND TAX PURPOSES APPRECIATION DEPRECIATION ON INVESTMENTS
- --------------------------------------------------------------------------------------------
Balanced Fund $ 751,920,751 $ 64,047,494 $ 27,600,987 $ 36,446,507
Core Equity Fund 2,136,952,159 530,611,463 106,468,618 424,142,845
Total Return Fund 822,453,903 89,100,523 74,258,883 14,841,640
ACCUMULATED CUMULATIVE EFFECT
UNDISTRIBUTED CAPITAL LOSS OF OTHER
FUND ORDINARY INCOME CARRYOVERS TIMING DIFFERENCES
- -------------------------------------------------------------------------------------------------
Balanced Fund $ 697,547 $(310,588,135) $ (16,049,345)
Core Equity Fund 247,181 (240,170,249) (3,554,435)
Total Return Fund 196,783 (48,378,800) (239,862)
The primary difference between book and tax appreciation/depreciation is wash
sale loss deferrals.
Capital loss carryovers expire in the years 2010 and 2011.
To the extent future capital gains and income are offset by capital and currency
loss carryovers and deferred post-October 31 losses, such gains and income will
not be distributed to shareholders. Deferred post-October 31 capital losses are:
Balanced Fund $15,992,953, Core Equity Fund $3,018,504 and Total Return Fund
$23,290.
FS-26
F. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund enters into short-term forward
foreign currency contracts in connection with planned purchases or sales of
securities as a hedge against fluctuations in foreign exchange rates pending the
settlement of transactions in foreign securities. A forward foreign currency
contract is an agreement between contracting parties to exchange an amount of
currency at some future time at an agreed upon rate. These contracts are
marked-to-market daily and the related appreciation or depreciation of the
contracts is presented in the Statement of Assets and Liabilities. Any realized
gain or loss incurred by the Fund upon the sale of securities is included in the
Statement of Operations.
G. EXPENSES -- Each Fund or Class bears expenses incurred specifically on its
behalf and, in addition, each Fund or Class bears a portion of general expenses,
based on the relative net assets of each Fund or Class.
Under an agreement between each Fund and the Fund's Custodian, certain Custodian
Fees and Expenses are reduced by credits granted by the Custodian from any
temporarily uninvested cash. Similarly, Custodian Fees and Expenses for Core
Equity Fund are reduced by credits earned from security brokerage transactions
under certain broker/service arrangements with third parties. Such credits are
included in Fees and Expenses Paid Indirectly in the Statement of Operations.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. IFG serves as the Funds'
investment adviser. As compensation for its services to the Funds, IFG receives
an investment advisory fee which is accrued daily at the applicable rate and
paid monthly. The fee is based on the annual rate of each Fund's average net
assets as follows:
AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
$500 $700 $1 $2 $4 $6
$0 TO $0 TO $350 TO MILLION MILLION BILLION BILLION BILLION BILLION OVER
$350 $500 $700 TO $1 TO $2 TO $2 TO $4 TO $6 TO $8 $8
FUND MILLION MILLION MILLION BILLION BILLION BILLION BILLION BILLION BILLION BILLION
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund 0.60% -- 0.55% -- 0.50% -- 0.45% 0.40% 0.375% 0.35%
Core Equity Fund 0.60% -- 0.55% -- 0.50% -- 0.45% 0.40% 0.375% 0.35%
Total Return Fund -- 0.75% -- 0.65% -- 0.50% 0.45% 0.40% 0.375% 0.35%
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to INVESCO Distributors,
Inc. ("IDI" or the "Distributor"), a wholly owned subsidiary of IFG, of 0.25% of
annual average net assets of Investor Class shares. A master distribution plan
and agreement for Class A, Class B and Class C shares pursuant to Rule 12b-1 of
the Act provides for compensation of certain promotional and other sales related
costs to IDI. Class A shares of the Fund pay compensation to IDI at a rate of
0.35% of annual average net assets. During any period that Class A shares of the
Fund are closed to new investors, the Fund will reduce this payment for Class A
shares from 0.35% to 0.25% per annum. Class B and Class C shares of the Fund pay
compensation to IDI at a rate of 1.00% of annual average net assets. Of these
amounts, IDI may pay a service fee of 0.25% of the average net assets of the
Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the applicable class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose caps on the total sales charges,
including asset-based sales charges, that may be paid by the respective class. A
plan of distribution pursuant to Rule 12b-1 of the Act provides for financing
the distribution and continuing personal shareholder servicing of Class K shares
of 0.45% of annual average net assets. Any unreimbursed expenses IDI incurs with
respect to Investor Class, Class A, Class C and Class K shares in any fiscal
year can not be recovered in subsequent years. Effective July 1, 2003, the
distributor will change to AIM Distributors, Inc., an affiliate of IFG. For the
year ended May 31, 2003, amounts paid to the Distributor were as follows:
FS-27
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- --------------------------------------------------------------------------------------------
Balanced Fund $ 1,540,443 $ 797 $ 1,290 $ 29,887 $ 44,231
Core Equity Fund 6,417,074 8,414 4,898 81,386 94,082
Total Return Fund 2,234,883 1,373 2,316 6,790 --
If the Class B Plan is terminated, the Board of Directors may allow the Class B
shares to continue payments of the asset-based sales charge to the Distributor
for allowable unreimbursed expenses incurred for distributing shares before the
Class B Plan was terminated. The Class B Plan allows for the carry-forward of
distribution expenses, to be recovered from asset-based sales charges in
subsequent fiscal periods. Distribution fees related to the Distributor for the
year ended May 31, 2003, for Class B were as follows:
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
AMOUNT RETAINED EXPENSES OF NET ASSETS
FUND BY DISTRIBUTOR UNDER PLAN OF CLASS
- --------------------------------------------------------------------------------------------------
Balanced Fund - Class B Plan $ 1,394 $ 5,168 2.02%
Core Equity Fund - Class B Plan 5,683 33,641 2.66%
Total Return Fund - Class B Plan 2,552 12,037 2.11%
Distribution Expenses for each class as presented in the Statement of Operations
for the year ended May 31, 2003 were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- --------------------------------------------------------------------------------------------
Balanced Fund $ 1,482,411 $ 892 $ 1,445 $ 28,287 $ 42,740
Core Equity Fund 6,246,126 9,676 5,727 80,264 91,180
Total Return Fund 2,174,838 1,515 2,659 6,915 --
IFG receives a transfer agent fee from each Class at an annual rate of $22.50
per shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. Aggregate fees collected for such omnibus accounts
for the year ended May 31, 2003 amounted to $2,497,242 for Balanced Fund,
$1,935,334 for Core Equity Fund and $3,535,279 for Total Return Fund, of which
$764,686, $937,823 and $1,800,906, respectively, were retained by IFG. The fee
is paid monthly at one-twelfth of the annual fee and is based upon the actual
number of accounts in existence during each month. Transfer agent fees for each
class as presented in the Statement of Operations for the year ended May 31,
2003 were as follows:
FS-28
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- ---------------------------------------------------------------------------------------------------
Balanced Fund $ 690,836 $ 2,305,641 $ 1,058 $ 660 $ 22,286 $ 37,166
Core Equity Fund -- 5,196,034 4,158 1,945 34,617 319,176
Total Return Fund -- 3,868,389 739 714 6,950 --
In accordance with an Administrative Services Agreement, each Fund pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.045% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG has voluntarily agreed to absorb and assume certain fees and expenses
incurred by the Funds. IFG is entitled to reimbursement from a Fund share class
that has fees and expenses voluntarily absorbed pursuant to this arrangement if
such reimbursements do not cause a share class to exceed voluntary expense
limitations and the reimbursement is made within three years after IFG incurred
the expense. For the year ended May 31, 2003, total fees and expenses
voluntarily absorbed were as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- ---------------------------------------------------------------------------------------------------
Balanced Fund $ 0 $ 319,653 $ 2,966 $ 3,523 $ 20,720 $ 5,723
Core Equity Fund -- 0 0 2,300 0 130,653
Total Return Fund -- 2,080,446 2,592 3,513 8,666 --
At May 31, 2003, the reimbursement that may potentially be made by the Funds to
IFG and that will expire during the years ended May 31, 2005 and 2006, are as
follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- ---------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 2005
Balanced Fund $ 0 $ 0 $ 0 $ 4 $ 1,795 $ 0
Core Equity Fund -- 0 0 0 0 0
Total Return Fund -- 25,734 0 1 0 --
YEAR ENDED MAY 31, 2006
Balanced Fund $ 0 $ 319,653 $ 2,966 $ 3,519 $ 18,925 $ 5,723
Core Equity Fund -- 0 0 2,300 0 130,653
Total Return Fund -- 2,054,712 2,592 3,512 8,666 --
During the year ended May 31, 2003, the reimbursement that was made by the Funds
to IFG were as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- ---------------------------------------------------------------------------------------------------
Balanced Fund $ 0 $ 22,888 $ 0 $ 0 $ 0 $ 2,519
Core Equity Fund -- 0 0 142 0 36,157
Total Return Fund -- 42,386 49 0 0 --
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended May
31, 2003, the aggregate cost of purchases and proceeds from sales of investment
securities (excluding all U.S. Government securities and short-term securities)
were as follows:
FS-29
FUND PURCHASES SALES
- -------------------------------------------------------------------------------------------------
Balanced Fund $ 587,041,076 $ 641,523,064
Core Equity Fund 864,586,087 1,056,606,424
Total Return Fund 237,710,638 329,243,063
For the year ended May 31, 2003, the aggregate cost of purchases and proceeds
from the sales of U.S. Government securities were as follows:
FUND PURCHASES SALES
- ------------------------------------------------------------------------------------------------
Balanced Fund $ 152,841,011 $ 187,287,690
Core Equity Fund 11,404,824 11,591,849
Total Return Fund 148,624,215 172,857,771
NOTE 4 -- TRANSACTIONS WITH AFFILIATES AND AFFILIATED COMPANIES. Certain of the
Funds' officers and directors are also officers and directors of IFG or IDI.
Each Fund has adopted a retirement plan covering all independent directors of
the Fund who will have served as an independent director for at least five years
at the time of retirement. Benefits under this plan are based on an annual rate
as defined in the plan agreement, as amended March 1, 2001. Effective November
8, 2002, the plan provides that a director, prior to retirement, may elect to
convert amounts accrued under this plan into a new deferred retirement plan.
Pension expenses for the year ended May 31, 2003, included in Directors' Fees
and Expenses in the Statement of Operations and pension liability included in
Accrued Expenses in the Statement of Assets and Liabilities were as follows:
PENSION PENSION
FUND EXPENSES LIABILITY
- --------------------------------------------------------------------------------------------
Balanced Fund $ 31,006 $ 36,275
Core Equity Fund 92,034 327,640
Total Return Fund 34,042 132,192
The independent directors have contributed to a deferred fee agreement plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds. The
deferred amounts may be invested in the shares of any of the INVESCO Funds,
excluding the INVESCO Variable Investment Funds.
An affiliated company represents ownership by a Fund of at least 5% of the
voting securities of the issuer or may be affiliated with other INVESCO
investment companies during the period, as defined in the Act. A summary of the
transactions during the year ended May 31, 2003, in which the issuer was an
affiliate of the Fund, is as follows:
FS-30
REALIZED
PURCHASES SALES GAIN (LOSS) ON
------------------------------------------------------- INVESTMENT VALUE AT
AFFILIATE SHARES COST SHARES PROCEEDS SECURITIES 5/31/2003
- -------------------------------------------------------------------------------------------------------------
BALANCED FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 15,010,274 $ 15,010,274 15,010,274 $ 15,010,274 $ 0 --
CORE EQUITY FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 50,088,819 50,088,819 128,688,282 128,688,282 0 --
TOTAL RETURN FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 14,888,550 14,888,550 14,888,550 14,888,550 0 --
Dividend income from INVESCO Treasurer's Series Money Market Reserve Fund is
disclosed in the Statement of Operations.
NOTE 5 -- SECURITIES LOANED. The Funds have entered into a securities lending
agreement with the custodian. Under the terms of the agreement, the Funds
receive income, recorded monthly, after deduction of other amounts payable to
the custodian or to the borrower from lending transactions. In exchange for such
fees, the custodian is authorized to loan securities on behalf of the Funds,
against receipt of collateral at least equal in value to the value of securities
loaned. Cash collateral is invested by the custodian in the INVESCO Treasurer's
Series Money Market Reserve Fund or securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Fund bears the risk of any
deficiency in the amount of collateral available for return to a borrower due to
a loss in an approved investment. The securities loaned income is recorded in
the Statement of Operations. Of the securities lending income received for Total
Return Fund $15,284 was received from INVESCO Treasurer's Series Money Market
Reserve Fund. During the year ended May 31, 2003, there were no such securities
lending arrangements for Balanced and Core Equity Funds.
NOTE 6 -- INTERFUND BORROWING AND LENDING. Each Fund is party to an interfund
lending agreement between each Fund and other INVESCO sponsored mutual funds,
which permit it to borrow or lend cash, at rates beneficial to both the
borrowing and lending funds. Loans totaling 10% or more of a borrowing Fund's
total assets are collateralized at 102% of the value of the loan; loans of less
than 10% are unsecured. The Funds may borrow up to 10% of its total net assets
for temporary or emergency purposes. During the year ended May 31, 2003,
Balanced and Total Return Funds borrowed cash at a weighted average rate ranging
from 1.82% to 1.86% and interest expenses amounted to $1,456 and $4,049,
respectively. During that same period, Balanced, Core Equity and Total Return
Funds lent cash at a weighted average rate ranging from 1.49% to 2.01% and
interest income amounted to $194, $101,513 and $229, respectively. At May 31,
2003 Core Equity Fund had lent to INVESCO Sector Funds, Inc. - Energy and Health
Sciences Funds at an interest rate of 1.55%. The amount of the borrowing and the
related accrued interest are presented in the Statement of Assets and
Liabilities. On June 2, 2003, INVESCO Sector Funds, Inc. - Energy and Health
Sciences Funds paid the borrowing back to Core Equity Fund in full including
interest.
FS-31
NOTE 7 -- LINE OF CREDIT. Each Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the net assets at value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. During the
year ended May 31, 2003, there were no such borrowings for any Fund.
NOTE 8 -- CONTINGENT DEFERRED SALES CHARGE ("CDSC"). Class A shares may charge a
1.00% CDSC if a shareholder purchased $1,000,000 or more and redeemed these
shares within 18 months from the date of purchase. Effective November 15, 2002,
qualified plans investing in Class A shares may pay a 1.00% CDSC and Class K
shares may pay a 0.70% CDSC if a shareholder redeemed these shares within 12
months from the date of purchase. A CDSC is charged by Class B shares on
redemptions or exchanges of shares at a maximum of 5.00% beginning at the time
of purchase to 0.00% at the beginning of the seventh year. A 1.00% CDSC is
charged by Class C shares on redemptions or exchanges held thirteen months or
less. Shares acquired through reinvestment of dividends or other distributions
are not charged a CDSC. The CDSC may be reduced or certain sales charge
exceptions may apply. The CDSC is paid by the redeeming shareholder and
therefore it is not an expense of the Fund. For the year ended May 31, 2003, the
Distributor received the following CDSC from Class A, Class B, Class C and Class
K shareholders:
FUND CLASS A CLASS B CLASS C CLASS K
- --------------------------------------------------------------------------------------------
Balanced Fund $ 0 $ 106 $ 434 $ 0
Core Equity Fund 0 2,357 1,456 0
Total Return Fund 0 68 600 --
FS-32
NOTE 9 -- SHARE INFORMATION. Changes in fund share transactions during the year
ended May 31, 2003 and the year/period ended May 31, 2002 were as follows:
BALANCED FUND CORE EQUITY FUND TOTAL RETURN FUND
YEAR ENDED MAY 31 YEAR ENDED MAY 31 YEAR ENDED MAY 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002
(Note 1) (Note 1) (Note 1)
Shares Sold
Institutional Class 5,680,884 8,973,871 -- -- -- --
Investor Class 16,284,641 21,274,949 134,487,016 49,562,641 9,129,088 12,363,324
Class A 37,589 9,197 811,049 25,586 97,195 3,811
Class B 15,990 4,186 109,624 22,265 23,446 3,742
Class C 567,151 580,104 977,548 1,126,894 195,554 404,057
Class K 161,720 1,006,617 900,319 2,553,975 -- --
Shares Issued from
Reinvestment of Distributions
Institutional Class 368,173 354,117 -- -- -- --
Investor Class 483,306 963,572 2,317,437 13,026,257 1,980,593 2,193,619
Class A 795 90 5,018 124 1,053 44
Class B 509 37 557 113 754 17
Class C 280 1,369 0 29,820 1,004 724
Class K 5,180 17,628 2,620 63,627 -- --
====================================================================================================================================
23,606,218 33,185,737 139,611,188 66,411,302 11,428,687 14,969,338
Shares Repurchased
Institutional Class (2,147,935) (1,992,029) -- -- -- --
Investor Class (32,252,465) (33,417,240) (169,909,141) (84,345,529) (18,683,127) (24,729,012)
Class A (17,859) 0 (390,387) (4) (76,664) 0
Class B (172) 0 (9,405) 0 (1,218) 0
Class C (657,617) (801,596) (962,681) (1,065,563) (184,935) (392,568)
Class K (406,441) (126,023) (1,199,935) (130,138) -- --
====================================================================================================================================
(35,482,489) (36,336,888) (172,471,549) (85,541,234) (18,945,944) (25,121,580)
NET DECREASE IN
FUND SHARES (11,876,271) (3,151,151) (32,860,361) (19,129,932) (7,517,257) (10,152,242)
====================================================================================================================================
NOTE 10 -- SUBSEQUENT EVENTS. On June 9, 2003, the Board of Directors for
Balanced Fund ("Selling Fund") unanimously approved an Agreement and Plan of
Reorganization (the "Plan") pursuant to which the Selling Fund, would transfer
all of its assets and liabilities to Total Return Fund. The Plan is more fully
described in a proxy statment to be presented for shareholder consideration on
or around August 25, 2003.
FS-33
FINANCIAL HIGHLIGHTS
BALANCED FUND -- INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- --------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 13.64 $ 15.93 $ 17.74
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.21 0.29 0.35
Net Losses on Securities (Both Realized
and Unrealized) (0.83) (2.23) (1.50)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.62) (1.94) (1.15)
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.24 0.35(b) 0.66
================================================================================
Net Asset Value -- End of Period $ 12.78 $ 13.64 $ 15.93
================================================================================
TOTAL RETURN (4.52%) (12.20%) (6.59%)(c)
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 261,560 $ 226,167 $ 147,041
Ratio of Expenses to Average Net
Assets(d)(e) 0.97% 0.96% 1.01%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 1.61% 1.85% 2.16%(f)
Portfolio Turnover Rate 94% 87% 67%(g)
(a) From July 3, 2000, inception of Class, to May 31, 2001.
(b) Dividends and Distributions included a tax return of capital which
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) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the
period ended May 31, 2001. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.19%
(annualized) and ratio of net investment income to average net assets would
have 1.98% (annualized).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended May 31, 2001.
FS-34
BALANCED FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD YEAR
ENDED ENDED
YEAR ENDED MAY 31 MAY 31 JULY 31
- ---------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 13.79 $ 15.99 $ 17.18 $ 16.78 $ 15.71 $ 15.86
==================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.18 0.24 0.34 0.32 0.24 0.33
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.84) (2.22) (0.95) 0.92 1.73 1.50
==================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.66) (1.98) (0.61) 1.24 1.97 1.83
==================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.12 0.22(b) 0.58 0.84 0.90 1.98
==================================================================================================================================
Net Asset Value -- End of Period $ 13.01 $ 13.79 $ 15.99 $ 17.18 $ 16.78 $ 15.71
==================================================================================================================================
TOTAL RETURN (4.78%) (12.37%) (3.65%) 7.47% 13.12%(c) 12.90%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 537,543 $ 784,095 $ 1,087,540 $ 644,957 $ 324,838 $ 216,624
Ratio of Expenses to Average Net Assets(d)(e) 1.26% 1.22% 1.07% 1.15% 1.21%(f) 1.22%
Ratio of Net Investment Income to
Average Net Assets(e) 1.32% 1.63% 2.07% 1.98% 1.94%(f) 2.18%
Portfolio Turnover Rate 94% 87% 67% 89% 100%(c) 108%
(a) From August 1, 1998 to May 31, 1999.
(b) Dividends and Distributions included a tax return of capital which 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) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable, which is
before any expense offset arrangements (which may include custodian, distribution and transfer agent
fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year ended May 31, 2003. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would have been 1.31% and ratio of net investment
income to average net assets would have been 1.27%.
(f) Annualized
FS-35
FINANCIAL HIGHLIGHTS
BALANCED FUND -- CLASS A & CLASS B
- ----------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
- ----------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MAY 31 MAY 31 MAY 31 MAY 31
- ----------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 13.71 $ 14.45 $ 13.71 $ 14.45
==========================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.24 0.02 0.26 0.02
Net Losses on Securities (Both Realized and
Unrealized) (0.93) (0.62) (1.03) (0.64)
==========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.69) (0.60) (0.77) (0.62)
==========================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.40 0.14 0.51 0.12
==========================================================================================================
Net Asset Value -- End of Period $ 12.62 $ 13.71 $ 12.43 $ 13.71
==========================================================================================================
TOTAL RETURN(b) (4.88%) (4.19%)(c) (5.46%) (4.28%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 376 $ 127 $ 255 $ 58
Ratio of Expenses to Average Net Assets(d)(e) 1.34% 1.04%(f) 2.01% 1.77%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 1.21% 1.56%(f) 0.55% 1.01%(f)
Portfolio Turnover Rate 94% 87%(g) 94% 87%(g)
(a) From April 1, 2002, inception of Class, to May 31, 2002.
(b) The applicable sales charges for Class A or CDSC for Class B is not included in the Total Return
calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable,
which is before any expense offset arrangements (which may include custodian fees).
(e) Various expenses of each Class were voluntarily absorbed by IFG for the year ended May 31, 2003. If
such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have
been 2.51% for Class A and 4.45% for Class B and ratio of net investment income (loss) to average net
assets would have been 0.04% for Class A and (1.89%) for Class B.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2002.
FS-36
FINANCIAL HIGHLIGHTS
BALANCED FUND -- CLASS C
- --------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- --------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 13.81 $ 15.94 $ 17.05 $ 17.38
==================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.15 0.19 0.28 0.17
Net Losses on Securities (Both Realized
and Unrealized) (0.91) (2.27) (0.99) (0.25)
==================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.76) (2.08) (0.71) (0.08)
==================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.02 0.05 0.40 0.25
==================================================================================================
Net Asset Value -- End of Period $ 13.03 $ 13.81 $ 15.94 $ 17.05
==================================================================================================
TOTAL RETURN(b) (5.52%) (13.08%) (4.25%) (0.46%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 2,878 $ 4,296 $ 8,468 $ 2,134
Ratio of Expenses to Average Net
Assets(d)(e) 2.01% 2.00% 1.81% 1.77%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 0.58% 0.89% 1.36% 1.57%(f)
Portfolio Turnover Rate 94% 87% 67% 89%(g)
(a) From February 15, 2000, inception of Class, to May 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian
fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the years ended May 31,
2003 and 2002. If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 2.74% and 2.07%, respectively, and ratio of net investment
income (loss) would have been (0.15%) and 0.82%, respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2000.
FS-37
FINANCIAL HIGHLIGHTS
BALANCED FUND -- CLASS K
- ----------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- ----------------------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 13.64 $ 15.96 $ 17.36
==============================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.08 0.17 0.13
Net Losses on Securities (Both Realized and Unrealized) (0.76) (2.16) (1.39)
==============================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.68) (1.99) (1.26)
==============================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.08 0.33(b) 0.14
==============================================================================================
Net Asset Value -- End of Period $ 12.88 $ 13.64 $ 15.96
==============================================================================================
TOTAL RETURN (4.96%) (12.55%) (7.25%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 8,483 $ 12,257 $ 1
Ratio of Expenses to Average Net Assets(d)(e) 1.46% 1.39% 1.47%(f)
Ratio of Net Investment Income to Average Net
Assets(e) 1.12% 1.26% 1.65%(f)
Portfolio Turnover Rate 94% 87% 67%(g)
(a) From December 14, 2000, inception of Class, to May 31, 2001.
(b) Dividends and Distributions included a tax return of capital which 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) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian
fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year ended May 31, 2003 and
the period ended May 31, 2001. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 1.52% and 3.09% (annualized), respectively, and
ratio of net investment income to average net assets would have been 1.06% and 0.03% (annualized),
respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2001.
FS-38
FINANCIAL HIGHLIGHTS
CORE EQUITY FUND -- INVESTOR CLASS
- ---------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD YEAR
ENDED ENDED
YEAR ENDED MAY 31 MAY 31 JUNE 30
- ---------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.60 $ 13.91 $ 15.45 $ 15.85 $ 16.18 $ 15.31
==================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.16 0.22 0.24 0.30 0.38
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (1.17) (1.88) (0.31) 1.05 1.19 2.54
==================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.07) (1.72) (0.09) 1.29 1.49 2.92
==================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.10 0.59 1.45 1.69 1.82 2.05
==================================================================================================================================
Net Asset Value -- End of Period $ 10.43 $ 11.60 $ 13.91 $ 15.45 $ 15.85 $ 16.18
==================================================================================================================================
TOTAL RETURN (9.18%) (12.42%) (0.45%) 8.46% 10.31%(b) 20.55%
RATIOS
Net Assets -- End of Period ($000 Omitted) $2,518,441 $3,184,866 $4,120,025 $4,405,739 $4,845,036 $5,080,735
Ratio of Expenses to Average Net Assets(c)(d) 1.08% 1.02% 0.96% 0.93% 0.90%(e) 0.90%
Ratio of Net Investment Income to
Average Net Assets(d) 0.99% 1.27% 1.47% 1.52% 2.10%(e) 2.35%
Portfolio Turnover Rate 36% 25% 36% 50% 47%(b) 58%
(a) From July 1, 1998 to May 31, 1999.
(b) Based on operations for the period shown and, accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if
applicable, which is before any expense offset arrangements (which may include custodian, distribution
and transfer agent fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the period ended May 31, 1999
and the year ended June 30, 1998. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 0.91% (annualized) and 0.90%, respectively, and
ratio of net investment income to average net assets would have been 2.09% (annualized) and 2.35%,
respectively.
(e) Annualized
FS-39
FINANCIAL HIGHLIGHTS
CORE EQUITY FUND -- CLASS A & CLASS B
- ----------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MAY 31 MAY 31 MAY 31 MAY 31
- ----------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.56 $ 12.34 $ 11.54 $ 12.34
==========================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss)(c) 0.15 0.01 (0.00) 0.01
Net Losses on Securities (Both Realized and
Unrealized) (1.21) (0.71) (1.17) (0.73)
==========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.06) (0.70) (1.17) (0.72)
==========================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.15 0.08 0.10 0.08
==========================================================================================================
Net Asset Value -- End of Period $ 10.35 $ 11.56 $ 10.27 $ 11.54
==========================================================================================================
TOTAL RETURN(d) (9.09%) (5.67%)(e) (10.11%) (5.83%)(e)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 4,674 $ 297 $ 1,264 $ 258
Ratio of Expenses to Average Net Assets(f)(g) 1.23% 0.99%(h) 2.16% 1.62%(h)
Ratio of Net Investment Income (Loss) to Average
Net Assets(g) 0.92% 1.41%(h) (0.05%) 0.84%(h)
Portfolio Turnover Rate 36% 25%(i) 36% 25%(i)
(a) From April 1, 2002, inception of Class, to May 31, 2002.
(b) The per share information for Class B was computed based on average shares for the year ended May 31,
2003.
(c) Net Investment Loss for Class B aggregated less than $0.01 on a per share basis for the year ended
May 31, 2003.
(d) The applicable sales charges for Class A or CDSC for Class B is not included in the Total
Return calculation.
(e) Based on operations for the period shown and, accordingly, is not representative of a full
year.
(f) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Advisor, if
applicable, which is before any expense offset arrangements (which may include custodian fees).
(g) Various expenses of Class B were voluntarily absorbed by IFG for the year ended May 31, 2003. If
such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would
have been 2.57% and ratio of net investment loss to average net assets would have been (0.46%).
(h) Annualized
(i) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2002.
FS-40
FINANCIAL HIGHLIGHTS
CORE EQUITY FUND -- CLASS C
- --------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- --------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.51 $ 13.77 $ 15.32 $ 14.55
==================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.01) 0.05 0.18 0.12
Net Gains or (Losses) on Securities (Both
Realized and Unrealized) (1.16) (1.86) (0.38) 0.84
==================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.17) (1.81) (0.20) 0.96
==================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.45 1.35 0.19
==================================================================================================
Net Asset Value -- End of Period $ 10.34 $ 11.51 $ 13.77 $ 15.32
==================================================================================================
TOTAL RETURN(b) (10.17%) (13.17%) (1.22%) 6.66%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 8,912 $ 9,747 $ 10,404 $ 1,388
Ratio of Expenses to Average Net Assets(d) 2.20% 1.90% 1.73% 1.67%(e)
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.12%) 0.40% 0.75% 0.94%(e)
Portfolio Turnover Rate 36% 25% 36% 50%(f)
(a) From February 15, 2000, inception of Class, to May 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements
(which may include custodian fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2000.
FS-41
FINANCIAL HIGHLIGHTS
CORE EQUITY FUND -- CLASS K
- ----------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- ----------------------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.41 $ 13.84 $ 14.38
==============================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss) 0.01 0.20 (0.05)
Net Losses on Securities (Both Realized and Unrealized) (1.16) (1.98) (0.48)
==============================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.15) (1.78) (0.53)
==============================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.01 0.65 0.01
==============================================================================================
Net Asset Value -- End of Period $ 10.25 $ 11.41 $ 13.84
==============================================================================================
TOTAL RETURN (10.07%) (12.91%) (3.68%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 22,450 $ 28,372 $ 1
Ratio of Expenses to Average Net Assets(d)(e) 1.98% 1.18% 3.00%(f)
Ratio of Net Investment Income (Loss) to Average
Net Assets(e) 0.08% 1.08% (0.71%)(f)
Portfolio Turnover Rate 36% 25% 36%(g)
(a) From December 14, 2000, inception of Class, to May 31, 2001.
(b) The per share information was computed based on average shares for the year ended May 31,
2003.
(c) Based on operations for the period shown and, accordingly, is not representative
of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian
fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year ended May 31, 2003.
If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 2.63% and ratio of net investment loss to average net assets would have been
(0.57%).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2001.
FS-42
FINANCIAL HIGHLIGHTS
TOTAL RETURN FUND -- INVESTOR CLASS
- ---------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD YEAR
ENDED ENDED
YEAR ENDED MAY 31 MAY 31 AUGUST 31
- ---------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 24.28 $ 26.75 $ 27.74 $ 32.37 $ 28.16 $ 27.77
==================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.40 0.39 0.55 0.81 0.60 0.83
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (1.63) (1.74) (0.29) (3.47) 5.03 0.87
==================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.23) (1.35) 0.26 (2.66) 5.63 1.70
==================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 1.09 1.12 1.25 1.97 1.42 1.31
==================================================================================================================================
Net Asset Value -- End of Period $ 21.96 $ 24.28 $ 26.75 $ 27.74 $ 32.37 $ 28.16
==================================================================================================================================
TOTAL RETURN (4.85%) (5.13%) 1.08% (8.29%) 20.27%(b) 6.02%
RATIOS
Net Assets -- End of Period ($000 Omitted) $810,787 $1,080,197 $1,462,543 $2,326,899 $3,418,746 $2,561,016
Ratio of Expenses to Average Net Assets(c)(d) 1.26% 1.49% 1.27% 1.00% 0.83%(e) 0.79%
Ratio of Net Investment Income to
Average Net Assets(d) 1.90% 1.57% 1.98% 2.60% 2.61%(e) 2.82%
Portfolio Turnover Rate 45% 54% 76% 49% 7%(b) 17%
(a) From September 1, 1998 to May 31, 1999.
(b) Based on operations for the period shown, and accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable,
which is before any offset arrangements (which may include custodian, distribution and transfer agent fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the year ended May 31, 2003, the period
ended May 31, 1999 and the year ended August 31, 1998. If such expenses had not be voluntarily absorbed,
ratio of expenses to average net assets would have been 1.50%, 0.84% (annualized) and 0.80%, respectively,
and ratio of net investment income to average net assets would have been 1.66%, 2.60% (annualized) and 2.81%,
respectively.
(e) Annualized
FS-43
FINANCIAL HIGHLIGHTS
TOTAL RETURN FUND-- CLASS A & CLASS B
- ----------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MAY 31 MAY 31 MAY 31 MAY 31
- ----------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 24.08 $ 25.28 $ 24.08 $ 25.28
==========================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.63 0.03 0.54 0.02
Net Losses on Securities (Both Realized
and Unrealized) (1.89) (0.95) (1.94) (0.96)
==========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.26) (0.92) (1.40) (0.94)
==========================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 1.35 0.28 1.37 0.26
==========================================================================================================
Net Asset Value -- End of Period $ 21.47 $ 24.08 $ 21.31 $ 24.08
==========================================================================================================
TOTAL RETURN(b) (4.99%) (3.64%)(c) (5.54%) (3.76%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 546 $ 93 $ 570 $ 91
Ratio of Expenses to Average Net Assets(d)(e) 1.34% 1.18%(f) 2.01% 1.86%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 1.76% 2.11%(f) 1.13% 1.27%(f)
Portfolio Turnover Rate 45% 54%(g) 45% 54%(g)
(a) From April 1, 2002, inception of Class, to May 31, 2002.
(b) The applicable sales charges for Class A or CDSC for Class B is not included in the Total
Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian fees).
(e) Various expenses of each Class were absorbed by IFG for the year ended May 31, 2003. If such
expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have
been 1.94% for Class A and 3.33% for Class B and ratio of net investment income (loss) to average
net assets would have been 1.16% for Class A and (0.19%) for Class B.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2002.
FS-44
FINANCIAL HIGHLIGHTS
TOTAL RETURN FUND -- CLASS C
- --------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- --------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 23.60 $ 26.07 $ 27.30 $ 26.71
==================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.12 0.05 0.43 0.29
Net Gains or (Losses) on Securities (Both
Realized and Unrealized) (1.54) (1.71) (0.94) 0.87
==================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.42) (1.66) (0.51) 1.16
==================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.71 0.81 0.72 0.57
==================================================================================================
Net Asset Value -- End of Period $ 21.47 $ 23.60 $ 26.07 $ 27.30
==================================================================================================
TOTAL RETURN(b) (5.91%) (6.44%) (1.78%) 4.40%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 787 $ 591 $ 334 $ 10
Ratio of Expenses to Average Net
Assets(d)(e) 2.24% 2.59% 2.30% 2.94%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 0.89% 0.46% 0.84% 1.46%(f)
Portfolio Turnover Rate 45% 54% 76% 49%(g)
(a) From February 15, 2000, inception of Class, to May 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year ended May 31, 2003. If
such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would
have been 3.49%, and ratio of net investment loss to average net assets would have been (0.36%).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2000.
FS-45
APPENDIX II
MAY 31, 2003
ANNUAL REPORT
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
BALANCED FUND
CORE EQUITY FUND
TOTAL RETURN FUND
"WE ARE HOPING ALONG WITH MOST INVESTORS THAT THE END OF THE WAR IN IRAQ WILL
PAVE THE WAY FOR AN UPTURN IN CORPORATE SPENDING, BUT THE ECONOMIC LANDSCAPE
REMAINS CLOUDED AT THIS TIME."
SEE PAGE 7
[INVESCO ICON] INVESCO(R)
FELLOW SHAREHOLDER:
[PHOTOGRAPH OF RAY CUNNINGHAM OMITTED]
TAX CHANGES SPUR INTEREST IN DIVIDEND-PAYING STOCKS
During the 1990s, many investors regarded corporate dividend payments as an
inefficient use of capital that unnecessarily subjected the company's profits to
another level of taxation. Many growth stocks were rising rapidly, and the
importance of dividends seemed to take a back seat.
But prudent investors recognize that dividends can serve an important role in
their portfolios. Unlike stockholders of companies without dividends who rely on
the market to bid their holdings higher to realize a return on their investment,
stockholders of dividend-paying companies receive a return on their investments
that tends to be fairly reliable. And when the bear overtook the bull at the
turn of the millennium, the value of dividend-paying stocks was confirmed.
At the end of May 2003, investors in dividend-paying stocks received more good
news when Congress passed new legislation that altered the tax treatment of
dividends. Specifically, the new rules align the corporate dividend tax rate to
the lower capital gains rate. The new legislation made investors more cognizant
of dividend payments, as their after-tax value was raised significantly.
Consequently, in the weeks since the tax law's passage, dividend-paying stocks
received a strong technical boost as income-oriented investors rotated into the
group.
Although it appears the new law has been effectively priced into the market,
investors' rediscovered focus on dividends could continue to support
dividend-paying stocks in the future. Until the tax amendment expires in 2008,
it's likely that corporate dividends will stay on the market's radar screen for
a while.
Our combination funds invest in dividend-paying stocks, and you'll find current
updates on these funds within this report. If you would like more information
about the new tax law, I encourage you to contact your financial advisor, who
can provide you with additional information as well as offer insight into how
the new rules affect you.
Sincerely,
/s/Ray Cunningham
Ray Cunningham
President and CEO, INVESCO Funds Group, Inc.
INVESCO MUTUAL FUNDS PROXY VOTING POLICY
The Boards of Directors of the INVESCO Mutual Funds have expressly delegated to
INVESCO Funds Group, Inc. ("INVESCO") the responsibility to vote proxies related
to the securities held in the funds' portfolios. Under this authority, INVESCO
is required by the Boards of Directors to act solely in the interests of
shareholders of the funds. Other INVESCO clients who have delegated proxy voting
authority to INVESCO similarly require that proxy votes be cast in the best
interests of the clients.
On behalf of the funds and its other clients, INVESCO acquires and holds a
company's securities in the portfolios it manages in the expectation that they
will be a good investment and appreciate in value. As such, INVESCO votes
proxies with a focus on the investment implications of each matter upon which a
vote is solicited.
A copy of the description of the funds' proxy voting policy and procedures, as
administered by INVESCO, is available without charge by calling 1-800-525-8085.
It is also available on the Web site of the Securities and Exchange Commission,
at www.sec.gov, and on the funds' Web site, invescofunds.com.
TABLE OF CONTENTS
LETTER FROM The PRESIDENT & CEO.............1
FUND REPORTS................................3
MARKET HEADLINES...........................12
INVESTMENT HOLDINGS........................13
FINANCIAL STATEMENTS.......................26
NOTES TO FINANCIAL STATEMENTS..............35
FINANCIAL HIGHLIGHTS.......................42
OTHER INFORMATION..........................54
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
TOTAL RETURN
PERIODS ENDED 5/31/03*
Manager's
Cumulative 10 years+ or Report
Fund (Inception) 6 Months 1 year 5 years+ Since Inception^ Page #
- ----------------------------------------------------------------------------------------------------------------
BALANCED FUND - CLASS A (4/02)
WITH SALES CHARGE (1.74%) (10.13%) N/A (12.01%)^+ 3
BALANCED FUND - CLASS B (4/02) WITH CDSC (1.26%) (10.46%) N/A (11.69%)^+ 3
BALANCED FUND - CLASS C (2/00) WITH CDSC 2.66% (6.52%) N/A (7.17%)^+ 3
BALANCED FUND - CLASS K (12/00) 3.98% (4.96%) N/A (10.03%)^+ 3
BALANCED FUND - INSTITUTIONAL CLASS (7/00) 4.20% (4.52%) N/A (8.05%)^+ 3
BALANCED FUND - INVESTOR CLASS (12/93) 4.14% (4.78%) (0.22%) 8.72%^+ 3
CORE EQUITY FUND - CLASS A(4/02)
WITH SALES CHARGE (1.84%) (14.07%) N/A (16.50%)^+ 6
CORE EQUITY FUND - CLASS B(4/04) WITH CDSC (1.87%) (15.11%) N/A (16.83%)^+ 6
CORE EQUITY FUND - CLASS C(2/00) WITH CDSC 1.99% (11.17%) N/A (5.79%)^+ 6
CORE EQUITY FUND - CLASS K(12/00) 3.12% (10.07%) N/A (10.82%)^+ 6
CORE EQUITY FUND - INVESTOR CLASS(2/60) 3.65% (9.18%) (0.83%) 7.36% 6
TOTAL RETURN FUND-CLASS A(4/02)
WITH SALES CHARGE (3.13%) (10.21%) N/A (11.66%)^+ 9
TOTAL RETURN FUND - CLASS B(4/02) WITH CDSC (2.78%) (10.54%) N/A (11.33%)^+ 9
TOTAL RETURN FUND - CLASS C(2/00) WITH CDSC 1.19% (6.91%) N/A (3.06%)^+ 9
TOTAL RETURN FUND - INVESTOR CLASS (9/87) 2.58% (4.85%) (1.58%) 7.11% 9
*PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY BE
WORTH MORE OR LESS THAN WHEN PURCHASED. THE FUNDS' CLASS A PERFORMANCE REFLECTS
THE MAXIMUM SALES CHARGE OF 5.50%. THE FUNDS' CLASS B AND CLASS C PERFORMANCE
REFLECTS THE DEDUCTION OF THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE (CDSC)
FOR THE PERIODS SHOWN. THE CDSC ON CLASS B SHARES DECLINES FROM 5% BEGINNING AT
THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE SEVENTH YEAR. THE CDSC OF
CLASS C SHARES IS 1% FOR THE FIRST 13 MONTHS AFTER PURCHASE. THE PERFORMANCE OF
THE FUND'S INVESTOR CLASS, INSTITUTIONAL CLASS, CLASS A, CLASS B, CLASS C, AND
CLASS K SHARES WILL DIFFER DUE TO THE DIFFERENT SALES CHARGE STRUCTURES AND
EXPENSES. INVESTOR CLASS SHARES ARE CLOSED TO NEW INVESTORS AND ARE OFFERED TO
INVESTORS GRANDFATHERED AS OF APRIL 1, 2002. PERFORMANCE INFORMATION PROVIDED IN
THIS REPORT DOES NOT REFLECT THE DEDUCTION OF TAXES SHAREHOLDERS PAY ON FUND
DISTRIBUTIONS OF THE REDEMPTION OF FUND SHARES.
+ AVERAGE ANNUALIZED
^ NOT ANNUALIZED
THE INDUSTRIES AND/OR SECTORS USED FOR PORTFOLIO SECURITIES CLASSIFICATION THAT
MAY BE USED THROUGHOUT THIS REPORT ARE THE GLOBAL INDUSTRY CLASSIFICATION
STANDARD WHICH WAS DEVELOPED BY AND IS THE EXCLUSIVE PROPERTY AND A SERVICE MARK
OF MORGAN STANLEY CAPITAL INTERNATIONAL INC. AND STANDARD & POOR'S.(R)
YOUR FUND'S REPORT
BALANCED FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
Despite intermittent rallies, every sector represented in the S&P 500 Index(R)
finished the year ended May 31, 2003, lower. Corporate accounting scandals, an
uncertain economic climate, rising energy prices, and war between the U.S. and
Iraq were some of the factors dampening investor confidence.
On a positive note, we witnessed a dramatic improvement in stock performance
during the final three months of the period, as investors adopted a more
positive outlook once the war in Iraq was essentially over. Stronger corporate
earnings for the first quarter of 2003 and Congress's passage of a stimulus plan
also provided some relief, although the economic picture remained hazy.
- --------------------------------------------------------------------------------
BALANCED FUND --
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 5/31/03
- --------------------------------------------------------------------------------
Citigroup Inc.......................2.24%
JP Morgan Chase & Co................2.22%
Exxon Mobil.........................1.73%
Microsoft Corp......................1.62%
Pfizer Inc..........................1.57%
Anheuser-Busch Cos..................1.56%
Wells Fargo & Co....................1.52%
Amgen Inc...........................1.51%
General Electric....................1.50%
Coca-Cola Co........................1.47%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
In keeping with the broad market's decline, the fund's Investor Class shares
lost 4.78% for the 12-month period ended May 31, 2003. In comparison, the S&P
500 Index(R) declined by 8.05% and the more defensive Lehman Government/Credit
Bond Index gained 14.57% over the same period. (Of course, past performance is
not a guarantee of future results.)(1),(2) For performance of other share
classes, please see page 2.
DIVERSIFICATION WAS THE KEY TO OUTPERFORMANCE
Although disappointed with the fund's loss, we were pleased to outperform the
S&P 500 Index(R) for the period. This was achieved thanks to the fund's
diversified approach, which led us to invest approximately 30% of the portfolio
in fixed-income securities. These holdings performed well on an absolute basis,
as they appealed to investors during an essentially bearish year. Specifically,
the fund's Treasury securities, benefiting from low interest rates and viewed by
investors as a safe haven in an otherwise volatile landscape, enjoyed a
substantial gain. Our mortgage-backed securities, utility bonds, and industrial
bonds also provided a significant performance boost.
On the equities side, our overweight positions in the health care and energy
sectors worked to our advantage, as these areas outperformed the broad market
over the course of the year. In addition, strong stock selection played a role
in the fund's relative success with regard to these sectors. Individual
outperformers included biotech leader Amgen Inc, and medical device company
Boston Scientific. Amgen's products, including the anemia treatment Aranesp and
arthritis medication Enbrel, continued to fuel strong earnings, while Boston
Scientific was rewarded by investors for strides made in the promising
drug-coated stent market. Within energy, Apache Corp, Baker Hughes and BP PLC
all advanced on the heels of rising energy prices and low oil and natural gas
inventories.
FINANCIAL SERVICES, CONSUMER DISCRETIONARY HOLDINGS LAG
Many of the fund's financial services and consumer discretionary stocks hindered
performance during the fiscal year. Not surprisingly, those financial stocks
sensitive to market conditions, such as investment banks and asset managers,
struggled for most of the period. For example, JP Morgan Chase & Co was stymied
by the general market malaise in 2002 and early 2003, as well as by negative
headlines questioning investment banks' research practices. However, the company
staged an impressive rebound from March through May, fully participating in the
market rally that took hold during those months. Gains logged during this
upswing helped offset earlier losses, but JP Morgan still lost ground overall
for the year.
Our most significant detractor from performance among our consumer discretionary
holdings was home improvement retailer Home Depot, which we sold from the
portfolio but not before incurring a loss. Although the company's fundamentals
remained relatively strong throughout the year, it was hindered by negative
reports from Wall Street.
LINE GRAPH: INVESCO BALANCED FUND - INVESTOR CLASS GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Balanced
Fund - Investor Class to the value of a $10,000 investment in the S&P 500
Index(R)(2) and to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(2), assuming in each case reinvestment of all
dividends and capital gain distributions, for the period since inception (12/93)
through 5/31/03.
INVESCO BALANCED FUND - LEHMAN GOVERNMENT/
INVESTOR CLASS S&P 500 INDEX(2) CREDIT BOND INDEX(2)
12/93 $10,000 $10,000 $10,000
5/94 $10,262 $10,024 $ 9,631
5/95 $11,929 $12,045 $10,749
5/96 $15,854 $15,467 $11,190
5/97 $18,264 $20,020 $12,074
5/98 $22,381 $26,158 $13,460
5/99 $25,618 $31,660 $14,006
5/00 $27,530 $34,974 $14,274
5/01 $26,525 $31,284 $16,110
5/02 $23,244 $26,955 $17,374
5/03 $22,134 $24,779 $19,906
LINE GRAPH: INVESCO BALANCED FUND - INSTITUTIONAL CLASS GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Balanced
Fund - Institutional Class to the value of a $10,000 investment in the S&P 500
Index(R)(2) and to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(2), assuming in each case reinvestment of all
dividends and capital gain distributions, for the period since inception (7/00)
through 5/31/03.
INVESCO BALANCED FUND - LEHMAN GOVERNMENT/
INSTITUTIONAL CLASS S&P 500 INDEX(2) CREDIT BOND INDEX(2)
7/00 $10,000 $10,000 $10,000
5/01 $ 9,341 $ 8,730 $11,060
5/02 $ 8,202 $ 7,522 $11,928
5/03 $ 7,831 $ 6,915 $13,666
LINE GRAPH: INVESCO BALANCED FUND - CLASS A & CLASS B GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Balanced
Fund - Class A and the value of a $10,000 investment in INVESCO Balanced Fund -
Class B to the value of a $10,000 investment in the S&P 500 Index(R)(2) and to
the value of a $10,000 investment in the Lehman Government/Credit Bond Index(2),
assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Balanced Fund - Class A and Class B,
inclusion of front-end sales charge and contingent deferred sales charge,
respectively, for the period since inception (4/02) through 5/31/03.
INVESCO BALANCED INVESCO BALANCED LEHMAN GOVERNMENT/
FUND - CLASS A FUND - CLASS B S&P 500 INDEX(2) CREDIT BOND INDEX(2)
4/02 $10,000 $10,000 $10,000 $10,000
5/02 $ 9,055 $ 9,572 $ 9,325 $10,288
5/03 $ 8,613 $ 8,650 $ 8,572 $11,787
MEET THE NEW MANAGEMENT TEAM
(AS OF 7/1/03)
KENNETH R. BOWLING, CFA
AS DIRECTOR OF U.S. FIXED-INCOME, KEN HAS BEEN WITH THE INVESCO FIXED-INCOME
DIVISION SINCE 1993. KEN EARNED A BACHELOR OF SCIENCE DEGREE IN MECHANICAL
ENGINEERING AND A MASTERS IN ENGINEERING FROM THE UNIVERSITY OF LOUISVILLE. HE
IS ALSO A CHARTERED FINANCIAL ANALYST CHARTERHOLDER AND A MEMBER OF THE
LOUISVILLE SOCIETY OF FINANCIAL ANALYSTS. BEFORE JOINING INVESCO, HE WAS A LEAD
ENGINEER WITH GENERAL ELECTRIC, AND A PROJECT ENGINEER WITH GENERAL MOTORS.
MICHAEL C. HEYMAN, CFA
MICK IS A MEMBER OF THE INVESCO-NAM PORTFOLIO GROUP AND HAS MORE THAN 25 YEARS
OF INVESTMENT MANAGEMENT EXPERIENCE. HE IS A GRADUATE OF NORTHWESTERN
UNIVERSITY, A CHARTERED FINANCIAL ANALYST CHARTERHOLDER, AND A MEMBER OF THE
LOUISVILLE SOCIETY OF FINANCIAL ANALYSTS.
STEPHEN M. JOHNSON, CFA
STEVE JOHNSON JOINED INVESCO IN MAY OF 1991. AS CHIEF INVESTMENT OFFICER OF
INVESCO FIXED-INCOME, HE IS RESPONSIBLE FOR ALL PHASES OF THE FIXED-INCOME
INVESTMENT PROCESS. STEVE EARNED A BACHELOR OF SCIENCE DEGREE IN PETROLEUM
ENGINEERING FROM THE UNIVERSITY OF KANSAS, AN MBA FROM RICE UNIVERSITY, AND IS A
CHARTERED FINANCIAL ANALYST CHARTERHOLDER. HE BEGAN HIS INVESTMENT CAREER IN
1986, AND PRIOR TO JOINING INVESCO, HE WORKED AS A FIXED-INCOME PORTFOLIO
MANAGER FOR THE CAPITAL MANAGEMENT DIVISION OF PNC BANK.
MARK W. LATTIS, CFA
MARK IS A MEMBER OF THE INVESCO-NAM PORTFOLIO GROUP AND HAS MORE THAN 10 YEARS
OF INVESTMENT MANAGEMENT EXPERIENCE. AFTER COMPLETING HIS UNDERGRADUATE STUDIES
AT THE UNIVERSITY OF LOUISVILLE, MARK EARNED AN MBA FROM THE UNIVERSITY OF
KENTUCKY. HE IS A CHARTERED FINANCIAL ANALYST CHARTERHOLDER, AND CURRENTLY
SERVES AS PRESIDENT OF THE LOUISVILLE SOCIETY OF FINANCIAL ANALYSTS.
RICHARD J. KING, CFA
RICH JOINED INVESCO'S FIXED-INCOME INVESTMENT MANAGEMENT TEAM IN 2000, BRINGING
16 YEARS OF FIXED-INCOME PORTFOLIO MANAGEMENT EXPERIENCE. HE IS A GRADUATE OF
THE OHIO STATE UNIVERSITY WHERE HE EARNED A BACHELOR OF SCIENCE DEGREE IN
BUSINESS ADMINISTRATION. HE HAS PASSED THE CERTIFIED PUBLIC ACCOUNTANT
EXAMINATION, AND IS A CHARTERED FINANCIAL ANALYST CHARTERHOLDER. PRIOR TO
INVESCO, RICH SERVED AS CHAIRMAN OF THE CORE SECTOR GROUP OF CRITERION
INVESTMENT MANAGEMENT, AND WAS ALSO A MANAGING DIRECTOR AND PORTFOLIO MANAGER
WITH BEAR STEARNS ASSET MANAGEMENT.
ECONOMIC DATA IMPROVING, STOCKS TRENDING HIGHER
We finished the fiscal year with approximately 30% of the portfolio's assets
allocated to fixed-income securities, 66% devoted to stocks, and the remainder
held in cash.
The newly passed tax relief package should help the economy, and the most recent
figures on growth in the manufacturing sector (released by the Institute for
Supply Management) show improvement. Furthermore, given where Treasury yields
currently are, we believe equity valuations can be supported. Nevertheless, we
believe that the market will need to see more positive data on the economy for
the rally to continue.
REPORTED BY FORMER FUND MANAGERS CHARLES P. MAYER (EQUITY), PETER M. LOVELL
(EQUITY), AND RICHARD R. HINDERLIE (FIXED-INCOME). AS OF 7/1/03, THE FUND HAS
BEEN MANAGED BY KENNETH R. BOWLING, MICHAEL C. HEYMAN, STEPHEN M. JOHNSON, MARK
W. LATTIS, AND RICHARD J. KING.
PIE CHART: BALANCED FUND
SECTOR BREAKDOWN
AS OF 5/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
U.S. Government.....................23.37%
Financials..........................16.13%
Health Care.........................12.66%
Information Technology..............12.45%
Industrials......................... 8.03%
Consumer Staples.................... 5.44%
Consumer Discretionary.............. 4.80%
Utilities........................... 3.96%
Energy.............................. 3.94%
Materials........................... 3.56%
Telecommunication Services.......... 1.64%
Net Cash & Cash Equivalents..........4.02%
LINE GRAPH: INVESCO BALANCED FUND - CLASS C GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Balanced
Fund - Class C to the value of a $10,000 investment in the S&P 500 Index(R)(2)
and to the value of a $10,000 investment in the Lehman Government/Credit Bond
Index(2), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Balanced Fund - Class C, inclusion of
contingent deferred sales charge, for the period since inception (2/00) through
5/31/03.
LEHMAN GOVERNMENT/
INVESCO BALANCED FUND - CLASS C S&P 500 INDEX(2) CREDIT BOND INDEX(2)
2/00 $10,000 $10,000 $10,000
5/00 $ 9,954 $10,429 $10,086
5/01 $ 9,530 $ 9,329 $11,383
5/02 $ 8,284 $ 8,038 $12,277
5/03 $ 7,826 $ 7,389 $14,065
LINE GRAPH: INVESCO BALANCED FUND - CLASS K GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Balanced
Fund - Class K to the value of a $10,000 investment in the S&P 500 Index(R)(2)
and to the value of a $10,000 investment in the Lehman Government/Credit Bond
Index(2), assuming in each case reinvestment of all dividends and capital gain
distributions, for the period since inception (12/00) through 5/31/03.
LEHMAN GOVERNMENT/
INVESCO BALANCED FUND - CLASS K S&P 500 INDEX(2) CREDIT BOND INDEX(2)
12/00 $10,000 $10,000 $10,000
5/01 $ 9,275 $ 9,563 $10,301
5/02 $ 8,111 $ 8,239 $11,110
5/03 $ 7,709 $ 7,575 $12,728
(1)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEXES DO NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED THEIR PERFORMANCE.
(2)THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET, AND THE LEHMAN GOVERNMENT/CREDIT BOND
INDEX IS AN UNMANAGED INDEX REFLECTING PERFORMANCE OF THE LONG-TERM FIXED-INCOME
MARKET. THE INDEXES ARE NOT MANAGED; THEREFORE, THEIR PERFORMANCE DOES NOT
REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND INCLUDING
FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET
INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
YOUR FUND'S REPORT
CORE EQUITY FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
The annual period ended May 31, 2003, was a volatile one for stocks, as
investors waited anxiously for signs of economic recovery and geopolitical
stability. During the early part of the year, the market was still mired in
corporate scandals -- a situation that began to right itself in August when CEOs
of larger firms were required to certify their financial statements. Although
investors took some comfort in this positive development, they were soon faced
with new worries. Among these were rising oil and gas prices, North Korea's
emergence as a nuclear threat, the trepidation-filled anniversary of 9/11, and
the growing realization that we would be going to war against the regime in
Iraq. Against this backdrop, consumer confidence plunged.
As it happened, the war (which began in mid-March after months of stalled
diplomatic efforts) was relatively short and successful, and investors' outlook
had improved dramatically by the end of March. This turnaround in sentiment
sparked a rally during the remaining months of the period. The rebound was also
fueled by the passage of President Bush's economic stimulus package, a plan
including a highly anticipated reduction in taxes on stock dividends.
In spite of the period's late rally, all of the major stock indexes retreated
over the course of the period. In this environment, the value of Core Equity
Fund-Investor Class shares declined 9.18% for the 12-month period ended May 31,
2003. This return underperformed the fund's benchmark, the S&P 500 Index,(R)
which dropped 8.05%. (Of course, past performance is not a guarantee of future
results.)(3),(4) For performance of other share classes, please see page 2.
EFFECTIVE TECH STRATEGY BENEFITS FUND
Although every sector of the S&P 500 Index(R) declined during the past fiscal
year, some areas fared better than others. With regard to the fund, strong stock
selection within the energy, consumer staples, industrials, and technology
sectors proved beneficial.
Our approach to the technology sector was particularly effective. At the
beginning of the period, the fund's tech weighting was half that of the S&P
500,(R) but as summer progressed, we selectively increased our exposure. By
focusing on quality technology companies that had fallen to attractive valuation
levels, we were ideally positioned when the rally unfolded during the final
months of the period. Indeed, technology companies were among the rally's
leaders, and several holdings rose off their lows to post impressive gains. For
example, Nokia Corp advanced as the wireless market strengthened, and
Hewlett-Packard Co moved higher as investors gained conviction that the
company's merger with Compaq would be successful.
- --------------------------------------------------------------------------------
CORE EQUITY FUND --
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 5/31/03
- --------------------------------------------------------------------------------
Anheuser-Busch Cos..................3.09%
Exxon Mobil.........................2.93%
JP Morgan Chase & Co................2.85%
Pfizer Inc..........................2.82%
Gillette Co.........................2.63%
Citigroup Inc.......................2.52%
Target Corp.........................2.44%
McGraw-Hill Cos.....................2.25%
Intel Corp..........................2.15%
Charter One Financial...............2.07%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
Our overweight position relative to the index in energy stocks also worked to
the fund's advantage, as energy was one of the better-performing areas of the
market during the year. Even following the conclusion of the war in Iraq, energy
prices remained relatively strong, bucking expectations for a sharp drop-off.
Furthermore, Federal Reserve Chairman Alan Greenspan singled out low inventories
of natural gas as "a serious problem" late in the period, directing investors'
attention to the supply/demand issue in the gas industry and causing energy
stocks in general to rise. One top performer was fund holding Apache Corp, which
enjoyed a sharp gain during the year thanks to the favorable conditions as well
as a successful drilling program and sound acquisitions.
LINE GRAPH: INVESCO CORE EQUITY FUND - INVESTOR CLASS GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Core
Equity Fund - Investor Class to the value of a $10,000 investment in the S&P 500
Index(R)(4), assuming in each case reinvestment of all dividends and capital
gain distributions, for the ten-year period ended 5/31/03.
INVESCO Core Equity Fund - Investor Class S&P 500 Index(R)(4)
5/93 $10,000 $10,000
5/94 $10,638 $10,425
5/95 $11,821 $12,527
5/96 $14,032 $16,086
5/97 $17,142 $20,821
5/98 $21,202 $27,205
5/99 $23,686 $32,926
5/00 $25,688 $36,373
5/01 $25,573 $32,536
5/02 $22,396 $28,033
5/03 $20,339 $25,771
MIXED PERFORMANCE FROM FINANCIALS
Overall, the fund's overweight position relative to the index in financial
services stocks was a disadvantage, as many financial stocks lagged during the
period. For example, insurer Allmerica Financial (no longer a fund holding) and
Janus Capital Group both endured steep declines this past fiscal year -- victims
of the struggling stock market. However, other financial stocks flourished, such
as Lehman Brothers Holdings and Wachovia Corp. Lehman Brothers responded well to
the friendly environment for fixed-income securities, as Lehman conducts a
significant portion of its business in this arena. Wachovia is a more defensive
financial holding that appealed to bearish investors during the majority of the
year and was also helped by its smooth merger with First Union.
In addition, we were disappointed by some of our consumer discretionary
holdings, which underperformed as a group. One of the largest detractors during
the period was General Motors, which we sold from the portfolio. GM was plagued
by concerns over its pension program as well as indications that future auto
sales would likely be weak given the high incentive levels (such as zero percent
financing) already used to lure consumers into showrooms throughout the summer
and fall.
We allocated a minimal portion of assets to bonds during the period, and
therefore were unable to fully capitalize on the strength from fixed-income
markets over the course of the year.
POSITIONED FOR A RECOVERY
In general, the portfolio remains positioned for a gradual recovery. We are
hoping along with most investors that the end of the war in Iraq will pave the
way for an upturn in corporate spending, but the economic landscape remains
clouded at this time. As we approach the end of the second quarter, we will be
looking for improved earnings. We will be reducing holdings where valuations
have become stretched, while focusing on those companies that we believe can
continue to deliver strong earnings.
MEET THE NEW MANAGEMENT TEAM
(AS OF 7/1/03)
MICHAEL C. HEYMAN, CFA
MICK IS A MEMBER OF THE INVESCO-NAM PORTFOLIO GROUP AND HAS MORE THAN 25 YEARS
OF INVESTMENT MANAGEMENT EXPERIENCE. HE IS A GRADUATE OF NORTHWESTERN
UNIVERSITY, A CHARTERED FINANCIAL ANALYST CHARTERHOLDER, AND A MEMBER OF THE
LOUISVILLE SOCIETY OF FINANCIAL ANALYSTS.
SEAN D. KATOF, CFA
SEAN KATOF IS A VICE PRESIDENT OF INVESCO FUNDS GROUP. HE RECEIVED A BSBA FROM
THE UNIVERSITY OF COLORADO AT BOULDER AND AN MS IN FINANCE FROM THE UNIVERSITY
OF COLORADO AT DENVER. SEAN BEGAN HIS INVESTMENT CAREER IN 1994 AND IS A
CHARTERED FINANCIAL ANALYST CHARTERHOLDER.
MARK W. LATTIS, CFA
MARK IS A MEMBER OF THE INVESCO-NAM PORTFOLIO GROUP AND HAS MORE THAN 10 YEARS
OF INVESTMENT MANAGEMENT EXPERIENCE. AFTER COMPLETING HIS UNDERGRADUATE STUDIES
AT THE UNIVERSITY OF LOUISVILLE, MARK EARNED AN MBA FROM THE UNIVERSITY OF
KENTUCKY. HE IS A CHARTERED FINANCIAL ANALYST CHARTERHOLDER, AND CURRENTLY
SERVES AS PRESIDENT OF THE LOUISVILLE SOCIETY OF FINANCIAL ANALYSTS.
JEFFREY G. MORRIS, CFA
JEFF MORRIS, VICE PRESIDENT OF INVESCO FUNDS GROUP, RECEIVED A BS FROM COLORADO
STATE UNIVERSITY AND AN MS FROM UNIVERSITY OF COLORADO-DENVER. JEFF IS A
CHARTERED FINANCIAL ANALYST CHARTERHOLDER AND BEGAN HIS INVESTMENT CAREER IN
1991.
REPORTED BY FORMER FUND MANAGERS CHARLES P. MAYER AND CURRENT FUND MANAGER
JEFFREY G. MORRIS. AS OF 7/1/03, THE FUND HAS BEEN MANAGED BY MICHAEL C. HEYMAN,
SEAN KATOF, MARK W. LATTIS, AND JEFFREY G. MORRIS.
LINE GRAPH: INVESCO CORE EQUITY FUND - CLASS A & CLASS B GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Core
Equity Fund - Class A and the value of a $10,000 investment in INVESCO Core
Equity Fund - Class B to the value of a $10,000 investment in the S&P 500
Index(R)(4), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the cases of INVESCO Core Equity Fund - Class A and
Class B, inclusion of front-end sales charge and contingent deferred sales
charge, respectively, for the period since inception (4/02) through 5/03/03.
INVESCO Core Equity INVESCO Core Equity
Fund - Class A Fund - Class B S&P 500 Index(R)(4)
4/02 $10,000 $10,000 $10,000
5/02 $ 8,913 $ 9,417 $ 9,325
5/03 $ 8,103 $ 8,065 $ 8,572
LINE GRAPH: INVESCO CORE EQUITY FUND - CLASS C GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Core
Equity Fund - Class C to the value of a $10,000 investment in the S&P 500
Index(R)(4), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the case of INVESCO Core Equity Fund - Class C,
inclusion of contingent deferred sales charge, for the period since inception
(2/00) through 5/31/03.
INVESCO Core Equity Fund - Class C S&P 500 Index(R)(4)
2/00 $10,000 $10,000
5/00 $10,666 $10,429
5/01 $10,536 $ 9,329
5/02 $ 9,148 $ 8,038
5/03 $ 8,218 $ 7,389
LINE GRAPH: INVESCO CORE EQUITY FUND - CLASS K GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Core
Equity Fund - Class K to the value of a $10,000 investment in the S&P 500
Index(R)(4), assuming in each case reinvestment of all dividends and capital
gain distributions, for the period since inception (12/00) through 5/31/03.
INVESCO Core Equity Fund - Class K S&P 500 Index(R)(4)
12/00 $10,000 $10,000
5/01 $ 9,632 $ 9,563
5/02 $ 8,388 $ 8,239
5/03 $ 7,543 $ 7,575
(3)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEXES DO NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED THEIR PERFORMANCE.
(4)THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
PIE CHART: CORE EQUITY FUND
SECTOR BREAKDOWN
AS OF 5/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Financials..........................22.23%
Information Technology..............13.56%
Industrials.........................11.37%
Consumer Staples....................10.49%
Energy.............................. 9.74%
Consumer Discretionary.............. 9.42%
Health Care......................... 8.35%
Materials........................... 5.48%
Telecommunications Services......... 2.95%
Utilities........................... 2.44%
Net Cash & Cash Equivalents......... 3.97%
YOUR FUND'S REPORT
TOTAL RETURN FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
All three of the major indexes measuring stock market performance retreated
during the 12-month period ended May 31, 2003. For the majority of the year,
investors were assailed by one concern after the next, from news of corporate
accounting fraud, to rising oil prices, to the war in Iraq and the ongoing
threat of terrorism. Additionally, there were few signs of improvement in the
economy, with consumer confidence dropping dramatically and the Institute for
Supply Management's monthly reports on the manufacturing sector showing
stagnation over the course of the year.
- --------------------------------------------------------------------------------
TOTAL RETURN FUND --
Top 10 COMMON STOCK HOLDINGS
% of Total Net Assets as of 5/31/03
- --------------------------------------------------------------------------------
Target Corp.........................2.47%
Anheuser-Busch Cos..................2.38%
Pfizer Corp.........................2.38%
Wells Fargo & Co....................2.26%
Lehman Brothers Holdings............2.24%
General Electric....................2.14%
Verizon Communications..............2.08%
Citigroup Inc.......................2.01%
Exxon Mobil.........................1.98%
Bank of America.....................1.97%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
However, when the war proved to be shorter than many had anticipated, the market
staged an impressive rally from March through May, gaining the most ground in
April. Indeed, hopes for a recovery blossomed during this latter part of the
fiscal year, as investors were able to turn their attention from geopolitical
events to better-than-expected first-quarter earnings reports. Nevertheless, the
rally was not enough to boost the stock market's annual return into positive
territory.
Against this backdrop, the fund's diversification across asset classes proved
beneficial, as defensive-minded investors rewarded bonds during the year. For
the 12-month period ended May 31, 2003, Total Return Fund-Investor Class shares
declined 4.85%, compared to an 8.05% loss for the S&P 500 Index.(R) The Lehman
Government/Credit Bond Index, however, gained 14.57% over the same period. (Of
course, past performance is no guarantee of future results.)(5),(6) For
performance of other share classes, please see page 2.
EXPOSURE TO FIXED-INCOME MARKETS PROVIDES BALLAST
With equity markets so volatile, investors turned to fixed-income securities for
stability. Bond investors originally feared that a Federal Reserve tightening
cycle would take hold by 2003, but with the economy's health remaining in
question and the possibility of deflation increasingly becoming a concern, the
central bank opted to remain open to more easing, as evidenced by a rate cut of
50 basis points in November. Given this turn of events, Treasuries outperformed.
And, with its substantial allocation in highly liquid fixed-income securities,
the fund benefited.
Pockets of strength on the equities side of the portfolio also played a part in
the fund's outperformance of the S&P 500 Index.(R) Although underweight relative
to the index in the health care sector, strong stock selection in this area
served us well. For example, Pharmacia Corp and Merck & Co both gained ground
over the past six months. Investors responded positively to Pfizer's acquisition
of Pharmacia, and Merck garnered favor after announcing that its earnings growth
was expected to increase significantly in 2003 from flat levels in 2002.
Other outperformance came from the technology sector, which languished early in
the period only to stage a dramatic comeback. Although underweight relative to
the index in tech stocks, we had increased the fund's position in companies like
Hewlett-Packard Co, Nokia Corp, and International Business Machines prior to the
rally -- a strategy that proved effective for the fund. Finally, a number of the
fund's financial services stocks provided a lift. Standouts included Lehman
Brothers Holdings, Merrill Lynch & Co, and American International Group.
SOME HOLDINGS DISAPPOINT
In a period that saw negative returns from every sector of the S&P 500,(R)
laggards came from a variety of areas. For example, industrial conglomerate SPX
Corp saw its earnings fall back in the second half of 2002 and into 2003 -- a
result of the struggling economy. Other detractors from performance included
Altria Group (formerly Philip Morris) and Qwest Communications International.
Altria suffered legal setbacks related to its tobacco business, and Qwest fell
prey to questions about its accounting practices. Although neither of these
companies remains a portfolio holding, some losses were incurred prior to our
decision to sell them.
PIE CHART: TOTAL RETURN FUND
SECTOR BREAKDOWN
AS OF 5/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
U.S. Government.....................25.07%
Financials..........................18.68%
Industrials.........................11.58%
Information Technology.............. 8.18%
Consumer Discretionary.............. 7.29%
Consumer Staples.................... 7.00%
Materials........................... 6.26%
Health Care......................... 5.58%
Energy.............................. 5.06%
Telecommunications Services......... 4.05%
Utilities........................... 1.41%
Net Cash & Cash Equivalents.........(0.16%)
LINE GRAPH: INVESCO TOTAL RETURN FUND - INVESTOR CLASS GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Total
Return Fund - Investor Class to the value of a $10,000 investment in the S&P 500
Index(R)(6) and to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(6), assuming in each case reinvestment of all
dividends and capital gain distributions, for the ten-year period ended 5/31/03.
INVESCO TOTAL RETURN FUND - LEHMAN GOVERNMENT/
INVESTOR CLASS S&P 500 INDEX(6) CREDIT BOND INDEX(6)
5/93 $10,000 $10,000 $10,000
5/94 $10,733 $10,425 $10,101
5/95 $12,589 $12,527 $11,274
5/96 $14,711 $16,086 $11,736
5/97 $17,616 $20,821 $12,663
5/98 $21,523 $27,205 $14,117
5/99 $23,749 $32,926 $14,690
5/00 $21,781 $36,373 $14,971
5/01 $22,017 $32,536 $16,896
5/02 $20,887 $28,033 $18,222
5/03 $19,873 $25,771 $20,877
MEET THE NEW MANAGEMENT TEAM
(AS OF 7/1/03)
KENNETH R. BOWLING, CFA
AS DIRECTOR OF U.S. FIXED-INCOME, KEN HAS BEEN WITH THE INVESCO FIXED-INCOME
DIVISION SINCE 1993. KEN EARNED A BACHELOR OF SCIENCE DEGREE IN MECHANICAL
ENGINEERING AND A MASTERS IN ENGINEERING FROM THE UNIVERSITY OF LOUISVILLE. HE
IS ALSO A CHARTERED FINANCIAL ANALYST CHARTERHOLDER AND A MEMBER OF THE
LOUISVILLE SOCIETY OF FINANCIAL ANALYSTS BEFORE JOINING INVESCO, HE WAS A LEAD
ENGINEER WITH GENERAL ELECTRIC, AND A PROJECT ENGINEER WITH GENERAL MOTORS.
MICHAEL C. HEYMAN, CFA
MICK IS A MEMBER OF THE INVESCO-NAM PORTFOLIO GROUP AND HAS MORE THAN 25 YEARS
OF INVESTMENT MANAGEMENT EXPERIENCE. HE IS A GRADUATE OF NORTHWESTERN
UNIVERSITY, A CHARTERED FINANCIAL ANALYST CHARTERHOLDER, AND A MEMBER OF THE
LOUISVILLE SOCIETY OF FINANCIAL ANALYSTS.
STEPHEN M. JOHNSON, CFA
STEVE JOHNSON JOINED INVESCO IN MAY OF 1991. AS CHIEF INVESTMENT OFFICER OF
INVESCO FIXED-INCOME, HE IS RESPONSIBLE FOR ALL PHASES OF THE FIXED-INCOME
INVESTMENT PROCESS. STEVE EARNED A BACHELOR OF SCIENCE DEGREE IN PETROLEUM
ENGINEERING FROM THE UNIVERSITY OF KANSAS, AN MBA FROM RICE UNIVERSITY, AND IS A
CHARTERED FINANCIAL ANALYST CHARTERHOLDER. HE BEGAN HIS INVESTMENT CAREER IN
1986, AND PRIOR TO JOINING INVESCO, HE WORKED AS A FIXED-INCOME PORTFOLIO
MANAGER FOR THE CAPITAL MANAGEMENT DIVISION OF PNC BANK.
MARK W. LATTIS, CFA
MARK IS A MEMBER OF THE INVESCO-NAM PORTFOLIO GROUP AND HAS MORE THAN 10 YEARS
OF INVESTMENT MANAGEMENT EXPERIENCE. AFTER COMPLETING HIS UNDERGRADUATE STUDIES
AT THE UNIVERSITY OF LOUISVILLE, MARK EARNED AN MBA FROM THE UNIVERSITY OF
KENTUCKY. HE IS A CHARTERED FINANCIAL ANALYST CHARTERHOLDER, AND CURRENTLY
SERVES AS PRESIDENT OF THE LOUISVILLE SOCIETY OF FINANCIAL ANALYSTS.
RICHARD J. KING, CFA
RICH JOINED INVESCO'S FIXED-INCOME INVESTMENT MANAGEMENT TEAM IN 2000, BRINGING
16 YEARS OF FIXED-INCOME PORTFOLIO MANAGEMENT EXPERIENCE. HE IS A GRADUATE OF
THE OHIO STATE UNIVERSITY WHERE HE EARNED A BACHELOR OF SCIENCE DEGREE IN
BUSINESS ADMINISTRATION. HE HAS PASSED THE CERTIFIED PUBLIC ACCOUNTANT
EXAMINATION, AND IS A CHARTERED FINANCIAL ANALYST CHARTERHOLDER. PRIOR TO
INVESCO, RICH SERVED AS CHAIRMAN OF THE CORE SECTOR GROUP OF CRITERION
INVESTMENT MANAGEMENT, AND WAS ALSO A MANAGING DIRECTOR AND PORTFOLIO MANAGER
WITH BEAR STEARNS ASSET MANAGEMENT.
DIVERSIFICATION REMAINS A PRIMARY FOCUS
An economic recovery seems to be gradually taking shape in the wake of improved
investor sentiment, the end of the war in Iraq, and the passage of an economic
stimulus plan. We'll keep looking for new opportunities on both the buy and sell
sides, taking profits where we can and making the most of any attractive
valuations resulting from the market volatility. As always, we will maintain
significant exposure to fixed-income securities for diversification purposes.
REPORTED BY FORMER FUND MANAGERS CHARLES P. MAYER (EQUITY) AND RICHARD R.
HINDERLIE (FIXED-INCOME). AS OF 7/1/03, THE FUND HAS BEEN MANAGED BY KENNETH R.
BOWLING, MICHAEL C. HEYMAN, STEPHEN M. JOHNSON, MARK W. LATTIS, AND RICHARD J.
KING.
LINE GRAPH: INVESCO TOTAL RETURN FUND - CLASS A & CLASS B GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Total
Return Fund - Class A and the value of a $10,000 investment in INVESCO Total
Return Fund - Class B to the value of a $10,000 investment in the S&P 500
Index(R)(6) and to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(6), assuming in each case reinvestment of all
dividends and capital gain distributions, and in the cases of INVESCO Total
Return Fund - Class A and Class B, inclusion of front-end sales charge and
contingent deferred sales charge, respectively, for the period since inception
(4/02) through 5/31/03.
INVESCO TOTAL RETURN INVESCO TOTAL RETURN LEHMAN GOVERNMENT/
FUND - CLASS A FUND - CLASS B S&P 500 INDEX(6) CREDIT BOND INDEX(6)
4/02 $10,000 $10,000 $10,000 $10,000
5/02 $ 9,107 $ 9,624 $ 9,325 $10,288
5/03 $ 8,652 $ 8,691 $ 8,572 $11,787
LINE GRAPH: INVESCO TOTAL RETURN FUND - CLASS C GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Total
Return Fund - Class C to the value of a $10,000 investment in the S&P 500
Index(R)(6) and to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(6), assuming in each case reinvestment of all
dividends and capital gain distributions, and in the case of INVESCO Total
Return Fund - Class C, inclusion of contingent deferred sales charge, for the
period since inception (2/00) through 5/31/03.
LEHMAN GOVERNMENT/
INVESCO TOTAL RETURN FUND - CLASS C S&P 500 INDEX(6) CREDIT BOND INDEX(6)
2/00 $10,000 $10,000 $10,000
5/00 $10,440 $10,429 $10,086
5/01 $10,254 $ 9,329 $11,383
5/02 $ 9,593 $ 8,038 $12,277
5/03 $ 9,026 $ 7,389 $14,065
(5)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEXES DO NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED THEIR PERFORMANCE.
(6)THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET, AND THE LEHMAN GOVERNMENT/CREDIT BOND
INDEX IS AN UNMANAGED INDEX REFLECTING PERFORMANCE OF THE LONG-TERM FIXED-INCOME
MARKET. THE INDEXES ARE NOT MANAGED; THEREFORE, THEIR PERFORMANCE DOES NOT
REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND INCLUDING
FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET
INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
MARKET HEADLINES
MARKET OVERVIEW:
JUNE 2002 THROUGH MAY 2003
After two years of declines in the stock market, investors had hoped to see an
improvement through 2002 and into 2003. Instead, the market continued downward,
with the major stock indexes registering losses for the 12-month period ended
May 31, 2003.
There were a number of factors responsible for the year's decline. First, a
series of corporate accounting scandals dominated the news well into summer
2002, tainting investors' perceptions of the market. Talk of Enron's collapse
lingered -- and new scandals surrounding companies such as WorldCom Inc, Tyco
International Ltd, and HealthSouth Corp followed. Furthermore, geopolitical
uncertainty persisted throughout the year to varying degrees as threats of
terrorist attacks, a nuclear standoff between India and Pakistan, speculation
regarding the U.S.'s intentions toward Iraq, and North Korea's refusal to obey a
1994 arms agreement all clouded the landscape. In addition, oil prices surged,
as inventories were pressured by strikes in Venezuela, violence in Nigeria, and
concerns over a potential war with Iraq.
In addition, a generally weak economy and disappointing corporate earnings were
ongoing stories. Although a few rallies were ignited by hopes that a recovery
might be forthcoming -- most notably, a two-month surge that began on October
10, 2002, a week-long rally during the first days of January 2003, and a
mini-rebound in mid-March on the heels of the long-awaited start to the war in
Iraq -- they could not be sustained in such an uncertain environment.
Meanwhile, investors flocked to investments with defensive reputations.
Fixed-income securities advanced, benefiting from the flight-to-quality trend as
well as the Federal Reserve's decision to leave interest rates unchanged until
November, when a surprisingly steep 50-basis-point cut was implemented. Gold
stocks and real estate investment trusts were other top performers. Conversely,
high-growth sectors, including technology and telecommunications, declined.
As the fiscal period came to a close, investors seemed to be growing
increasingly optimistic. For one, quick success by the American-led coalition in
the liberation of Iraq muted one source of uncertainty. Additionally, investors
were encouraged by the economic rebound in the weeks following the war, during
which consumer confidence and manufacturing activity improved.
To be sure, risks remained. However, the end of the fiscal year saw investors
focusing on the positive rather than worrying about potential negatives. For
example, the dollar's slide versus the euro could have stirred concerns that
foreign investors might sell dollar-denominated assets. Instead, investors
pointed to the potentially stimulative effects that the weak dollar might have
on exports and manufacturing. Investors' newfound optimism was also reflected in
the market's technical profile at period-end, which saw trading volume spike
higher during rallies, while dropping as stocks slid, reflecting an overall
desire on the part of investors to buy stocks.
While we don't believe equity markets are necessarily out of the woods yet, the
economic progress made since the resolution of the war has made the outlook for
equities at the end of May 2003 brighter than it was this time last year. No
less an authority than Federal Reserve Chairman Alan Greenspan revealed that he
was surprised and encouraged by the recent economic improvement. Nevertheless,
for this recovery to find its legs, investors and consumers will likely need to
see a sustained upturn in the employment market before the bear market is
officially pronounced dead.
INVESTMENT HOLDINGS
STATEMENT OF INVESTMENT SECURITIES
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
MAY 31, 2003
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
65.76 COMMON STOCKS
1.33 AEROSPACE & DEFENSE
United Technologies 158,300 $ 10,803,975
============================================================================================
1.29 ALUMINUM
Alcoa Inc 426,400 10,493,704
============================================================================================
1.72 APPLICATION SOFTWARE
SAP AG Sponsored ADR Representing 1/4 Ord Shr 148,600 4,232,128
Software HOLDRs Trust(a) 309,600 9,755,496
============================================================================================
13,987,624
2.76 BANKS
Bank of New York 348,300 10,079,802
Wells Fargo & Co 255,000 12,316,500
============================================================================================
22,396,302
2.79 BIOTECHNOLOGY
Amgen Inc(b) 189,000 12,230,190
Biotech HOLDRs Trust(a) 86,300 10,381,890
============================================================================================
22,612,080
1.56 BREWERS
Anheuser-Busch Cos 240,400 12,652,252
============================================================================================
0.50 CABLE & SATELLITE OPERATORS
EchoStar Communications Class A Shrs(b) 121,600 4,083,328
============================================================================================
0.52 CASINOS & GAMING
Harrah's Entertainment(b) 105,000 4,209,450
============================================================================================
0.95 COMPUTER STORAGE & PERIPHERALS
EMC Corp(b) 711,100 7,694,102
============================================================================================
1.95 DATA PROCESSING SERVICES
First Data 177,900 7,368,618
Fiserv Inc(b) 254,400 8,418,096
============================================================================================
15,786,714
0.87 DIVERSIFIED CHEMICALS
Dow Chemical 222,000 7,059,600
============================================================================================
5.90 DIVERSIFIED FINANCIAL SERVICES
American Express 157,800 6,573,948
Citigroup Inc 443,300 18,184,166
Goldman Sachs Group 62,600 5,101,900
JP Morgan Chase & Co 548,000 18,007,280
============================================================================================
47,867,294
1.23 ELECTRICAL COMPONENTS & EQUIPMENT
SPX Corp(b) 258,800 9,971,564
============================================================================================
1.27 GENERAL MERCHANDISE STORES
Target Corp 280,100 10,260,063
============================================================================================
FS-2
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
1.88 HEALTH CARE EQUIPMENT
Boston Scientific(b) 127,400 $ 6,637,540
Medtronic Inc 176,600 8,605,718
============================================================================================
15,243,258
1.43 HYPERMARKETS & SUPER CENTERS
Wal-Mart Stores 220,400 11,595,244
============================================================================================
1.50 INDUSTRIAL CONGLOMERATES
General Electric 425,000 12,197,500
============================================================================================
0.71 INDUSTRIAL MACHINERY
Illinois Tool Works 92,900 5,764,445
============================================================================================
2.26 INTEGRATED OIL & GAS
BP PLC Sponsored ADR Representing 6 Ord Shrs 104,100 4,360,749
Exxon Mobil 384,400 13,992,160
============================================================================================
18,352,909
1.22 INTEGRATED TELECOMMUNICATION SERVICES
BellSouth Corp 113,700 3,014,187
SBC Communications 134,500 3,424,370
Verizon Communications 92,200 3,489,770
============================================================================================
9,928,327
1.89 INVESTMENT ADVISER/BROKER DEALER SERVICES
Janus Capital Group 407,900 6,342,845
Merrill Lynch & Co 208,000 9,006,400
============================================================================================
15,349,245
2.65 INVESTMENT COMPANIES
DIAMONDS Trust Series I Shrs(c) 117,900 10,474,236
Nasdaq-100 Trust Series 1 Shrs(b) 369,400 11,004,426
============================================================================================
21,478,662
0.67 IT CONSULTING & SERVICES
Affiliated Computer Services Class A Shrs(b) 117,100 5,426,414
============================================================================================
1.30 MOVIES & ENTERTAINMENT
AOL Time Warner(b) 344,800 5,247,856
Viacom Inc Class B Shrs(b) 116,700 5,312,184
============================================================================================
10,560,040
1.31 MULTI-LINE INSURANCE
American International Group 182,900 10,586,252
============================================================================================
1.11 NETWORKING EQUIPMENT
Cisco Systems(b) 553,400 9,009,352
============================================================================================
0.59 OIL & GAS EQUIPMENT & SERVICES
Baker Hughes 145,600 4,812,080
============================================================================================
1.09 OIL & GAS EXPLORATION, PRODUCTION &
TRANSPORTATION
Apache Corp 133,845 8,823,062
============================================================================================
1.21 PAPER PRODUCTS
International Paper 267,300 9,801,891
============================================================================================
FS-3
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
0.64 PERSONAL PRODUCTS
Avon Products 85,200 $ 5,192,088
============================================================================================
7.99 PHARMACEUTICALS
Abbott Laboratories 239,500 10,669,725
Forest Laboratories(b) 117,600 5,938,800
Johnson & Johnson 171,900 9,342,765
Merck & Co 179,900 9,998,842
Pfizer Inc 411,800 12,774,036
Teva Pharmaceutical Industries Ltd Sponsored ADR
Representing Ord Shrs 114,200 5,788,684
Wyeth 235,300 10,317,905
============================================================================================
64,830,757
0.69 PROPERTY & CASUALTY INSURANCE
Allstate Corp 155,700 5,603,643
============================================================================================
0.99 RAILROADS
Norfolk Southern 365,500 8,011,760
============================================================================================
0.52 RESTAURANTS
Starbucks Corp(b) 170,200 4,193,898
============================================================================================
1.24 SEMICONDUCTOR EQUIPMENT
Applied Materials(b) 643,700 10,015,972
============================================================================================
3.16 SEMICONDUCTORS
Intel Corp 442,500 9,221,700
Semiconductor HOLDRs Trust(a) 282,400 8,457,880
Texas Instruments 388,200 7,958,100
============================================================================================
25,637,680
1.47 SOFT DRINKS
Coca-Cola Co 260,800 11,884,656
============================================================================================
3.60 SYSTEMS SOFTWARE
Microsoft Corp 534,100 13,144,201
Oracle Corp(b) 513,900 6,685,839
VERITAS Software(b) 337,400 9,362,850
============================================================================================
29,192,890
TOTAL COMMON STOCKS (COST $488,841,979) 533,370,077
============================================================================================
30.22 FIXED INCOME SECURITIES
13.51 US GOVERNMENT OBLIGATIONS
US Treasury Notes
5.875%, 11/15/2004 $ 20,000,000 21,342,960
5.750%, 11/15/2005 $ 20,000,000 22,080,460
3.875%, 2/15/2013 $ 10,000,000 10,442,580
3.000%, 11/15/2007 $ 10,000,000 10,375,390
1.625%, 1/31/2005 $ 25,000,000 25,167,975
1.625%, 4/30/2005 $ 20,000,000 20,124,220
============================================================================================
TOTAL US GOVERNMENT OBLIGATIONS
(Amortized Cost $106,510,241) 109,533,585
============================================================================================
FS-4
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
9.86 US Government Agency Obligations
Fannie Mae, Gtd Mortgage Pass-Through Certificates
4.500%, 5/1/2018 $ 7,964,993 $ 8,179,223
4.500%, 6/1/2018 $ 25,000,000 25,672,414
Government National Mortgage Association I
Gtd Mortgage Pass-Through Certificates
5.000%, 11/15/2017 $ 9,548,440 9,986,281
5.000%, 2/15/2018 $ 12,269,305 12,828,959
Government National Mortgage Association I & II
Single Issuer
5.500%, 12/15/2031 $ 9,005,124 9,425,348
5.000%, 2/15/2018 $ 12,343,716 12,906,765
5.000%, 3/15/2018 $ 944,137 987,203
============================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Amortized Cost $78,762,693) 79,986,193
============================================================================================
6.85 CORPORATE BONDS
0.32 AUTOMOBILE MANUFACTURERS
General Motors Acceptance, Sr Notes, 6.125%,
8/28/2007 $ 2,500,000 2,622,423
============================================================================================
0.54 BANKS
Washington Mutual, Sr Notes, 4.375%, 1/15/2008 $ 1,000,000 1,062,219
Wells Fargo & Co, Notes, 5.250%, 12/1/2007 $ 3,000,000 3,316,668
============================================================================================
4,378,887
0.37 CABLE & SATELLITE OPERATORS
Continental Cablevision, Sr Deb, 9.500%, 8/1/2013 $ 2,500,000 3,004,920
============================================================================================
0.39 DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc, Notes, 4.125%, 6/30/2005 $ 3,000,000 3,146,271
============================================================================================
3.96 ELECTRIC UTILITIES
Cleveland Electric Illuminating, Secured Notes
Series D, 7.880%, 11/1/2017 $ 1,000,000 1,282,432
Commonwealth Edison, 1st Mortgage Notes
Series 76, 8.250%, 10/1/2006 $ 1,000,000 1,185,528
Consumers Energy, 1st & Refunding Mortgage Notes
7.375%, 9/15/2023 $ 2,500,000 2,621,583
El Paso Electric, 1st Mortgage Notes, Series E,
9.400%, 5/1/2011 $ 2,000,000 2,329,506
Jersey Central Power & Light, 1st Mortgage
Medium-Term Notes, Series C, 7.980%, 2/16/2023 $ 2,000,000 2,092,926
Niagara Mohawk Power, 1st Mortgage Notes, 7.750%,
5/15/2006 $ 4,000,000 4,577,608
Pennsylvania Power, 1st Mortgage Notes, 8.500%,
7/15/2022 $ 2,500,000 2,609,110
Public Service of New Mexico, Sr Notes
Series A, 7.100%, 8/1/2005 $ 5,000,000 5,440,935
Series B, 7.500%, 8/1/2018 $ 5,000,000 5,818,520
Texas Utilities Electric, 1st Mortgage Notes &
Collateral Trust, 7.875%, 4/1/2024 $ 4,000,000 4,182,412
============================================================================================
32,140,560
0.10 FOREST PRODUCTS
Weyerhaeuser Co, Notes, 6.750%, 3/15/2012 $ 695,000 801,992
============================================================================================
FS-5
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
0.20 HOUSEHOLD PRODUCTS
Procter & Gamble, Notes, 4.750%, 6/15/2007 $ 1,500,000 $ 1,632,597
============================================================================================
0.42 INTEGRATED TELECOMMMUNICATION SERVICES
Verizon Global Funding, Notes, 6.125%, 6/15/2007 $ 3,000,000 3,393,066
============================================================================================
0.09 PAPER PRODUCTS
International Paper, Notes, 5.850%, 10/30/2012 $ 670,000 741,418
============================================================================================
0.32 RAILROADS
Burlington Northern Santa Fe, Notes, 6.125%,
3/15/2009 $ 1,100,000 1,270,888
Union Pacific, Notes, 6.650%, 1/15/2011 $ 1,100,000 1,293,652
============================================================================================
2,564,540
0.14 SOFT DRINKS
Coca-Cola Enterprises, Notes, 4.375%, 9/15/2009 $ 1,075,000 1,151,025
============================================================================================
TOTAL CORPORATE BONDS (Amortized Cost $50,577,271) 55,577,699
============================================================================================
TOTAL FIXED INCOME SECURITIES
(AMORTIZED COST $235,850,205) 245,097,477
============================================================================================
1.22 SHORT-TERM INVESTMENTS
0.99 COMMERCIAL PAPER
0.99 DIVERSIFIED FINANCIAL SERVICES
State Street Boston, Discount Notes, 1.330%,
6/2/2003 (Amortized Cost $7,999,704) $ 8,000,000 7,999,704
============================================================================================
0.23 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated
5/30/2003 due 6/2/2003 at 1.220%, repurchased
at $1,900,193 (Collateralized by Federal Farm
Credit Bank, Bonds, due 12/15/2004 at 3.875%,
value $1,944,099) (Cost $1,900,000) $ 1,900,000 1,900,000
============================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $9,899,704) 9,899,704
============================================================================================
97.20 TOTAL INVESTMENTS AT VALUE
(COST $734,591,888) 788,367,258
============================================================================================
2.80 OTHER ASSETS LESS LIABILITIES 22,728,518
============================================================================================
100.00 NET ASSETS AT VALUE $ 811,095,776
============================================================================================
CORE EQUITY FUND
95.93 COMMON STOCKS
2.85 AEROSPACE & DEFENSE
L-3 Communications Holdings(b) 412,800 $ 17,894,880
Lockheed Martin 517,600 24,026,992
United Technologies 453,400 30,944,550
============================================================================================
72,866,422
1.36 ALUMINUM
Alcoa Inc 1,415,900 34,845,299
============================================================================================
0.49 APPLICATION SOFTWARE
PeopleSoft Inc(b) 759,100 12,418,876
============================================================================================
FS-6
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
9.16 BANKS
Bank of America 547,500 $ 40,624,500
Bank of New York 1,601,600 46,350,304
Charter One Financial 1,740,445 53,013,955
Wachovia Corp 1,062,600 42,695,268
Wells Fargo & Co 1,066,800 51,526,440
============================================================================================
234,210,467
3.09 BREWERS
Anheuser-Busch Cos 1,500,000 78,945,000
============================================================================================
1.63 CASINOS & GAMING
Harrah's Entertainment(b) 695,100 27,866,559
Park Place Entertainment(b) 1,800,000 13,716,000
============================================================================================
41,582,559
3.06 COMPUTER HARDWARE
Hewlett-Packard Co 2,162,500 42,168,750
International Business Machines 408,700 35,981,948
============================================================================================
78,150,698
1.03 DIVERSIFIED CHEMICALS
Dow Chemical 827,000 26,298,600
============================================================================================
5.37 DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc 1,567,200 64,286,544
JP Morgan Chase & Co 2,218,600 72,903,196
============================================================================================
137,189,740
2.34 ELECTRIC UTILITIES
Dominion Resources 420,600 26,497,800
Exelon Corp 106,700 6,113,910
FPL Group 410,300 27,272,641
============================================================================================
59,884,351
0.74 ELECTRICAL COMPONENTS & EQUIPMENT
SPX Corp(b) 490,000 18,879,700
============================================================================================
1.25 ENVIRONMENTAL SERVICES
Waste Management 1,252,300 31,896,081
============================================================================================
2.44 GENERAL MERCHANDISE STORES
Target Corp 1,700,000 62,271,000
============================================================================================
0.52 HEALTH CARE SUPPLIES
Alcon Inc 310,100 13,179,250
============================================================================================
1.49 HYPERMARKETS & SUPER CENTERS
Wal-Mart Stores 725,000 38,142,250
============================================================================================
1.94 INDUSTRIAL CONGLOMERATES
General Electric 1,728,100 49,596,470
============================================================================================
2.77 INDUSTRIAL MACHINERY
Danaher Corp 467,000 31,251,640
Illinois Tool Works 639,000 39,649,950
============================================================================================
70,901,590
FS-7
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
6.15 INTEGRATED OIL & GAS
BP PLC Sponsored ADR Representing 6 Ord Shrs 1,100,000 $ 46,079,000
Exxon Mobil 2,060,000 74,984,000
Occidental Petroleum 1,067,800 36,027,572
============================================================================================
157,090,572
2.95 INTEGRATED TELECOMMUNICATION SERVICES
BellSouth Corp 572,000 15,163,720
SBC Communications 1,028,300 26,180,518
Verizon Communications 900,000 34,065,000
============================================================================================
75,409,238
5.37 INVESTMENT ADVISER/BROKER DEALER SERVICES
Janus Capital Group 2,655,600 41,294,580
Lehman Brothers Holdings 718,700 51,480,481
Merrill Lynch & Co 1,029,300 44,568,690
============================================================================================
137,343,751
1.40 IT CONSULTING & SERVICES
Accenture Ltd(b) 2,040,800 35,754,816
============================================================================================
1.25 LIFE & HEALTH INSURANCE
John Hancock Financial Services 1,052,800 31,847,200
============================================================================================
1.08 MULTI-LINE INSURANCE
American International Group 477,200 27,620,336
============================================================================================
1.31 OIL & GAS EQUIPMENT & SERVICES
Baker Hughes 572,200 18,911,210
Schlumberger Ltd 298,400 14,508,208
============================================================================================
33,419,418
2.29 OIL & GAS EXPLORATION, PRODUCTION &
TRANSPORTATION
Apache Corp 469,560 30,953,395
Kerr-McGee Corp 578,500 27,525,030
============================================================================================
58,478,425
3.28 PACKAGED FOODS & MEATS
Hershey Foods 350,300 24,906,330
H.J. Heinz 716,500 23,694,655
Kellogg Co 1,000,000 35,200,000
============================================================================================
83,800,985
1.19 PAPER PACKAGING
Temple-Inland Inc 650,000 30,316,000
============================================================================================
1.90 PAPER PRODUCTS
Bowater Inc 750,000 29,392,500
International Paper 526,300 19,299,421
============================================================================================
48,691,921
2.63 PERSONAL PRODUCTS
Gillette Co 2,000,000 67,220,000
============================================================================================
7.84 PHARMACEUTICALS
Bristol-Myers Squibb 1,592,700 40,773,120
Eli Lilly & Co 682,000 40,763,140
FS-8
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
Merck & Co 839,600 $ 46,664,968
Pfizer Inc 2,324,880 72,117,778
============================================================================================
200,319,006
4.26 PUBLISHING & PRINTING
Gannett Co 452,000 35,708,000
Knight-Ridder Inc 220,900 15,560,196
McGraw-Hill Cos 911,000 57,584,310
============================================================================================
108,852,506
1.81 RAILROADS
Kansas City Southern(b) 950,000 11,333,500
Norfolk Southern 1,596,000 34,984,320
============================================================================================
46,317,820
1.08 RESTAURANTS
McDonald's Corp 1,477,100 27,666,083
============================================================================================
1.08 SEMICONDUCTOR EQUIPMENT
Applied Materials(b) 1,783,200 27,746,592
============================================================================================
3.78 SEMICONDUCTORS
Intel Corp 2,633,400 54,880,056
Texas Instruments 2,039,700 41,813,850
============================================================================================
96,693,906
1.96 SYSTEMS SOFTWARE
Microsoft Corp 2,037,100 50,133,031
============================================================================================
1.79 TELECOMMUNICATIONS EQUIPMENT
Nokia Corp Sponsored ADR Representing Ord Shrs 2,533,600 45,706,144
============================================================================================
TOTAL COMMON STOCKS (COST $2,017,501,665) 2,451,686,103
============================================================================================
0.10 FIXED INCOME SECURITIES -- CORPORATE BONDS
0.10 ELECTRIC UTILITIES
El Paso Electric, 1st Mortgage Notes, Series D,
8.900%, 2/1/2006 (Amortized Cost $2,247,438) $ 2,215,000 2,496,314
============================================================================================
4.18 SHORT-TERM INVESTMENTS
4.11 COMMERCIAL PAPER
1.57 BANKS
Citicorp, 1.260%, 6/4/2003 $ 40,000,000 40,000,000
============================================================================================
1.56 CONSUMER RECEIVABLES
New Center Asset Trust, Series 1, Discount Notes
1.340%, 6/2/2003 $ 40,000,000 39,998,511
============================================================================================
0.98 DIVERSIFIED FINANCIAL SERVICES
State Street Boston, Discount Notes, 1.330%,
6/2/2003 $ 25,000,000 24,999,076
============================================================================================
TOTAL COMMERCIAL PAPER (Amortized Cost $104,997,587) 104,997,587
============================================================================================
0.07 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated
5/30/2003 due 6/2/2003 at 1.220%, repurchased at
$1,915,195 (Collateralized by Fannie Mae,
Discount Notes, due 7/2/2003, value $1,957,898)
(Cost $1,915,000) $ 1,915,000 1,915,000
============================================================================================
FS-9
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $106,912,587) $ 106,912,587
============================================================================================
100.21 TOTAL INVESTMENTS AT VALUE
(COST $2,126,661,690) 2,561,095,004
============================================================================================
(0.21) OTHER ASSETS LESS LIABILITIES (5,353,082)
============================================================================================
100.00 NET ASSETS AT VALUE $2,555,741,922
============================================================================================
TOTAL RETURN FUND
68.97 COMMON STOCKS
2.77 AEROSPACE & DEFENSE
L-3 Communications Holdings(b) 100,300 $ 4,348,005
Lockheed Martin 169,000 7,844,980
United Technologies 150,700 10,285,275
============================================================================================
22,478,260
1.44 ALUMINUM
Alcoa Inc 476,700 11,731,587
============================================================================================
0.35 APPLICATION SOFTWARE
PeopleSoft Inc(b) 176,300 2,884,268
============================================================================================
1.00 AUTO PARTS & EQUIPMENT
Advance Auto Parts(b) 136,800 8,136,864
============================================================================================
6.58 BANKS
Bank of America 215,700 16,004,940
Mellon Financial 364,200 9,895,314
Wachovia Corp 228,700 9,189,166
Wells Fargo & Co 380,000 18,354,000
============================================================================================
53,443,420
2.38 BREWERS
Anheuser-Busch Cos 367,300 19,330,999
============================================================================================
2.51 COMPUTER HARDWARE
Hewlett-Packard Co 531,600 10,366,200
International Business Machines 114,100 10,045,364
============================================================================================
20,411,564
0.51 CONSTRUCTION MACHINERY, FARM
MACHINERY & HEAVY TRUCKS
Navistar International(b) 134,700 4,151,454
============================================================================================
1.11 DIVERSIFIED CHEMICALS
Dow Chemical 284,800 9,056,640
============================================================================================
2.58 DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc 398,200 16,334,164
JP Morgan Chase & Co 141,000 4,633,260
============================================================================================
20,967,424
1.41 ELECTRIC UTILITIES
Dominion Resources 44,200 2,784,600
Exelon Corp 34,600 1,982,580
FS-10
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
FPL Group 101,000 $ 6,713,470
============================================================================================
11,480,650
1.10 ELECTRICAL COMPONENTS & EQUIPMENT
SPX Corp(b) 232,000 8,938,960
============================================================================================
2.47 GENERAL MERCHANDISE STORES
Target Corp 548,000 20,073,240
============================================================================================
0.73 HOUSEHOLD PRODUCTS
Procter & Gamble 64,200 5,894,844
============================================================================================
2.14 INDUSTRIAL CONGLOMERATES
General Electric 606,100 17,395,070
============================================================================================
1.43 INDUSTRIAL GASES
Praxair Inc 193,200 11,590,068
============================================================================================
3.59 INDUSTRIAL MACHINERY
Danaher Corp 152,200 10,185,224
Illinois Tool Works 193,100 11,981,855
Timken Co 425,700 6,972,966
============================================================================================
29,140,045
1.32 INSURANCE BROKERS
Marsh & McLennan 214,400 10,747,872
============================================================================================
3.24 INTEGRATED OIL & GAS
BP PLC Sponsored ADR Representing 6 Ord Shrs 244,200 10,229,538
Exxon Mobil 441,600 16,074,240
============================================================================================
26,303,778
3.63 INTEGRATED TELECOMMUNICATION SERVICES
BellSouth Corp 154,900 4,106,399
SBC Communications 332,700 8,470,542
Verizon Communications 446,500 16,900,025
============================================================================================
29,476,966
4.76 INVESTMENT ADVISER/BROKER DEALER SERVICES
Janus Capital Group 408,700 6,355,285
Lehman Brothers Holdings 253,700 18,172,531
Merrill Lynch & Co 327,900 14,198,070
============================================================================================
38,725,886
0.88 IT CONSULTING & SERVICES
Accenture Ltd(b) 408,000 7,148,160
============================================================================================
0.80 MULTI-LINE INSURANCE
American International Group 112,700 6,523,076
============================================================================================
0.76 OIL & GAS EQUIPMENT & SERVICES
Baker Hughes 186,500 6,163,825
============================================================================================
1.06 OIL & GAS EXPLORATION, PRODUCTION &
TRANSPORTATION
Kerr-McGee Corp 181,800 8,650,044
============================================================================================
1.75 PACKAGED FOODS & MEATS
H.J. Heinz 200,000 6,614,000
FS-11
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
Hershey Foods 106,800 $ 7,593,480
============================================================================================
14,207,480
2.07 PAPER PRODUCTS
Bowater Inc 246,000 9,640,740
International Paper 196,100 7,190,987
============================================================================================
16,831,727
5.58 PHARMACEUTICALS
Bristol-Myers Squibb 252,400 6,461,440
Eli Lilly & Co 81,700 4,883,209
Merck & Co 263,500 14,645,330
Pfizer Inc 624,000 19,356,480
============================================================================================
45,346,459
0.36 PROPERTY & CASUALTY INSURANCE
St Paul 79,300 2,900,794
============================================================================================
2.05 PUBLISHING & PRINTING
Knight-Ridder Inc 71,600 5,043,504
McGraw-Hill Cos 184,200 11,643,282
============================================================================================
16,686,786
1.05 RAILROADS
Union Pacific 139,900 8,532,501
============================================================================================
1.12 RESTAURANTS
McDonald's Corp 486,900 9,119,637
============================================================================================
0.62 SEMICONDUCTOR EQUIPMENT
Applied Materials(b) 325,000 5,057,000
============================================================================================
2.64 SEMICONDUCTORS
Intel Corp 520,900 10,855,556
Texas Instruments 515,500 10,567,750
============================================================================================
21,423,306
1.18 TELECOMMUNICATIONS EQUIPMENT
Nokia Corp Sponsored ADR Representing Ord Shrs 530,300 9,566,612
============================================================================================
TOTAL COMMON STOCKS (COST $552,815,989) 560,517,266
============================================================================================
28.66 FIXED INCOME SECURITIES
6.73 US GOVERNMENT OBLIGATIONS
US Treasury Notes
3.875%, 2/15/2013 $ 8,600,000 8,980,619
2.875%, 6/30/2004 $ 7,500,000 7,638,870
1.625%, 1/31/2005 $ 25,000,000 25,167,975
1.625%, 4/30/2005 $ 12,800,000 12,879,501
============================================================================================
TOTAL US GOVERNMENT OBLIGATIONS
(Amortized Cost $54,296,787) 54,666,965
============================================================================================
16.44 US GOVERNMENT AGENCY OBLIGATIONS
Fannie Mae, Gtd Mortgage Pass-Through Certificates
5.000%, 1/1/2017 $ 17,266,787 17,939,122
4.500%, 5/1/2018 $ 19,912,481 20,448,058
4.500%, 6/1/2018 $ 10,000,000 10,268,966
FS-12
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
Government National Mortgage Association I
Gtd Mortgage Pass-Through Certificates
6.000%, 7/15/2028 $ 6,462,714 $ 6,783,902
6.000%, 4/15/2029 $ 5,741,281 6,023,807
5.500%, 1/15/2017 $ 16,181,359 16,983,095
5.000%, 2/15/2018 $ 41,205,517 43,085,074
5.000%, 3/15/2018 $ 2,832,411 2,961,609
Government National Mortgage Association I & II
Single Issuer, 5.500%, 1/15/2032 $ 8,746,293 9,153,427
============================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Amortized Cost $129,509,646) 133,647,060
============================================================================================
5.49 CORPORATE BONDS
0.64 AUTOMOBILE MANUFACTURERS
General Motors Acceptance, Notes, 6.125%, 2/1/2007 $ 5,000,000 5,229,585
============================================================================================
1.26 BANKS
SunTrust Banks, Sr Notes, 6.250%, 6/1/2008 $ 5,000,000 5,853,410
Washington Mutual, Sr Notes, 4.375%, 1/15/2008 $ 1,000,000 1,062,219
Wells Fargo & Co, Notes, 5.250%, 12/1/2007 $ 3,000,000 3,316,668
============================================================================================
10,232,297
1.10 BREWERS
Anheuser-Busch Cos, Notes, 5.375%, 9/15/2008 $ 8,000,000 8,982,024
============================================================================================
0.39 DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc, Notes, 4.125%, 6/30/2005 $ 3,000,000 3,146,271
============================================================================================
0.11 FOREST PRODUCTS
Weyerhaeuser Co, Notes, 6.750%, 3/15/2012 $ 760,000 876,999
============================================================================================
0.20 HOUSEHOLD PRODUCTS
Procter & Gamble, Notes, 4.750%, 6/15/2007 $ 1,500,000 1,632,597
============================================================================================
0.42 INTEGRATED TELECOMMUNICATION SERVICES
Verizon Global Funding, Notes, 6.125%, 6/15/2007 $ 3,000,000 3,393,066
============================================================================================
0.68 PACKAGED FOODS & MEATS
CPC International, Notes, Series C, 6.150%,
1/15/2006 $ 5,000,000 5,509,055
============================================================================================
0.10 PAPER PRODUCTS
International Paper, Notes, 5.850%, 10/30/2012 $ 730,000 807,814
============================================================================================
0.43 RAILROADS
Burlington Northern Santa Fe, Notes, 6.125%,
3/15/2009 $ 3,000,000 3,466,059
============================================================================================
0.16 SOFT DRINKS
Coca-Cola Enterprises, Notes, 4.375%, 9/15/2009 $ 1,250,000 1,338,401
============================================================================================
TOTAL CORPORATE BONDS (Amortized Cost $40,808,634) 44,614,168
============================================================================================
TOTAL FIXED INCOME SECURITIES
(AMORTIZED COST $224,615,067) 232,928,193
============================================================================================
5.40 SHORT-TERM INVESTMENTS
1.90 US Government Agency Obligations
Fannie Mae, Benchmark Notes, 5.125%, 2/13/2004
(Amortized Cost $14,837,148) $ 15,000,000 15,409,425
============================================================================================
FS-13
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------------
0.63 CORPORATE BONDS -- DIVERSIFIED FINANCIAL SERVICES
Associates Corp of North America, Sr Notes,
5.500%, 2/15/2004
(Amortized Cost $4,995,925) $ 5,000,000 $ 5,150,515
============================================================================================
2.83 COMMERCIAL PAPER -- CONSUMER RECEIVABLES
New Center Asset Trust, Series 1, Discount
Notes, 1.340%, 6/2/2003 (Amortized Cost
$22,999,144) $ 23,000,000 22,999,144
============================================================================================
0.04 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 5/30/2003 due 6/2/2003 at 1.220%,
repurchased at $291,030 (Collateralized
by Federal Home Loan Bank, Bonds, due
3/29/2004 at 1.400%, value $301,003)
(Cost $291,000) $ 291,000 291,000
============================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $43,123,217) 43,850,084
============================================================================================
103.03 TOTAL INVESTMENTS AT VALUE
(COST $820,554,273) 837,295,543
============================================================================================
(3.03) OTHER ASSETS LESS LIABILITIES (24,605,674)
============================================================================================
100.00 NET ASSETS AT VALUE $ 812,689,869
============================================================================================
(a) HOLDRs - Holding Company Depositary Receipts.
(b) Security is non-income producing.
(c) DIAMONDS Trust Series 1 is a unit investment trust that issues securities
called "DIAMONDS". DIAMONDS represent an undivided ownership interest in a
portfolio of all the common stocks of the Dow Jones Industrial Average.
See Notes to Financial Statements
FS-14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
MAY 31, 2003
CORE
BALANCED EQUITY
FUND FUND
- --------------------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 734,591,888 $ 2,126,661,690
============================================================================================
At Value(a) $ 788,367,258 $ 2,561,095,004
Cash 558,787 34,541
Receivables:
Investment Securities Sold 24,219,797 3,489,218
Fund Shares Sold 658,905 971,350
Dividends and Interest 2,324,794 4,769,122
Loans to Affiliated Fund (Note 6) 0 2,702,000
Prepaid Expenses and Other Assets 71,256 256,802
============================================================================================
TOTAL ASSETS 816,200,797 2,573,318,037
============================================================================================
LIABILITIES
Payables:
Distributions to Shareholders 3,808 408,416
Investment Securities Purchased 4,269,554 14,492,140
Fund Shares Repurchased 631,812 1,621,293
Accrued Distribution Expenses
Investor Class 112,036 519,300
Class A 108 1,316
Class B 197 992
Class C 2,181 7,263
Class K 3,271 8,046
Accrued Expenses and Other Payables 82,054 517,349
============================================================================================
TOTAL LIABILITIES 5,105,021 17,576,115
============================================================================================
NET ASSETS AT VALUE $ 811,095,776 $ 2,555,741,922
============================================================================================
NET ASSETS
Paid-in Capital(b) $ 1,100,589,202 $ 2,375,076,580
Accumulated Undistributed Net Investment
Income (Loss) 641,155 (288,750)
Accumulated Undistributed Net Realized
Loss on Investment Securities (343,909,951) (253,479,222)
Net Appreciation of Investment Securities 53,775,370 434,433,314
============================================================================================
NET ASSETS AT VALUE, Applicable to Shares
Outstanding $ 811,095,776 $ 2,555,741,922
============================================================================================
NET ASSETS AT VALUE:
Institutional Class $ 261,560,380 --
============================================================================================
Investor Class $ 537,542,996 $ 2,518,440,996
============================================================================================
Class A $ 376,364 $ 4,673,885
============================================================================================
Class B $ 255,409 $ 1,264,255
============================================================================================
Class C $ 2,877,576 $ 8,912,370
============================================================================================
Class K $ 8,483,051 $ 22,450,416
============================================================================================
FS-15
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
MAY 31, 2003
CORE
BALANCED EQUITY
FUND FUND
(CONTINUED) (CONTINUED)
- --------------------------------------------------------------------------------------------
Shares Outstanding
Institutional Class 20,469,404 --
Investor Class 41,332,600 241,368,536
Class A 29,812 451,386
Class B 20,550 123,154
Class C 220,821 861,637
Class K 658,739 2,190,538
============================================================================================
NET ASSET VALUE PER SHARE:
Institutional Class, Offering and Redemption
Price per Share $ 12.78 --
Investor Class, Offering and Redemption Price
per Share $ 13.01 $ 10.43
Class A
Redemption Price per Share $ 12.62 $ 10.35
Offering Price per Share (Maximum sales
charge of 5.50%) $ 13.35 $ 10.95
Class B, Offering and Redemption Price
per Share $ 12.43 $ 10.27
Class C, Offering and Redemption Price
per Share $ 13.03 $ 10.34
Class K, Offering and Redemption Price
per Share $ 12.88 $ 10.25
============================================================================================
(a) Investment securities at cost and value at May 31, 2003 include repurchase agreements
of $1,900,000 and $1,915,000 for Balanced and Core Equity Funds, respectively.
(b) The INVESCO Combination Stock & Bond Funds, Inc. have 7.5 billion authorized
shares of common stock, par value of $0.01 per share. Of such shares, 700 million
have been allocated to Balanced Fund and 5 billion to Core Equity Fund: 200
million to Balanced Fund - Investor Class, 100 million to each additional class
of Balanced Fund and 1 billion to each class of Core Equity Fund.
See Notes to Financial Statements
FS-16
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
MAY 31, 2003
TOTAL RETURN
FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 820,554,273
================================================================================
At Value(a) $ 837,295,543
Cash 661,095
Receivables:
Investment Securities Sold 1,133,180
Fund Shares Sold 1,021,595
Dividends and Interest 2,952,911
Prepaid Expenses and Other Assets 124,740
================================================================================
TOTAL ASSETS 843,189,064
================================================================================
LIABILITIES
Payables:
Distributions to Shareholders 82,497
Investment Securities Purchased 16,793,034
Fund Shares Repurchased 13,271,979
Accrued Distribution Expenses
Investor Class 171,386
Class A 164
Class B 407
Class C 638
Accrued Expenses and Other Payables 179,090
================================================================================
TOTAL LIABILITIES 30,499,195
================================================================================
NET ASSETS AT VALUE $ 812,689,869
================================================================================
NET ASSETS
Paid-in Capital(b) $ 846,270,108
Accumulated Undistributed Net Investment Loss (23,154)
Accumulated Undistributed Net Realized Loss
on Investment Securities (50,298,355)
Net Appreciation of Investment Securities 16,741,270
================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 812,689,869
================================================================================
NET ASSETS AT VALUE:
Investor Class $ 810,787,002
================================================================================
Class A $ 546,166
================================================================================
Class B $ 569,733
================================================================================
Class C $ 786,968
================================================================================
FS-17
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
MAY 31, 2003
TOTAL RETURN
FUND
(CONTINUED)
- --------------------------------------------------------------------------------
Shares Outstanding
Investor Class 36,923,936
Class A 25,439
Class B 26,741
Class C 36,652
================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and Redemption Price per Share $ 21.96
Class A
Redemption Price per Share $ 21.47
Offering Price per Share (Maximum sales charge of 5.50%) $ 22.72
Class B, Offering and Redemption Price per Share $ 21.31
Class C, Offering and Redemption Price per Share $ 21.47
================================================================================
(a) Investment securities at cost and value at May 31, 2003 includes a
repurchase agreement of $291,000.
(b) The INVESCO Combination Stock & Bond Funds, Inc. have 7.5 billion
authorized shares of common stock, par value of $0.01 per share. Of such
shares, 1.3 billion have been allocated to Total Return Fund: 300 million
to each class.
See Notes to Financial Statements
FS-18
STATEMENT OF OPERATIONS
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
YEAR ENDED MAY 31, 2003
CORE
BALANCED EQUITY
FUND FUND
- --------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 6,876,181 $ 44,239,439
Dividends from Affiliated Investment Companies 22,089 95,457
Interest 14,498,434 8,087,971
Foreign Taxes Withheld (31,236) (312,360)
============================================================================================
TOTAL INCOME 21,365,468 52,110,507
============================================================================================
EXPENSES
Investment Advisory Fees 4,664,989 12,910,344
Distribution Expenses 1,555,775 6,432,973
Transfer Agent Fees 3,057,647 5,555,930
Administrative Services Fees 382,599 1,148,535
Custodian Fees and Expenses 112,798 300,939
Directors' Fees and Expenses 75,730 210,840
Interest Expenses 1,456 0
Professional Fees and Expenses 73,033 162,181
Registration Fees and Expenses
Institutional Class 11,621 --
Investor Class 22,485 34,474
Class A 650 675
Class B 647 646
Class C 1,581 1,556
Class K 1,944 1,934
Reports to Shareholders 140,704 817,612
Other Expenses 52,387 138,714
============================================================================================
TOTAL EXPENSES 10,156,046 27,717,353
Fees and Expenses Absorbed/Reimbursed by
Investment Adviser (352,585) (132,953)
Fees and Expenses Paid Indirectly (1,433) (281,367)
============================================================================================
NET EXPENSES 9,802,028 27,303,033
============================================================================================
NET INVESTMENT INCOME 11,563,440 24,807,474
============================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on Investment Securities (115,948,604) (211,794,329)
Change in Net Appreciation/Depreciation of
Investment Securities 44,906,678 (136,219,795)
============================================================================================
NET LOSS ON INVESTMENT SECURITIES (71,041,926) (348,014,124)
============================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS $ (59,478,486) $ (323,206,650)
============================================================================================
See Notes to Financial Statements
FS-19
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
YEAR ENDED MAY 31, 2003
TOTAL RETURN
FUND
================================================================================
INVESTMENT INCOME
INCOME
Dividends $ 12,122,216
Interest 15,452,484
Securities Loaned Income 15,284
Foreign Taxes Withheld (67,567)
================================================================================
TOTAL INCOME 27,522,417
================================================================================
EXPENSES
Investment Advisory Fees 6,156,885
Distribution Expenses 2,185,927
Transfer Agent Fees 3,876,792
Administrative Services Fees 402,096
Custodian Fees and Expenses 113,868
Directors' Fees and Expenses 80,775
Interest Expenses 4,049
Professional Fees and Expenses 79,210
Registration Fees and Expenses
Investor Class 24,273
Class A 684
Class B 655
Class C 1,537
Reports to Shareholders 87,009
Other Expenses 51,128
================================================================================
TOTAL EXPENSES 13,064,888
Fees and Expenses Absorbed/Reimbursed by Investment Adviser (2,095,217)
Fees and Expenses Paid Indirectly (707)
================================================================================
NET EXPENSES 10,968,964
================================================================================
NET INVESTMENT INCOME 16,553,453
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on Investment Securities (45,793,592)
Change in Net Appreciation/Depreciation of Investment Securities (34,951,619)
================================================================================
NET LOSS ON INVESTMENT SECURITIES (80,745,211)
================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (64,191,758)
================================================================================
See Notes to Financial Statements
FS-20
STATEMENT OF CHANGES IN NET ASSETS
BALANCED FUND
YEAR ENDED MAY 31
- --------------------------------------------------------------------------------
2003 2002
(Note 1)
OPERATIONS
Net Investment Income $ 11,563,440 $ 18,818,249
Net Realized Loss (115,948,604) (139,683,855)
Change in Net Appreciation/Depreciation 44,906,678 (31,166,727)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS (59,478,486) (152,032,333)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Institutional Class (4,506,597) (4,989,827)
Investor Class (6,060,708) (13,983,728)
Class A (10,306) (1,242)
Class B (7,524) (511)
Class C (3,968) (24,293)
Class K (63,377) (248,610)
================================================================================
TOTAL DISTRIBUTIONS (10,652,480) (19,248,211)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Institutional Class 68,497,284 129,018,119
Investor Class 199,821,783 308,633,173
Class A 455,606 128,640
Class B 190,715 59,318
Class C 6,934,087 8,474,793
Class K 1,982,015 14,504,827
Reinvestment of Distributions
Institutional Class 4,506,597 4,989,827
Investor Class 5,972,502 13,828,226
Class A 9,666 1,242
Class B 6,127 511
Class C 3,455 19,826
Class K 63,378 248,610
================================================================================
288,443,215 479,907,112
Amounts Paid for Repurchases of Shares
Institutional Class (25,851,555) (28,508,579)
Investor Class (394,606,971) (483,435,395)
Class A (210,703) 0
Class B (2,096) 0
Class C (8,047,522) (11,537,947)
Class K (4,888,173) (1,803,768)
================================================================================
(433,607,020) (525,285,689)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (145,163,805) (45,378,577)
================================================================================
TOTAL DECREASE IN NET ASSETS (215,294,771) (216,659,121)
NET ASSETS
Beginning of Period 1,026,390,547 1,243,049,668
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income
(Loss) of $641,155 and ($26,898),
respectively) $ 811,095,776 $1,026,390,547
================================================================================
See Notes to Financial Statements
FS-21
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
CORE EQUITY FUND
YEAR ENDED MAY 31
- --------------------------------------------------------------------------------
2003 2002
(Note 1)
OPERATIONS
Net Investment Income $ 24,807,474 $ 44,815,277
Net Realized Loss (211,794,329) (33,245,896)
Change in Net Appreciation/Depreciation (136,219,795) (511,535,308)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS (323,206,650) (499,965,927)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (24,864,139) (165,670,113)
Class A (52,765) (2,047)
Class B (7,356) (1,781)
Class C 0 (359,720)
Class K (25,622) (739,296)
================================================================================
TOTAL DISTRIBUTIONS (24,949,882) (166,772,957)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 1,296,519,272 603,172,593
Class A 7,869,888 303,006
Class B 1,058,736 262,620
Class C 9,600,440 13,639,460
Class K 8,695,901 29,970,996
Reinvestment of Distributions
Investor Class 22,900,224 154,372,395
Class A 49,151 1,436
Class B 5,441 1,309
Class C 0 349,517
Class K 25,622 739,271
================================================================================
1,346,724,675 802,812,603
Amounts Paid for Repurchases of Shares
Investor Class (1,642,243,200) (1,028,601,609)
Class A (3,731,262) (46)
Class B (89,621) 0
Class C (9,306,189) (12,826,301)
Class K (10,996,919) (1,534,657)
================================================================================
(1,666,367,191) (1,042,962,613)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (319,642,516) (240,150,010)
================================================================================
TOTAL DECREASE IN NET ASSETS (667,799,048) (906,888,894)
NET ASSETS
Beginning of Period 3,223,540,970 4,130,429,864
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss of
($288,750) and ($146,342),
respectively) $ 2,555,741,922 $3,223,540,970
================================================================================
See Notes to Financial Statements
FS-22
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
TOTAL RETURN FUND
YEAR ENDED MAY 31
- --------------------------------------------------------------------------------
2003 2002
(Note 1)
OPERATIONS
Net Investment Income $ 16,553,453 $ 19,651,747
Net Realized Gain (Loss) (45,793,592) 40,509,373
Change in Net Appreciation/Depreciation (34,951,619) (129,974,628)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS (64,191,758) (69,813,508)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (42,820,938) (55,124,752)
Class A (25,176) (1,067)
Class B (21,711) (973)
Class C (20,992) (17,443)
================================================================================
TOTAL DISTRIBUTIONS (42,888,817) (55,144,235)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 196,083,892 312,906,719
Class A 2,060,140 93,238
Class B 495,653 91,181
Class C 4,119,897 9,997,919
Reinvestment of Distributions
Investor Class 42,329,594 54,393,521
Class A 22,066 1,067
Class B 15,749 413
Class C 20,775 17,443
================================================================================
245,147,766 377,501,501
Amounts Paid for Repurchases of Shares
Investor Class (400,808,650) (624,755,474)
Class A (1,616,139) 0
Class B (23,368) 0
Class C (3,899,641) (9,695,008)
================================================================================
(406,347,798) (634,450,482)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (161,200,032) (256,948,981)
================================================================================
TOTAL DECREASE IN NET ASSETS (268,280,607) (381,906,724)
NET ASSETS
Beginning of Period 1,080,970,476 1,462,877,200
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss of
($23,154) and ($107,081), respectively) $ 812,689,869 $1,080,970,476
================================================================================
See Notes to Financial Statements
FS-23
NOTES TO FINANCIAL STATEMENTS
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Combination
Stock & Bond Funds, Inc. is incorporated in Maryland and presently consists of
three separate funds: Balanced Fund, Core Equity Fund and Total Return Fund
(individually the "Fund" and collectively, the "Funds"). The investment
objectives of the Funds are: to achieve a high total return on investments
through growth and current income. INVESCO Combination Stock & Bond Funds, Inc.
is registered under the Investment Company Act of 1940 (the "Act") as a
diversified, open-end management investment company.
Effective April 1, 2002, the Funds began offering two additional classes of
shares, referred to as Class A and Class B shares. Total Return Fund's Class K
shares were effective September 30, 2001. Income, expenses (other than those
attributable to a specific class) and realized and unrealized gains and losses
are allocated daily to each class of shares based on the relative proportion of
net assets represented by such class. Operating expenses directly attributable
to a specific class are charged against operations of that class. Class A shares
are sold with a front-end sales charge ranging from 5.50% to 2.00% of the
offering price on purchases of less than $1,000,000. Class B shares and Class C
shares are subject to a contingent deferred sales charge paid by the redeeming
shareholder. Class B shares convert to Class A shares after eight years along
with a pro rata portion of its reinvested dividends and distributions.
Effective April 1, 2002, the Investor Class shares are offered only to
grandfathered investors who have established and maintained an account in any of
the funds managed and distributed by INVESCO Funds Group, Inc. ("IFG") in
Investor Class shares prior to April 1, 2002.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Domestic (U.S.) equity securities traded on national
securities exchanges or in the over-the-counter market are valued at the last
sales price at the close of the regular trading day on the exchange (generally
4:00 p.m. Eastern time) where such securities are primarily traded. If last
sales prices are not available, securities are valued at the closing bid price
for the regular trading day as obtained from one or more dealers making a market
for such securities or by a pricing service approved by the Fund's board of
directors.
Debt securities are valued at evaluated bid prices as determined by a pricing
service approved by the Fund's board of directors. If evaluated bid prices are
not available, debt securities are valued by averaging the bid prices obtained
from one or more dealers making a market for such securities.
Foreign equity securities are valued at the closing price. The closing price is
designated by the principal stock exchange in the country in which the
securities are traded. In the event that closing prices are not available for
foreign securities, a snapshot of prices will be obtained from the principal
stock exchange at or prior to the close of the New York Stock Exchange. Foreign
currency exchange rates are determined daily prior to the close of the New York
Stock Exchange.
Investments in shares of investment companies are valued at the net asset value
of the respective fund as calculated each day.
FS-24
If market quotations or pricing service valuations are not readily available, or
events or circumstances that may affect the value of portfolio securities are
identified between the closing of their principal markets and the time that the
net asset value per share is determined, securities are valued at fair value as
determined in good faith under procedures established by the Fund's board of
directors.
Short-term securities are stated at amortized cost (which approximates market
value) if maturity is 60 days or less at the time of purchase, or market value
if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the date of valuation.
B. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by securities issued by the U.S. Government, its agencies or
instrumentalities and such collateral is in the possession of the Fund's
custodian. The collateral is evaluated daily to ensure its market value exceeds
the current market value of the repurchase agreements including accrued
interest. In the event of default on the obligation to repurchase, the Fund has
the right to liquidate the collateral and apply the proceeds in satisfaction of
the obligation.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income, which may be comprised of stated coupon rate,
market discount, original issue discount or amortized premium, is recorded on
the accrual basis. Discounts or premiums on debt securities purchased are
amortized over the life of the respective security as adjustments to interest
income. Cost is determined on the specific identification basis. Certain
dividends from foreign securities will be recorded as soon as the Fund is
informed of the dividend if such information is obtained subsequent to the
ex-dividend date. Investment income received from foreign sources may be subject
to foreign withholding taxes. Dividend and interest income is shown gross of
foreign withholding taxes in the accompanying financial statements. Income and
expenses on foreign securities are translated into U.S. dollars at rates of
exchange prevailing when accrued. The cost of foreign securities is translated
into U.S. dollars at the rates of exchange prevailing when such securities are
acquired.
Each Fund may invest in securities issued by other INVESCO investment companies
that invest in short-term debt securities and seek to maintain a net asset value
of one dollar per share. During the year ended May 31, 2003, Balanced and Core
Equity Funds invested in INVESCO Treasurer's Series Money Market Reserve Fund.
During that same period there were no such investments by Total Return Fund. The
income from this investment is recorded in the Statement of Operations.
The Fund may have elements of risk due to investments in specific industries or
foreign issuers located in a specific country. Such investments may subject the
Fund to additional risks resulting from future political or economic conditions
and/or possible impositions of adverse foreign governmental laws or currency
exchange restrictions. Net realized and unrealized gain or loss from investment
securities includes fluctuations from currency exchange rates and fluctuations
in market value.
The Fund's use of short-term forward foreign currency contracts may subject it
to certain risks as a result of unanticipated movements in foreign exchange
rates. The Fund does not hold short-term forward foreign currency contracts for
trading purposes. The Fund may hold foreign currency in anticipation of settling
foreign security transactions and not for investment purposes.
Investments in securities of U.S. Government agencies or instrumentalities may
only be guaranteed by the respective agency's limited authority to borrow from
the U.S. Government and may not be guaranteed by the full faith and credit of
the U.S. Government.
FS-25
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded by the Fund on the ex-dividend/distribution date. The
Fund distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers.
E. TAX INFORMATION -- The Fund has complied, and continues to comply, with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and, accordingly, has made or intends to make sufficient distributions
of net investment income and net realized capital gains, if any, to relieve it
from all federal and state income taxes and federal excise taxes.
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders. The tax composition of distributions from
ordinary income, long-term capital gains and of the ordinary income
distributions declared for the year ended May 31, 2003, and amounts qualifying
for the dividends received deduction available to the Fund's corporate
shareholders were as follows:
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 2003 MAY 31, 2003 MAY 31, 2003 MAY 31, 2002 MAY 31, 2002
ORDINARY INCOME LONG-TERM CAPITAL QUALIFYING ORDINARY INCOME LONG-TERM CAPITAL
FUND DISTRIBUTIONS GAIN DISTRIBUTIONS PERCENTAGE DISTRIBUTIONS GAIN DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------
Balanced Fund $ 10,652,480 $ 0 57.99% $ 19,248,211 $ 0
Core Equity Fund 24,949,882 0 99.99% 44,706,262 122,066,695
Total Return Fund 23,578,246 19,310,571 48.13% 19,208,537 35,935,698
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from accounting prinicples generally accepted
in the United States.
The tax components of the Fund at May 31, 2003 include:
COST OF GROSS TAX GROSS TAX NET TAX
INVESTMENTS FOR UNREALIZED UNREALIZED APPRECIATION
FUND TAX PURPOSES APPRECIATION DEPRECIATION ON INVESTMENTS
- --------------------------------------------------------------------------------------------
Balanced Fund $ 751,920,751 $ 64,047,494 $ 27,600,987 $ 36,446,507
Core Equity Fund 2,136,952,159 530,611,463 106,468,618 424,142,845
Total Return Fund 822,453,903 89,100,523 74,258,883 14,841,640
ACCUMULATED CUMULATIVE EFFECT
UNDISTRIBUTED CAPITAL LOSS OF OTHER
FUND ORDINARY INCOME CARRYOVERS TIMING DIFFERENCES
- -------------------------------------------------------------------------------------------------
Balanced Fund $ 697,547 $(310,588,135) $ (16,049,345)
Core Equity Fund 247,181 (240,170,249) (3,554,435)
Total Return Fund 196,783 (48,378,800) (239,862)
The primary difference between book and tax appreciation/depreciation is wash
sale loss deferrals.
Capital loss carryovers expire in the years 2010 and 2011.
To the extent future capital gains and income are offset by capital and currency
loss carryovers and deferred post-October 31 losses, such gains and income will
not be distributed to shareholders. Deferred post-October 31 capital losses are:
Balanced Fund $15,992,953, Core Equity Fund $3,018,504 and Total Return Fund
$23,290.
FS-26
F. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund enters into short-term forward
foreign currency contracts in connection with planned purchases or sales of
securities as a hedge against fluctuations in foreign exchange rates pending the
settlement of transactions in foreign securities. A forward foreign currency
contract is an agreement between contracting parties to exchange an amount of
currency at some future time at an agreed upon rate. These contracts are
marked-to-market daily and the related appreciation or depreciation of the
contracts is presented in the Statement of Assets and Liabilities. Any realized
gain or loss incurred by the Fund upon the sale of securities is included in the
Statement of Operations.
G. EXPENSES -- Each Fund or Class bears expenses incurred specifically on its
behalf and, in addition, each Fund or Class bears a portion of general expenses,
based on the relative net assets of each Fund or Class.
Under an agreement between each Fund and the Fund's Custodian, certain Custodian
Fees and Expenses are reduced by credits granted by the Custodian from any
temporarily uninvested cash. Similarly, Custodian Fees and Expenses for Core
Equity Fund are reduced by credits earned from security brokerage transactions
under certain broker/service arrangements with third parties. Such credits are
included in Fees and Expenses Paid Indirectly in the Statement of Operations.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. IFG serves as the Funds'
investment adviser. As compensation for its services to the Funds, IFG receives
an investment advisory fee which is accrued daily at the applicable rate and
paid monthly. The fee is based on the annual rate of each Fund's average net
assets as follows:
AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
$500 $700 $1 $2 $4 $6
$0 TO $0 TO $350 TO MILLION MILLION BILLION BILLION BILLION BILLION OVER
$350 $500 $700 TO $1 TO $2 TO $2 TO $4 TO $6 TO $8 $8
FUND MILLION MILLION MILLION BILLION BILLION BILLION BILLION BILLION BILLION BILLION
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund 0.60% -- 0.55% -- 0.50% -- 0.45% 0.40% 0.375% 0.35%
Core Equity Fund 0.60% -- 0.55% -- 0.50% -- 0.45% 0.40% 0.375% 0.35%
Total Return Fund -- 0.75% -- 0.65% -- 0.50% 0.45% 0.40% 0.375% 0.35%
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to INVESCO Distributors,
Inc. ("IDI" or the "Distributor"), a wholly owned subsidiary of IFG, of 0.25% of
annual average net assets of Investor Class shares. A master distribution plan
and agreement for Class A, Class B and Class C shares pursuant to Rule 12b-1 of
the Act provides for compensation of certain promotional and other sales related
costs to IDI. Class A shares of the Fund pay compensation to IDI at a rate of
0.35% of annual average net assets. During any period that Class A shares of the
Fund are closed to new investors, the Fund will reduce this payment for Class A
shares from 0.35% to 0.25% per annum. Class B and Class C shares of the Fund pay
compensation to IDI at a rate of 1.00% of annual average net assets. Of these
amounts, IDI may pay a service fee of 0.25% of the average net assets of the
Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the applicable class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose caps on the total sales charges,
including asset-based sales charges, that may be paid by the respective class. A
plan of distribution pursuant to Rule 12b-1 of the Act provides for financing
the distribution and continuing personal shareholder servicing of Class K shares
of 0.45% of annual average net assets. Any unreimbursed expenses IDI incurs with
respect to Investor Class, Class A, Class C and Class K shares in any fiscal
year can not be recovered in subsequent years. Effective July 1, 2003, the
distributor will change to AIM Distributors, Inc., an affiliate of IFG. For the
year ended May 31, 2003, amounts paid to the Distributor were as follows:
FS-27
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- --------------------------------------------------------------------------------------------
Balanced Fund $ 1,540,443 $ 797 $ 1,290 $ 29,887 $ 44,231
Core Equity Fund 6,417,074 8,414 4,898 81,386 94,082
Total Return Fund 2,234,883 1,373 2,316 6,790 --
If the Class B Plan is terminated, the Board of Directors may allow the Class B
shares to continue payments of the asset-based sales charge to the Distributor
for allowable unreimbursed expenses incurred for distributing shares before the
Class B Plan was terminated. The Class B Plan allows for the carry-forward of
distribution expenses, to be recovered from asset-based sales charges in
subsequent fiscal periods. Distribution fees related to the Distributor for the
year ended May 31, 2003, for Class B were as follows:
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
AMOUNT RETAINED EXPENSES OF NET ASSETS
FUND BY DISTRIBUTOR UNDER PLAN OF CLASS
- --------------------------------------------------------------------------------------------------
Balanced Fund - Class B Plan $ 1,394 $ 5,168 2.02%
Core Equity Fund - Class B Plan 5,683 33,641 2.66%
Total Return Fund - Class B Plan 2,552 12,037 2.11%
Distribution Expenses for each class as presented in the Statement of Operations
for the year ended May 31, 2003 were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- --------------------------------------------------------------------------------------------
Balanced Fund $ 1,482,411 $ 892 $ 1,445 $ 28,287 $ 42,740
Core Equity Fund 6,246,126 9,676 5,727 80,264 91,180
Total Return Fund 2,174,838 1,515 2,659 6,915 --
IFG receives a transfer agent fee from each Class at an annual rate of $22.50
per shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. Aggregate fees collected for such omnibus accounts
for the year ended May 31, 2003 amounted to $2,497,242 for Balanced Fund,
$1,935,334 for Core Equity Fund and $3,535,279 for Total Return Fund, of which
$764,686, $937,823 and $1,800,906, respectively, were retained by IFG. The fee
is paid monthly at one-twelfth of the annual fee and is based upon the actual
number of accounts in existence during each month. Transfer agent fees for each
class as presented in the Statement of Operations for the year ended May 31,
2003 were as follows:
FS-28
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- ---------------------------------------------------------------------------------------------------
Balanced Fund $ 690,836 $ 2,305,641 $ 1,058 $ 660 $ 22,286 $ 37,166
Core Equity Fund -- 5,196,034 4,158 1,945 34,617 319,176
Total Return Fund -- 3,868,389 739 714 6,950 --
In accordance with an Administrative Services Agreement, each Fund pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.045% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG has voluntarily agreed to absorb and assume certain fees and expenses
incurred by the Funds. IFG is entitled to reimbursement from a Fund share class
that has fees and expenses voluntarily absorbed pursuant to this arrangement if
such reimbursements do not cause a share class to exceed voluntary expense
limitations and the reimbursement is made within three years after IFG incurred
the expense. For the year ended May 31, 2003, total fees and expenses
voluntarily absorbed were as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- ---------------------------------------------------------------------------------------------------
Balanced Fund $ 0 $ 319,653 $ 2,966 $ 3,523 $ 20,720 $ 5,723
Core Equity Fund -- 0 0 2,300 0 130,653
Total Return Fund -- 2,080,446 2,592 3,513 8,666 --
At May 31, 2003, the reimbursement that may potentially be made by the Funds to
IFG and that will expire during the years ended May 31, 2005 and 2006, are as
follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- ---------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 2005
Balanced Fund $ 0 $ 0 $ 0 $ 4 $ 1,795 $ 0
Core Equity Fund -- 0 0 0 0 0
Total Return Fund -- 25,734 0 1 0 --
YEAR ENDED MAY 31, 2006
Balanced Fund $ 0 $ 319,653 $ 2,966 $ 3,519 $ 18,925 $ 5,723
Core Equity Fund -- 0 0 2,300 0 130,653
Total Return Fund -- 2,054,712 2,592 3,512 8,666 --
During the year ended May 31, 2003, the reimbursement that was made by the Funds
to IFG were as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- ---------------------------------------------------------------------------------------------------
Balanced Fund $ 0 $ 22,888 $ 0 $ 0 $ 0 $ 2,519
Core Equity Fund -- 0 0 142 0 36,157
Total Return Fund -- 42,386 49 0 0 --
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended May
31, 2003, the aggregate cost of purchases and proceeds from sales of investment
securities (excluding all U.S. Government securities and short-term securities)
were as follows:
FS-29
FUND PURCHASES SALES
- -------------------------------------------------------------------------------------------------
Balanced Fund $ 587,041,076 $ 641,523,064
Core Equity Fund 864,586,087 1,056,606,424
Total Return Fund 237,710,638 329,243,063
For the year ended May 31, 2003, the aggregate cost of purchases and proceeds
from the sales of U.S. Government securities were as follows:
FUND PURCHASES SALES
- ------------------------------------------------------------------------------------------------
Balanced Fund $ 152,841,011 $ 187,287,690
Core Equity Fund 11,404,824 11,591,849
Total Return Fund 148,624,215 172,857,771
NOTE 4 -- TRANSACTIONS WITH AFFILIATES AND AFFILIATED COMPANIES. Certain of the
Funds' officers and directors are also officers and directors of IFG or IDI.
Each Fund has adopted a retirement plan covering all independent directors of
the Fund who will have served as an independent director for at least five years
at the time of retirement. Benefits under this plan are based on an annual rate
as defined in the plan agreement, as amended March 1, 2001. Effective November
8, 2002, the plan provides that a director, prior to retirement, may elect to
convert amounts accrued under this plan into a new deferred retirement plan.
Pension expenses for the year ended May 31, 2003, included in Directors' Fees
and Expenses in the Statement of Operations and pension liability included in
Accrued Expenses in the Statement of Assets and Liabilities were as follows:
PENSION PENSION
FUND EXPENSES LIABILITY
- --------------------------------------------------------------------------------------------
Balanced Fund $ 31,006 $ 36,275
Core Equity Fund 92,034 327,640
Total Return Fund 34,042 132,192
The independent directors have contributed to a deferred fee agreement plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds. The
deferred amounts may be invested in the shares of any of the INVESCO Funds,
excluding the INVESCO Variable Investment Funds.
An affiliated company represents ownership by a Fund of at least 5% of the
voting securities of the issuer or may be affiliated with other INVESCO
investment companies during the period, as defined in the Act. A summary of the
transactions during the year ended May 31, 2003, in which the issuer was an
affiliate of the Fund, is as follows:
FS-30
REALIZED
PURCHASES SALES GAIN (LOSS) ON
------------------------------------------------------- INVESTMENT VALUE AT
AFFILIATE SHARES COST SHARES PROCEEDS SECURITIES 5/31/2003
- -------------------------------------------------------------------------------------------------------------
BALANCED FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 15,010,274 $ 15,010,274 15,010,274 $ 15,010,274 $ 0 --
CORE EQUITY FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 50,088,819 50,088,819 128,688,282 128,688,282 0 --
TOTAL RETURN FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 14,888,550 14,888,550 14,888,550 14,888,550 0 --
Dividend income from INVESCO Treasurer's Series Money Market Reserve Fund is
disclosed in the Statement of Operations.
NOTE 5 -- SECURITIES LOANED. The Funds have entered into a securities lending
agreement with the custodian. Under the terms of the agreement, the Funds
receive income, recorded monthly, after deduction of other amounts payable to
the custodian or to the borrower from lending transactions. In exchange for such
fees, the custodian is authorized to loan securities on behalf of the Funds,
against receipt of collateral at least equal in value to the value of securities
loaned. Cash collateral is invested by the custodian in the INVESCO Treasurer's
Series Money Market Reserve Fund or securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Fund bears the risk of any
deficiency in the amount of collateral available for return to a borrower due to
a loss in an approved investment. The securities loaned income is recorded in
the Statement of Operations. Of the securities lending income received for Total
Return Fund $15,284 was received from INVESCO Treasurer's Series Money Market
Reserve Fund. During the year ended May 31, 2003, there were no such securities
lending arrangements for Balanced and Core Equity Funds.
NOTE 6 -- INTERFUND BORROWING AND LENDING. Each Fund is party to an interfund
lending agreement between each Fund and other INVESCO sponsored mutual funds,
which permit it to borrow or lend cash, at rates beneficial to both the
borrowing and lending funds. Loans totaling 10% or more of a borrowing Fund's
total assets are collateralized at 102% of the value of the loan; loans of less
than 10% are unsecured. The Funds may borrow up to 10% of its total net assets
for temporary or emergency purposes. During the year ended May 31, 2003,
Balanced and Total Return Funds borrowed cash at a weighted average rate ranging
from 1.82% to 1.86% and interest expenses amounted to $1,456 and $4,049,
respectively. During that same period, Balanced, Core Equity and Total Return
Funds lent cash at a weighted average rate ranging from 1.49% to 2.01% and
interest income amounted to $194, $101,513 and $229, respectively. At May 31,
2003 Core Equity Fund had lent to INVESCO Sector Funds, Inc. - Energy and Health
Sciences Funds at an interest rate of 1.55%. The amount of the borrowing and the
related accrued interest are presented in the Statement of Assets and
Liabilities. On June 2, 2003, INVESCO Sector Funds, Inc. - Energy and Health
Sciences Funds paid the borrowing back to Core Equity Fund in full including
interest.
FS-31
NOTE 7 -- LINE OF CREDIT. Each Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the net assets at value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. During the
year ended May 31, 2003, there were no such borrowings for any Fund.
NOTE 8 -- CONTINGENT DEFERRED SALES CHARGE ("CDSC"). Class A shares may charge a
1.00% CDSC if a shareholder purchased $1,000,000 or more and redeemed these
shares within 18 months from the date of purchase. Effective November 15, 2002,
qualified plans investing in Class A shares may pay a 1.00% CDSC and Class K
shares may pay a 0.70% CDSC if a shareholder redeemed these shares within 12
months from the date of purchase. A CDSC is charged by Class B shares on
redemptions or exchanges of shares at a maximum of 5.00% beginning at the time
of purchase to 0.00% at the beginning of the seventh year. A 1.00% CDSC is
charged by Class C shares on redemptions or exchanges held thirteen months or
less. Shares acquired through reinvestment of dividends or other distributions
are not charged a CDSC. The CDSC may be reduced or certain sales charge
exceptions may apply. The CDSC is paid by the redeeming shareholder and
therefore it is not an expense of the Fund. For the year ended May 31, 2003, the
Distributor received the following CDSC from Class A, Class B, Class C and Class
K shareholders:
FUND CLASS A CLASS B CLASS C CLASS K
- --------------------------------------------------------------------------------------------
Balanced Fund $ 0 $ 106 $ 434 $ 0
Core Equity Fund 0 2,357 1,456 0
Total Return Fund 0 68 600 --
FS-32
NOTE 9 -- SHARE INFORMATION. Changes in fund share transactions during the year
ended May 31, 2003 and the year/period ended May 31, 2002 were as follows:
BALANCED FUND CORE EQUITY FUND TOTAL RETURN FUND
YEAR ENDED MAY 31 YEAR ENDED MAY 31 YEAR ENDED MAY 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002
(Note 1) (Note 1) (Note 1)
Shares Sold
Institutional Class 5,680,884 8,973,871 -- -- -- --
Investor Class 16,284,641 21,274,949 134,487,016 49,562,641 9,129,088 12,363,324
Class A 37,589 9,197 811,049 25,586 97,195 3,811
Class B 15,990 4,186 109,624 22,265 23,446 3,742
Class C 567,151 580,104 977,548 1,126,894 195,554 404,057
Class K 161,720 1,006,617 900,319 2,553,975 -- --
Shares Issued from
Reinvestment of Distributions
Institutional Class 368,173 354,117 -- -- -- --
Investor Class 483,306 963,572 2,317,437 13,026,257 1,980,593 2,193,619
Class A 795 90 5,018 124 1,053 44
Class B 509 37 557 113 754 17
Class C 280 1,369 0 29,820 1,004 724
Class K 5,180 17,628 2,620 63,627 -- --
====================================================================================================================================
23,606,218 33,185,737 139,611,188 66,411,302 11,428,687 14,969,338
Shares Repurchased
Institutional Class (2,147,935) (1,992,029) -- -- -- --
Investor Class (32,252,465) (33,417,240) (169,909,141) (84,345,529) (18,683,127) (24,729,012)
Class A (17,859) 0 (390,387) (4) (76,664) 0
Class B (172) 0 (9,405) 0 (1,218) 0
Class C (657,617) (801,596) (962,681) (1,065,563) (184,935) (392,568)
Class K (406,441) (126,023) (1,199,935) (130,138) -- --
====================================================================================================================================
(35,482,489) (36,336,888) (172,471,549) (85,541,234) (18,945,944) (25,121,580)
NET DECREASE IN
FUND SHARES (11,876,271) (3,151,151) (32,860,361) (19,129,932) (7,517,257) (10,152,242)
====================================================================================================================================
NOTE 10 -- SUBSEQUENT EVENTS. On June 9, 2003, the Board of Directors for
Balanced Fund ("Selling Fund") unanimously approved an Agreement and Plan of
Reorganization (the "Plan") pursuant to which the Selling Fund, would transfer
all of its assets and liabilities to Total Return Fund. The Plan is more fully
described in a proxy statment to be presented for shareholder consideration on
or around August 25, 2003.
FS-33
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
INVESCO Combination Stock & Bond Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of INVESCO Balanced Fund, INVESCO Core
Equity Fund, and INVESCO Total Return Fund (constituting INVESCO Combination
Stock & Bond Funds, Inc., hereafter referred to as the "Fund") at May 31, 2003,
the results of each of their operations for the year then ended, the changes in
each of their net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at May 31, 2003 by correspondence with the custodian
and the application of alternative auditing procedures where securities
purchased had not been received, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
June 27, 2003
FS-1
FINANCIAL HIGHLIGHTS
BALANCED FUND -- INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- --------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 13.64 $ 15.93 $ 17.74
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.21 0.29 0.35
Net Losses on Securities (Both Realized
and Unrealized) (0.83) (2.23) (1.50)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.62) (1.94) (1.15)
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.24 0.35(b) 0.66
================================================================================
Net Asset Value -- End of Period $ 12.78 $ 13.64 $ 15.93
================================================================================
TOTAL RETURN (4.52%) (12.20%) (6.59%)(c)
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 261,560 $ 226,167 $ 147,041
Ratio of Expenses to Average Net
Assets(d)(e) 0.97% 0.96% 1.01%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 1.61% 1.85% 2.16%(f)
Portfolio Turnover Rate 94% 87% 67%(g)
(a) From July 3, 2000, inception of Class, to May 31, 2001.
(b) Dividends and Distributions included a tax return of capital which
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) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the
period ended May 31, 2001. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.19%
(annualized) and ratio of net investment income to average net assets would
have 1.98% (annualized).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended May 31, 2001.
FS-34
BALANCED FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD YEAR
ENDED ENDED
YEAR ENDED MAY 31 MAY 31 JULY 31
- ---------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 13.79 $ 15.99 $ 17.18 $ 16.78 $ 15.71 $ 15.86
==================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.18 0.24 0.34 0.32 0.24 0.33
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.84) (2.22) (0.95) 0.92 1.73 1.50
==================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.66) (1.98) (0.61) 1.24 1.97 1.83
==================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.12 0.22(b) 0.58 0.84 0.90 1.98
==================================================================================================================================
Net Asset Value -- End of Period $ 13.01 $ 13.79 $ 15.99 $ 17.18 $ 16.78 $ 15.71
==================================================================================================================================
TOTAL RETURN (4.78%) (12.37%) (3.65%) 7.47% 13.12%(c) 12.90%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 537,543 $ 784,095 $ 1,087,540 $ 644,957 $ 324,838 $ 216,624
Ratio of Expenses to Average Net Assets(d)(e) 1.26% 1.22% 1.07% 1.15% 1.21%(f) 1.22%
Ratio of Net Investment Income to
Average Net Assets(e) 1.32% 1.63% 2.07% 1.98% 1.94%(f) 2.18%
Portfolio Turnover Rate 94% 87% 67% 89% 100%(c) 108%
(a) From August 1, 1998 to May 31, 1999.
(b) Dividends and Distributions included a tax return of capital which 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) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable, which is
before any expense offset arrangements (which may include custodian, distribution and transfer agent
fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year ended May 31, 2003. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would have been 1.31% and ratio of net investment
income to average net assets would have been 1.27%.
(f) Annualized
FS-35
FINANCIAL HIGHLIGHTS
BALANCED FUND -- CLASS A & CLASS B
- ----------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
- ----------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MAY 31 MAY 31 MAY 31 MAY 31
- ----------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 13.71 $ 14.45 $ 13.71 $ 14.45
==========================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.24 0.02 0.26 0.02
Net Losses on Securities (Both Realized and
Unrealized) (0.93) (0.62) (1.03) (0.64)
==========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.69) (0.60) (0.77) (0.62)
==========================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.40 0.14 0.51 0.12
==========================================================================================================
Net Asset Value -- End of Period $ 12.62 $ 13.71 $ 12.43 $ 13.71
==========================================================================================================
TOTAL RETURN(b) (4.88%) (4.19%)(c) (5.46%) (4.28%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 376 $ 127 $ 255 $ 58
Ratio of Expenses to Average Net Assets(d)(e) 1.34% 1.04%(f) 2.01% 1.77%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 1.21% 1.56%(f) 0.55% 1.01%(f)
Portfolio Turnover Rate 94% 87%(g) 94% 87%(g)
(a) From April 1, 2002, inception of Class, to May 31, 2002.
(b) The applicable sales charges for Class A or CDSC for Class B is not included in the Total Return
calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable,
which is before any expense offset arrangements (which may include custodian fees).
(e) Various expenses of each Class were voluntarily absorbed by IFG for the year ended May 31, 2003. If
such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have
been 2.51% for Class A and 4.45% for Class B and ratio of net investment income (loss) to average net
assets would have been 0.04% for Class A and (1.89%) for Class B.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2002.
FS-36
FINANCIAL HIGHLIGHTS
BALANCED FUND -- CLASS C
- --------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- --------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 13.81 $ 15.94 $ 17.05 $ 17.38
==================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.15 0.19 0.28 0.17
Net Losses on Securities (Both Realized
and Unrealized) (0.91) (2.27) (0.99) (0.25)
==================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.76) (2.08) (0.71) (0.08)
==================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.02 0.05 0.40 0.25
==================================================================================================
Net Asset Value -- End of Period $ 13.03 $ 13.81 $ 15.94 $ 17.05
==================================================================================================
TOTAL RETURN(b) (5.52%) (13.08%) (4.25%) (0.46%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 2,878 $ 4,296 $ 8,468 $ 2,134
Ratio of Expenses to Average Net
Assets(d)(e) 2.01% 2.00% 1.81% 1.77%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 0.58% 0.89% 1.36% 1.57%(f)
Portfolio Turnover Rate 94% 87% 67% 89%(g)
(a) From February 15, 2000, inception of Class, to May 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian
fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the years ended May 31,
2003 and 2002. If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 2.74% and 2.07%, respectively, and ratio of net investment
income (loss) would have been (0.15%) and 0.82%, respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2000.
FS-37
FINANCIAL HIGHLIGHTS
BALANCED FUND -- CLASS K
- ----------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- ----------------------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 13.64 $ 15.96 $ 17.36
==============================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.08 0.17 0.13
Net Losses on Securities (Both Realized and Unrealized) (0.76) (2.16) (1.39)
==============================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.68) (1.99) (1.26)
==============================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.08 0.33(b) 0.14
==============================================================================================
Net Asset Value -- End of Period $ 12.88 $ 13.64 $ 15.96
==============================================================================================
TOTAL RETURN (4.96%) (12.55%) (7.25%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 8,483 $ 12,257 $ 1
Ratio of Expenses to Average Net Assets(d)(e) 1.46% 1.39% 1.47%(f)
Ratio of Net Investment Income to Average Net
Assets(e) 1.12% 1.26% 1.65%(f)
Portfolio Turnover Rate 94% 87% 67%(g)
(a) From December 14, 2000, inception of Class, to May 31, 2001.
(b) Dividends and Distributions included a tax return of capital which 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) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian
fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year ended May 31, 2003 and
the period ended May 31, 2001. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 1.52% and 3.09% (annualized), respectively, and
ratio of net investment income to average net assets would have been 1.06% and 0.03% (annualized),
respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2001.
FS-38
FINANCIAL HIGHLIGHTS
CORE EQUITY FUND -- INVESTOR CLASS
- ---------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD YEAR
ENDED ENDED
YEAR ENDED MAY 31 MAY 31 JUNE 30
- ---------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.60 $ 13.91 $ 15.45 $ 15.85 $ 16.18 $ 15.31
==================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.16 0.22 0.24 0.30 0.38
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (1.17) (1.88) (0.31) 1.05 1.19 2.54
==================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.07) (1.72) (0.09) 1.29 1.49 2.92
==================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.10 0.59 1.45 1.69 1.82 2.05
==================================================================================================================================
Net Asset Value -- End of Period $ 10.43 $ 11.60 $ 13.91 $ 15.45 $ 15.85 $ 16.18
==================================================================================================================================
TOTAL RETURN (9.18%) (12.42%) (0.45%) 8.46% 10.31%(b) 20.55%
RATIOS
Net Assets -- End of Period ($000 Omitted) $2,518,441 $3,184,866 $4,120,025 $4,405,739 $4,845,036 $5,080,735
Ratio of Expenses to Average Net Assets(c)(d) 1.08% 1.02% 0.96% 0.93% 0.90%(e) 0.90%
Ratio of Net Investment Income to
Average Net Assets(d) 0.99% 1.27% 1.47% 1.52% 2.10%(e) 2.35%
Portfolio Turnover Rate 36% 25% 36% 50% 47%(b) 58%
(a) From July 1, 1998 to May 31, 1999.
(b) Based on operations for the period shown and, accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if
applicable, which is before any expense offset arrangements (which may include custodian, distribution
and transfer agent fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the period ended May 31, 1999
and the year ended June 30, 1998. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 0.91% (annualized) and 0.90%, respectively, and
ratio of net investment income to average net assets would have been 2.09% (annualized) and 2.35%,
respectively.
(e) Annualized
FS-39
FINANCIAL HIGHLIGHTS
CORE EQUITY FUND -- CLASS A & CLASS B
- ----------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MAY 31 MAY 31 MAY 31 MAY 31
- ----------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.56 $ 12.34 $ 11.54 $ 12.34
==========================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss)(c) 0.15 0.01 (0.00) 0.01
Net Losses on Securities (Both Realized and
Unrealized) (1.21) (0.71) (1.17) (0.73)
==========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.06) (0.70) (1.17) (0.72)
==========================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.15 0.08 0.10 0.08
==========================================================================================================
Net Asset Value -- End of Period $ 10.35 $ 11.56 $ 10.27 $ 11.54
==========================================================================================================
TOTAL RETURN(d) (9.09%) (5.67%)(e) (10.11%) (5.83%)(e)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 4,674 $ 297 $ 1,264 $ 258
Ratio of Expenses to Average Net Assets(f)(g) 1.23% 0.99%(h) 2.16% 1.62%(h)
Ratio of Net Investment Income (Loss) to Average
Net Assets(g) 0.92% 1.41%(h) (0.05%) 0.84%(h)
Portfolio Turnover Rate 36% 25%(i) 36% 25%(i)
(a) From April 1, 2002, inception of Class, to May 31, 2002.
(b) The per share information for Class B was computed based on average shares for the year ended May 31,
2003.
(c) Net Investment Loss for Class B aggregated less than $0.01 on a per share basis for the year ended
May 31, 2003.
(d) The applicable sales charges for Class A or CDSC for Class B is not included in the Total
Return calculation.
(e) Based on operations for the period shown and, accordingly, is not representative of a full
year.
(f) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Advisor, if
applicable, which is before any expense offset arrangements (which may include custodian fees).
(g) Various expenses of Class B were voluntarily absorbed by IFG for the year ended May 31, 2003. If
such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would
have been 2.57% and ratio of net investment loss to average net assets would have been (0.46%).
(h) Annualized
(i) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2002.
FS-40
FINANCIAL HIGHLIGHTS
CORE EQUITY FUND -- CLASS C
- --------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- --------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.51 $ 13.77 $ 15.32 $ 14.55
==================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.01) 0.05 0.18 0.12
Net Gains or (Losses) on Securities (Both
Realized and Unrealized) (1.16) (1.86) (0.38) 0.84
==================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.17) (1.81) (0.20) 0.96
==================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.45 1.35 0.19
==================================================================================================
Net Asset Value -- End of Period $ 10.34 $ 11.51 $ 13.77 $ 15.32
==================================================================================================
TOTAL RETURN(b) (10.17%) (13.17%) (1.22%) 6.66%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 8,912 $ 9,747 $ 10,404 $ 1,388
Ratio of Expenses to Average Net Assets(d) 2.20% 1.90% 1.73% 1.67%(e)
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.12%) 0.40% 0.75% 0.94%(e)
Portfolio Turnover Rate 36% 25% 36% 50%(f)
(a) From February 15, 2000, inception of Class, to May 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements
(which may include custodian fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2000.
FS-41
FINANCIAL HIGHLIGHTS
CORE EQUITY FUND -- CLASS K
- ----------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- ----------------------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.41 $ 13.84 $ 14.38
==============================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss) 0.01 0.20 (0.05)
Net Losses on Securities (Both Realized and Unrealized) (1.16) (1.98) (0.48)
==============================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.15) (1.78) (0.53)
==============================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.01 0.65 0.01
==============================================================================================
Net Asset Value -- End of Period $ 10.25 $ 11.41 $ 13.84
==============================================================================================
TOTAL RETURN (10.07%) (12.91%) (3.68%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 22,450 $ 28,372 $ 1
Ratio of Expenses to Average Net Assets(d)(e) 1.98% 1.18% 3.00%(f)
Ratio of Net Investment Income (Loss) to Average
Net Assets(e) 0.08% 1.08% (0.71%)(f)
Portfolio Turnover Rate 36% 25% 36%(g)
(a) From December 14, 2000, inception of Class, to May 31, 2001.
(b) The per share information was computed based on average shares for the year ended May 31,
2003.
(c) Based on operations for the period shown and, accordingly, is not representative
of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian
fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year ended May 31, 2003.
If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 2.63% and ratio of net investment loss to average net assets would have been
(0.57%).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2001.
FS-42
FINANCIAL HIGHLIGHTS
TOTAL RETURN FUND -- INVESTOR CLASS
- ---------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD YEAR
ENDED ENDED
YEAR ENDED MAY 31 MAY 31 AUGUST 31
- ---------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 24.28 $ 26.75 $ 27.74 $ 32.37 $ 28.16 $ 27.77
==================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.40 0.39 0.55 0.81 0.60 0.83
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (1.63) (1.74) (0.29) (3.47) 5.03 0.87
==================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.23) (1.35) 0.26 (2.66) 5.63 1.70
==================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 1.09 1.12 1.25 1.97 1.42 1.31
==================================================================================================================================
Net Asset Value -- End of Period $ 21.96 $ 24.28 $ 26.75 $ 27.74 $ 32.37 $ 28.16
==================================================================================================================================
TOTAL RETURN (4.85%) (5.13%) 1.08% (8.29%) 20.27%(b) 6.02%
RATIOS
Net Assets -- End of Period ($000 Omitted) $810,787 $1,080,197 $1,462,543 $2,326,899 $3,418,746 $2,561,016
Ratio of Expenses to Average Net Assets(c)(d) 1.26% 1.49% 1.27% 1.00% 0.83%(e) 0.79%
Ratio of Net Investment Income to
Average Net Assets(d) 1.90% 1.57% 1.98% 2.60% 2.61%(e) 2.82%
Portfolio Turnover Rate 45% 54% 76% 49% 7%(b) 17%
(a) From September 1, 1998 to May 31, 1999.
(b) Based on operations for the period shown, and accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable,
which is before any offset arrangements (which may include custodian, distribution and transfer agent fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the year ended May 31, 2003, the period
ended May 31, 1999 and the year ended August 31, 1998. If such expenses had not be voluntarily absorbed,
ratio of expenses to average net assets would have been 1.50%, 0.84% (annualized) and 0.80%, respectively,
and ratio of net investment income to average net assets would have been 1.66%, 2.60% (annualized) and 2.81%,
respectively.
(e) Annualized
FS-43
FINANCIAL HIGHLIGHTS
TOTAL RETURN FUND-- CLASS A & CLASS B
- ----------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MAY 31 MAY 31 MAY 31 MAY 31
- ----------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 24.08 $ 25.28 $ 24.08 $ 25.28
==========================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.63 0.03 0.54 0.02
Net Losses on Securities (Both Realized
and Unrealized) (1.89) (0.95) (1.94) (0.96)
==========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.26) (0.92) (1.40) (0.94)
==========================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 1.35 0.28 1.37 0.26
==========================================================================================================
Net Asset Value -- End of Period $ 21.47 $ 24.08 $ 21.31 $ 24.08
==========================================================================================================
TOTAL RETURN(b) (4.99%) (3.64%)(c) (5.54%) (3.76%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 546 $ 93 $ 570 $ 91
Ratio of Expenses to Average Net Assets(d)(e) 1.34% 1.18%(f) 2.01% 1.86%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 1.76% 2.11%(f) 1.13% 1.27%(f)
Portfolio Turnover Rate 45% 54%(g) 45% 54%(g)
(a) From April 1, 2002, inception of Class, to May 31, 2002.
(b) The applicable sales charges for Class A or CDSC for Class B is not included in the Total
Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian fees).
(e) Various expenses of each Class were absorbed by IFG for the year ended May 31, 2003. If such
expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have
been 1.94% for Class A and 3.33% for Class B and ratio of net investment income (loss) to average
net assets would have been 1.16% for Class A and (0.19%) for Class B.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2002.
FS-44
FINANCIAL HIGHLIGHTS
TOTAL RETURN FUND -- CLASS C
- --------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- --------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 23.60 $ 26.07 $ 27.30 $ 26.71
==================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.12 0.05 0.43 0.29
Net Gains or (Losses) on Securities (Both
Realized and Unrealized) (1.54) (1.71) (0.94) 0.87
==================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.42) (1.66) (0.51) 1.16
==================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.71 0.81 0.72 0.57
==================================================================================================
Net Asset Value -- End of Period $ 21.47 $ 23.60 $ 26.07 $ 27.30
==================================================================================================
TOTAL RETURN(b) (5.91%) (6.44%) (1.78%) 4.40%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 787 $ 591 $ 334 $ 10
Ratio of Expenses to Average Net
Assets(d)(e) 2.24% 2.59% 2.30% 2.94%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 0.89% 0.46% 0.84% 1.46%(f)
Portfolio Turnover Rate 45% 54% 76% 49%(g)
(a) From February 15, 2000, inception of Class, to May 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year ended May 31, 2003. If
such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would
have been 3.49%, and ratio of net investment loss to average net assets would have been (0.36%).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended May 31, 2000.
FS-45
OTHER INFORMATION
UNAUDITED
The table below provides information about each of the Independent and Interested Directors. Their affiliations
represent their principal occupations.
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
Bob A. Baker Vice Chairman of Consultant (2000-present). 48
37 Castle Pines Dr. N. the Board Formerly, President and
Castle Rock, Colorado (Since 2003) Chief Executive Officer
(1988-2000) of AMC Cancer
Age: 66 Research Center, Denver,
Colorado. Until Mid-December
1988, Vice Chairman of the
Board of First Columbia
Financial Corporation,
Englewood, Colorado;
formerly, Chairman of the
Board and Chief Executive
Officer of First Columbia
Financial Corporation.
Sueann Ambron, Ph.D. Director Dean of the Business School, 48
University of Colorado (Since 2003) College of Business,
at Denver University of Colorado of
1250 14th Street Denver (2000-present).
Denver, Colorado Formerly, President and
Chief Executive Officer of
Age: 58 Avulet, Inc., Sunnyvale,
California (1998-1999), Vice
President and General
Manager, Multimedia Services
Division, Motorola, Inc.,
Schoumburg, Illinois
(1996-1998).
Victor L. Andrews, Ph.D. Director Professor Emeritus, Chairman 48
34 Seawatch Drive Emeritus and Chairman and
Savannah, Georgia CFO of the Roundtable of the
Department of Finance of
Age: 72 Georgia State University;
and 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.
Lawrence H. Budner Director Trust Consultant. Formerly, 48
7608 Glen Albens Circle Senior Vice President and
Dallas, Texas Senior Trust Officer of
InterFirst Bank, Dallas,
Age: 72 Texas.
OTHER INFORMATION
UNAUDITED
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
James T. Bunch Director Co-President and Founder of 48
Green, Manning & Bunch,
3600 Republic Plaza (since 2000) Ltd., Denver, Colorado
370 Seventeenth Street (1988-present); Director and
Denver, Colorado Vice President of Western
Golf Association and Evans
Age: 60 Scholars Foundation; and
Excutive Committee, United
States Golf Association.
Formerly, General Counsel
and Director of Boettcher &
Company, Denver, Colorado;
and formerly, Chairman and
Managing Partner of Davis,
Graham & Stubbs, Denver,
Colorado.
Gerald J. Lewis Director Chairman of Lawsuit 48 Director of General Chemical
701 "B" Street (since 2000) Resolution Services, San Group, Inc., Hampdon, New
Suite 2100 Diego, California Hampshire (1996-present).
San Diego, California (1987-present). Formerly, Director of Wheelabrator
Associate Justice of the Technologies, Inc., Fisher
California Court of Appeals; Scientific, Inc., Henley
Age: 69 and of Counsel, Latham & Manufacturing, Inc., and
Watkins, San Diego, California Coastal Properties,
California (1987-1997). Inc.
John W. McIntyre Director Retired. Trustee of Gables 48
7 Piedmont Center Residential Trust. Trustee
Suite 100 and Chairman of the J.M. Tull
Atlanta, Georgia Charitable Foundation;
Director of Kaiser Foundation
Age: 72 Health Plans of Georgia, Inc.
Formerly, Vice Chairman of
the Board of Directors of The
Citizens and Southern
Corporation and Chairman of
the Board and Chief Executive
Officer of The Citizens and
Southern Georgia Corporation
and The Citizens and Southern
National Bank. Formerly,
Trustee of INVESCO Global
Health Sciences Fund and
Trustee of Employee's
Retirement System of Georgia,
Emory University.
Larry Soll, Ph. D. Director Retired. Formerly, Chairman 48 Director of Synergen since
2358 Sunshine Canyon Dr. (since 1997) of the Board (1987-1994), incorporation in 1982;
Boulder, Colorado Chief Executive Officer Director of Isis
(1982-1989 and 1993-1994) and Pharmaceuticals, Inc.
Age: 60 President (1982-1989) of
Synergen Inc.; and formerly,
Trustee of INVESCO Global
Health Sciences Fund.
OTHER INFORMATION
UNAUDITED
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS AND OFFICERS
These directors are "interested persons" of IFG as defined in the Act, and they
are interested persons by virtue of the fact that he/she is an officer or
director of IFG, IDI or an affiliate of IFG.
Mark H. Williamson Chairman of the Board President and Chief Executive 48
4350 South Monaco Street (since 1999). Formerly, Officer AIM Investment
Denver, Colorado President (1998-2002); Management and Chief
and Chief Executive Executive Officer of the AIM
Age: 51 Officer (1998-2002). Division of AMVESCAP PLC
(2003-present). Formerly,
Chief Executive Officer,
Managed Products Division,
AMVESCAP PLC (2001-present).
Formerly, Chairman of the
Board (1998-2002), President
(1998-2002), and Chief
Executive Officer (1998-2002)
of INVESCO Funds Group, Inc.
and of INVESCO Distributors,
Inc. Formerly, Chief
Operating Officer and
Chairman of the Board of
INVESCO Global Health
Sciences Fund; formerly,
Chairman and Chief Executive
Officer of NationsBanc
Advisors, Inc.; and formerly,
Chairman of NationsBanc
Investments, Inc.
Raymond R. Cunningham President (2003-present), President (2003-present) and 48 Director of INVESCO Funds
4350 South Monaco Street Chief Executive Officer Chief Executive Officer Group, Inc. and Chairman of
Denver, Colorado (2003-present) and (2003-present) of INVESCO the Board of INVESCO
Director (2001-present). Funds Group, Inc.; Distributors, Inc.
Age: 52 Formerly, Vice President Chairman of the Board (2003-
(2001-2002). present), President
(2003-present), and Chief
Executive Officer
(2003-present) of INVESCO
Distributors, Inc. Formerly,
Chief Operating Officer
(2002-2003) and Senior Vice
President (1999-2002) of
INVESCO Funds Group, Inc. and
INVESCO Distributors, Inc.;
and Formerly, Senior Vice
President of GT Global -
North America (1992-1998).
Richard W. Healey Director Senior Vice President of 40 Director of INVESCO Funds
4350 South Monaco Street (since 2000) INVESCO Funds Group, Inc.; Group, Inc. and INVESCO
Denver, Colorado Senior Vice President of Distributors, Inc.
INVESCO Distributors, Inc.
Age: 48 Formerly, Senior Vice
President of GT Global -
North America (1996-1998) and
The Boston Company
(1993-1996).
OTHER INFORMATION
UNAUDITED
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
Glen A. Payne Secretary Senior Vice President,
4350 South Monaco Street General Counsel and Secretary
Denver, Colorado of INVESCO Funds Group, Inc.;
Senior Vice President,
Age: 55 Secretary and General Counsel
of INVESCO Distributors, Inc.
Formerly, Secretary of
INVESCO Global Health
Sciences Fund; General
Counsel of INVESCO Trust
Company (1989-1998); and
employee of a U.S. regulatory
agency, Washington, D.C.
(1973-1989).
Ronald L. Grooms Chief Accounting Senior Vice President and Director of INVESCO Funds
4350 South Monaco Street Officer, Chief Treasurer of INVESCO Funds Group, Inc. and INVESCO
Denver, Colorado Financial Officer Group, Inc.; and Senior Vice Distributors, Inc.
and Treasurer President and Treasurer of
Age: 56 INVESCO Distributors, Inc.
Formerly, Treasurer and
Principal Financial and
Accounting Officer of INVESCO
Global Health Sciences Fund;
and Senior Vice President and
Treasurer of INVESCO Trust
Company (1988-1998).
William J. Galvin, Jr. Assistant Secretary Senior Vice President and Director of INVESCO Funds
4350 South Monaco Street Assistant Secretary of Group, Inc. and INVESCO
Denver, Colorado INVESCO Funds Group, Inc.; Distributors, Inc.
and Senior Vice President and
Age: 46 Assistant Secretary of
INVESCO Distributors, Inc.
Formerly, Trust Officer of
INVESCO Trust Company
(1995-1998).
Pamela J. Piro Assistant Treasurer Vice President and Assistant
4350 South Monaco Street Treasurer of INVESCO Funds
Denver, Colorado Group, Inc.; and Assistant
Treasurer of INVESCO
Age: 42 Distributors, Inc. Formerly,
Assistant Vice President
(1996-1997).
Tane T. Tyler Assistant Secretary Vice President and Assistant
4350 South Monaco Street (since 2002) General Counsel of INVESCO
Denver, Colorado Funds Group, Inc.
Age: 37
* Except as otherwise indicated, each individual has held the position(s) shown for at least the last five years.
The Statement of Additional Information ("SAI") includes additional information about Fund directors and is available, without
charge, upon request. To obtain a free copy of the current SAI, call 1-800-525-8085.
For dividends paid during the fiscal year ended May 31, 2003, the Funds designate qualified dividend income to the
maximum extent allowable.
[INVESCO ICON] INVESCO(R)
1-800-525-8085
Personal Account Line: 1-800-424-8085
Advisor Services: 1-800-959-4246
invescofunds.com
INVESCO Distributors, Inc.,(SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
Effective 7/1/03 A I M Distributors, Inc.,(SM) became the distributor of the
retail INVESCO funds
11 Greenway Plaza, Suite 100, Houston, Texas 77046
This information must be preceded or accompanied by a current prospectus.
AAW 900471 6/03
APPENDIX III
Pro Forma Financial Statements
Pro Forma Statement of Investment Securities*
INVESCO Combination Stock & Bond Funds, Inc.
May 31, 2003
UNAUDITED
<Table>
<Caption>
SHARES OR PRINCIPAL AMOUNT VALUE
- ------------------------------------------- -------------------------------------------
TOTAL TOTAL
BALANCED RETURN PRO FORMA BALANCED RETURN PRO FORMA
FUND FUND COMBINED DESCRIPTION FUND FUND COMBINED
- -----------------------------------------------------------------------------------------------------------------------------------
67.37% COMMON STOCKS
2.05% AEROSPACE & DEFENSE
100,300 100,300 L-3 Communications Holdings(a) $ 4,348,005 $ 4,348,005
169,000 169,000 Lockheed Martin 7,844,980 7,844,980
158,300 150,700 309,000 United Technologies $ 10,803,975 10,285,275 21,089,250
====================================================================================================================================
33,282,235
1.37% ALUMINUM
426,400 476,700 903,100 Alcoa Inc 10,493,704 11,731,587 22,225,291
====================================================================================================================================
1.04% APPLICATION SOFTWARE
176,300 176,300 PeopleSoft Inc(a) 2,884,268 2,884,268
148,600 148,600 SAP AG Sponsored ADR Representing
1/4 Ord Shr 4,232,128 4,232,128
309,600 309,600 Software HOLDRs Trust(b) 9,755,496 9,755,496
====================================================================================================================================
16,871,892
0.50% AUTO PARTS & EQUIPMENT
136,800 136,800 Advance Auto Parts(a) 8,136,864 8,136,864
====================================================================================================================================
4.67% BANKS
215,700 215,700 Bank of America 16,004,940 16,004,940
348,300 348,300 Bank of New York 10,079,802 10,079,802
364,200 364,200 Mellon Financial 9,895,314 9,895,314
228,700 228,700 Wachovia Corp 9,189,166 9,189,166
255,000 380,000 635,000 Wells Fargo & Co 12,316,500 18,354,000 30,670,500
====================================================================================================================================
75,839,722
1.39% BIOTECHNOLOGY
189,000 189,000 Amgen Inc(a) 12,230,190 12,230,190
86,300 86,300 Biotech HOLDRs Trust(b) 10,381,890 10,381,890
====================================================================================================================================
22,612,080
1.97% BREWERS
240,400 367,300 607,700 Anheuser-Busch Cos 12,652,252 19,330,999 31,983,251
====================================================================================================================================
0.25% CABLE & SATELLITE OPERATORS
121,600 121,600 EchoStar Communications
Class A Shrs(a) 4,083,328 4,083,328
====================================================================================================================================
0.26% CASINOS & GAMING
105,000 105,000 Harrah's Entertainment(a) 4,209,450 4,209,450
====================================================================================================================================
1.26% COMPUTER HARDWARE
531,600 531,600 Hewlett-Packard Co 10,366,200 10,366,200
114,100 114,100 International Business Machines 10,045,364 10,045,364
====================================================================================================================================
20,411,564
0.47% COMPUTER STORAGE & PERIPHERALS
711,100 711,100 EMC Corp(a) 7,694,102 7,694,102
====================================================================================================================================
0.26% CONSTRUCTION MACHINERY, FARM
MACHINERY & HEAVY TRUCKS
134,700 134,700 Navistar International(a) 4,151,454 4,151,454
====================================================================================================================================
0.97% DATA PROCESSING SERVICES
177,900 177,900 First Data 7,368,618 7,368,618
254,400 254,400 Fiserv Inc(a) 8,418,096 8,418,096
====================================================================================================================================
15,786,714
0.99% DIVERSIFIED CHEMICALS
222,000 284,800 506,800 Dow Chemical 7,059,600 9,056,640 16,116,240
====================================================================================================================================
4.24% DIVERSIFIED FINANCIAL SERVICES
157,800 157,800 American Express 6,573,948 6,573,948
443,300 398,200 841,500 Citigroup Inc 18,184,166 16,334,164 34,518,330
62,600 62,600 Goldman Sachs Group 5,101,900 5,101,900
548,000 141,000 689,000 JP Morgan Chase & Co 18,007,280 4,633,260 22,640,540
====================================================================================================================================
68,834,718
0.71% ELECTRIC UTILITIES
44,200 44,200 Dominion Resources 2,784,600 2,784,600
34,600 34,600 Exelon Corp 1,982,580 1,982,580
101,000 101,000 FPL Group 6,713,470 6,713,470
====================================================================================================================================
11,480,650
1.16% ELECTRICAL COMPONENTS & EQUIPMENT
258,800 232,000 490,800 SPX Corp(a) $ 9,971,564 $ 8,938,960 $ 18,910,524
====================================================================================================================================
1.87% GENERAL MERCHANDISE STORES
280,100 548,000 828,100 Target Corp 10,260,063 20,073,240 30,333,303
====================================================================================================================================
0.94% HEALTH CARE EQUIPMENT
127,400 127,400 Boston Scientific(a) 6,637,540 6,637,540
176,600 176,600 Medtronic Inc 8,605,718 8,605,718
====================================================================================================================================
15,243,258
0.36% HOUSEHOLD PRODUCTS
64,200 64,200 Procter & Gamble 5,894,844 5,894,844
====================================================================================================================================
0.71% HYPERMARKETS & SUPER CENTERS
</Table>
<Table>
<Caption>
SHARES OR PRINCIPAL AMOUNT VALUE
- ------------------------------------------- --------------------------------------------
TOTAL TOTAL
BALANCED RETURN PRO FORMA BALANCED RETURN PRO FORMA
FUND FUND COMBINED DESCRIPTION FUND FUND COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
220,400 220,400 Wal-Mart Stores 11,595,244 11,595,244
====================================================================================================================================
1.82% INDUSTRIAL CONGLOMERATES
425,000 606,100 1,031,100 General Electric 12,197,500 17,395,070 29,592,570
====================================================================================================================================
0.71% INDUSTRIAL GASES
193,200 193,200 Praxair Inc 11,590,068 11,590,068
====================================================================================================================================
2.15% INDUSTRIAL MACHINERY
152,200 152,200 Danaher Corp 10,185,224 10,185,224
92,900 193,100 286,000 Illinois Tool Works 5,764,445 11,981,855 17,746,300
425,700 425,700 Timken Co 6,972,966 6,972,966
====================================================================================================================================
34,904,490
0.66% INSURANCE BROKERS
214,400 214,400 Marsh & McLennan 10,747,872 10,747,872
====================================================================================================================================
2.75% INTEGRATED OIL & GAS
104,100 244,200 348,300 BP PLC Sponsored ADR Representing
6 Ord Shrs 4,360,749 10,229,538 14,590,287
384,400 441,600 826,000 Exxon Mobil 13,992,160 16,074,240 30,066,400
====================================================================================================================================
44,656,687
2.43% INTEGRATED TELECOMMUNICATION SERVICES
113,700 154,900 268,600 BellSouth Corp 3,014,187 4,106,399 7,120,586
134,500 332,700 467,200 SBC Communications 3,424,370 8,470,542 11,894,912
92,200 446,500 538,700 Verizon Communications 3,489,770 16,900,025 20,389,795
====================================================================================================================================
39,405,293
3.33% INVESTMENT ADVISER/BROKER
DEALER SERVICES
407,900 408,700 816,600 Janus Capital Group 6,342,845 6,355,285 12,698,130
253,700 253,700 Lehman Brothers Holdings 18,172,531 18,172,531
208,000 327,900 535,900 Merrill Lynch & Co 9,006,400 14,198,070 23,204,470
====================================================================================================================================
54,075,131
1.32% INVESTMENT COMPANIES
117,900 117,900 DIAMONDS Trust Series I Shrs 10,474,236 10,474,236
369,400 369,400 Nasdaq-100 Trust Series 1 Shrs(a) 11,004,426 11,004,426
====================================================================================================================================
21,478,662
0.77% IT CONSULTING & SERVICES
408,000 408,000 Accenture Ltd(a) 7,148,160 7,148,160
117,100 117,100 Affiliated Computer Services
Class A Shrs(a) 5,426,414 5,426,414
====================================================================================================================================
12,574,574
0.65% MOVIES & ENTERTAINMENT
344,800 344,800 AOL Time Warner(a) 5,247,856 5,247,856
116,700 116,700 Viacom Inc Class B Shrs(a) 5,312,184 5,312,184
====================================================================================================================================
10,560,040
1.05% MULTI-LINE INSURANCE
182,900 112,700 295,600 American International Group 10,586,252 6,523,076 17,109,328
====================================================================================================================================
0.56% NETWORKING EQUIPMENT
553,400 553,400 Cisco Systems(a) 9,009,352 9,009,352
====================================================================================================================================
0.68% OIL & GAS EQUIPMENT & SERVICES
145,600 186,500 332,100 Baker Hughes 4,812,080 6,163,825 10,975,905
====================================================================================================================================
1.08% OIL & GAS EXPLORATION, PRODUCTION
& TRANSPORTATION
133,845 133,845 Apache Corp 8,823,062 8,823,062
181,800 181,800 Kerr-McGee Corp 8,650,044 8,650,044
====================================================================================================================================
17,473,106
0.88% PACKAGED FOODS & MEATS
200,000 200,000 H.J. Heinz 6,614,000 6,614,000
106,800 106,800 Hershey Foods 7,593,480 7,593,480
====================================================================================================================================
14,207,480
1.64% PAPER PRODUCTS
246,000 246,000 Bowater Inc $ 9,640,740 $ 9,640,740
267,300 196,100 463,400 International Paper $ 9,801,891 7,190,987 16,992,878
====================================================================================================================================
26,633,618
0.32% PERSONAL PRODUCTS
85,200 85,200 Avon Products 5,192,088 5,192,088
====================================================================================================================================
6.79% PHARMACEUTICALS
239,500 239,500 Abbott Laboratories 10,669,725 10,669,725
252,400 252,400 Bristol-Myers Squibb 6,461,440 6,461,440
81,700 81,700 Eli Lilly & Co 4,883,209 4,883,209
117,600 117,600 Forest Laboratories(a) 5,938,800 5,938,800
171,900 171,900 Johnson & Johnson 9,342,765 9,342,765
179,900 263,500 443,400 Merck & Co 9,998,842 14,645,330 24,644,172
411,800 624,000 1,035,800 Pfizer Inc 12,774,036 19,356,480 32,130,516
Teva Pharmaceutical Industries
Sponsored ADR
114,200 114,200 Representing Ord Shrs 5,788,684 5,788,684
235,300 235,300 Wyeth 10,317,905 10,317,905
====================================================================================================================================
110,177,216
0.52% PROPERTY & CASUALTY INSURANCE
155,700 155,700 Allstate Corp 5,603,643 5,603,643
79,300 79,300 St Paul 2,900,794 2,900,794
====================================================================================================================================
8,504,437
1.03% PUBLISHING & PRINTING
</Table>
<Table>
<Caption>
SHARES OR PRINCIPAL AMOUNT VALUE
- ------------------------------------------- --------------------------------------------
TOTAL TOTAL
BALANCED RETURN PRO FORMA BALANCED RETURN PRO FORMA
FUND FUND COMBINED DESCRIPTION FUND FUND COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
71,600 71,600 Knight-Ridder Inc 5,043,504 5,043,504
184,200 184,200 McGraw-Hill Cos 11,643,282 11,643,282
====================================================================================================================================
16,686,786
1.02% RAILROADS
365,500 365,500 Norfolk Southern 8,011,760 8,011,760
139,900 139,900 Union Pacific 8,532,501 8,532,501
====================================================================================================================================
16,544,261
0.82% RESTAURANTS
486,900 486,900 McDonald's Corp 9,119,637 9,119,637
170,200 170,200 Starbucks Corp(a) 4,193,898 4,193,898
====================================================================================================================================
13,313,535
0.93% SEMICONDUCTOR EQUIPMENT
643,700 325,000 968,700 Applied Materials(a) 10,015,972 5,057,000 15,072,972
====================================================================================================================================
2.90% SEMICONDUCTORS
442,500 520,900 963,400 Intel Corp 9,221,700 10,855,556 20,077,256
282,400 282,400 Semiconductor HOLDRs Trust(b) 8,457,880 8,457,880
388,200 515,500 903,700 Texas Instruments 7,958,100 10,567,750 18,525,850
====================================================================================================================================
47,060,986
0.73% SOFT DRINKS
260,800 260,800 Coca-Cola Co 11,884,656 11,884,656
====================================================================================================================================
1.80% SYSTEMS SOFTWARE
534,100 534,100 Microsoft Corp 13,144,201 13,144,201
513,900 513,900 Oracle Corp(a) 6,685,839 6,685,839
337,400 337,400 VERITAS Software(a) 9,362,850 9,362,850
====================================================================================================================================
29,192,890
0.59% TELECOMMUNICATIONS EQUIPMENT
Nokia Corp Sponsored ADR
530,300 530,300 Representing Ord Shrs 9,566,612 9,566,612
====================================================================================================================================
TOTAL COMMON STOCKS (Cost
$488,841,979, $552,815,989 and
$1,041,657,968, respectively) 1,093,887,343
====================================================================================================================================
29.44% FIXED INCOME SECURITIES
10.11% US GOVERNMENT OBLIGATIONS
US Treasury Notes
$ 20,000,000 $ 20,000,000 5.875%, 11/15/2004 21,342,960 21,342,960
$ 20,000,000 $ 20,000,000 5.750%, 11/15/2005 22,080,460 22,080,460
$ 10,000,000 $ 8,600,000 $ 18,600,000 3.875%, 2/15/2013 10,442,580 8,980,619 19,423,199
$ 10,000,000 $ 10,000,000 3.000%, 11/15/2007 10,375,390 10,375,390
$ 7,500,000 $ 7,500,000 2.875%, 6/30/2004 7,638,870 7,638,870
$ 25,000,000 $ 25,000,000 $ 50,000,000 1.625%, 1/31/2005 25,167,975 25,167,975 50,335,950
$ 20,000,000 $ 12,800,000 $ 32,800,000 1.625%, 4/30/2005 20,124,220 12,879,501 33,003,721
====================================================================================================================================
TOTAL US GOVERNMENT OBLIGATIONS
(Amortized Cost $106,510,241,
$54,296,787 and $160,807,028,
respectively) 164,200,550
====================================================================================================================================
13.16% US GOVERNMENT AGENCY OBLIGATIONS
Fannie Mae, Gtd Mortgage Pass-
Through Certificates
$ 17,266,787 $ 17,266,787 5.000%, 1/1/2017 $ 17,939,122 $ 17,939,122
$ 7,964,993 $ 19,912,481 $ 27,877,474 4.500%, 5/1/2018 $ 8,179,223 20,448,058 28,627,281
$ 25,000,000 $ 10,000,000 $ 35,000,000 4.500%, 6/1/2018 25,672,414 10,268,966 35,941,380
Government National Mortgage
Association I
Gtd Mortgage Pass-Through
Certificates
$ 6,462,714 $ 6,462,714 6.000%, 7/15/2028 6,783,902 6,783,902
$ 5,741,281 $ 5,741,281 6.000%, 4/15/2029 6,023,807 6,023,807
$ 16,181,359 $ 16,181,359 5.500%, 1/15/2017 16,983,095 16,983,095
$ 9,548,440 $ 9,548,440 5.500%, 11/15/2017 9,986,281 9,986,281
$ 12,269,305 $ 41,205,517 $ 53,474,822 5.000%, 2/15/2018 12,828,959 43,085,074 55,914,033
$ 2,832,411 $ 2,832,411 5.000%, 3/15/2018 2,961,609 2,961,609
Government National Mortgage
Association I & II Single Issuer
$ 9,005,124 $ 9,005,124 5.500%, 12/15/2031 9,425,348 9,425,348
$ 8,746,293 $ 8,746,293 5.500%, 1/15/2032 9,153,427 9,153,427
$ 12,343,716 $ 12,343,716 5.000%, 2/15/2018 12,906,765 12,906,765
$ 944,137 $ 944,137 5.000%, 3/15/2018 987,203 987,203
====================================================================================================================================
TOTAL US GOVERNMENT AGENCY
OBLIGATIONS (Amortized Cost
$78,762,693, $129,509,646 and
$208,272,339, respectively) 213,633,253
====================================================================================================================================
6.17% CORPORATE BONDS
0.48% AUTOMOBILE MANUFACTURERS
General Motors Acceptance, Sr Notes,
6.125%
$ 5,000,000 $ 5,000,000 2/1/2007 5,229,585 5,229,585
$ 2,500,000 $ 2,500,000 8/28/2007 2,622,423 2,622,423
====================================================================================================================================
7,852,008
0.90% BANKS
SunTrust Banks, Sr Notes, 6.250%,
5,000,000 $ 5,000,000 6/1/2008 5,853,410 5,853,410
Washington Mutual, Sr Notes, 4.375%,
$ 1,000,000 $ 1,000,000 $ 2,000,000 1/15/2008 1,062,219 1,062,219 2,124,438
Wells Fargo & Co, Notes, 5.250%,
$ 3,000,000 $ 3,000,000 $ 6,000,000 12/1/2007 3,316,668 3,316,668 6,633,336
====================================================================================================================================
14,611,184
0.55% BREWERS
</Table>
<Table>
<Caption>
SHARES OR PRINCIPAL AMOUNT VALUE
- ------------------------------------------- --------------------------------------------
TOTAL TOTAL
BALANCED RETURN PRO FORMA BALANCED RETURN PRO FORMA
FUND FUND COMBINED DESCRIPTION FUND FUND COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
Anheuser-Busch Cos, Notes,
$ 8,000,000 $ 8,000,000 5.375%, 9/15/2008 8,982,024 8,982,024
====================================================================================================================================
0.19% CABLE & SATELLITE OPERATORS
Continental Cablevision, Sr Deb,
$ 2,500,000 $ 2,500,000 9.500%, 8/1/2013 3,004,920 3,004,920
====================================================================================================================================
0.39% DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc, Notes, 4.125%,
$ 3,000,000 $ 3,000,000 $ 6,000,000 6/30/2005 3,146,271 3,146,271 6,292,542
====================================================================================================================================
1.98% ELECTRIC UTILITIES
Cleveland Electric Illuminating,
Secured Notes, Series D, 7.880%,
$ 1,000,000 $ 1,000,000 11/1/2017 1,282,432 1,282,432
Commonwealth Edison, 1st Mortgage
$ 1,000,000 $ 1,000,000 Notes, Series 76, 8.250%, 10/1/2006 1,185,528 1,185,528
Consumers Energy, 1st & Refunding
$ 2,500,000 $ 2,500,000 Mortgage Notes, 7.37% 9/15/2023 2,621,583 2,621,583
El Paso Electric, 1st Mortgage Notes,
$ 2,000,000 $ 2,000,000 Series E, 9.400%, 5/1/2011 2,329,506 2,329,506
Jersey Central Power & Light, 1st
Mortgage Medium-Term Notes, Series C,
$ 2,000,000 $ 2,000,000 7.980%, 2/16/2023 2,092,926 2,092,926
Niagara Mohawk Power, 1st Mortgage
Notes,
$ 4,000,000 $ 4,000,000 7.750%, 5/15/2006 4,577,608 4,577,608
Pennsylvania Power, 1st Mortgage Notes,
$ 2,500,000 $ 2,500,000 8.500% 7/15/2022 2,609,110 2,609,110
Public Service of New Mexico, Sr Notes
$ 5,000,000 $ 5,000,000 Series A, 7.100%, 8/1/2005 5,440,935 5,440,935
$ 5,000,000 $ 5,000,000 Series B, 7.500%, 8/1/2018 5,818,520 5,818,520
Texas Utilities Electric, 1st Mortgage
Notes & Collateral Trust, 7.875%,
$ 4,000,000 $ 4,000,000 4/1/2024 4,182,412 4,182,412
====================================================================================================================================
32,140,560
0.10% FOREST PRODUCTS
Weyerhaeuser Co, Notes, 6.750%,
$ 695,000 $ 760,000 $ 1,455,000 3/15/2012 801,992 876,999 1,678,991
====================================================================================================================================
0.20% HOUSEHOLD PRODUCTS
Procter & Gamble, Notes, 4.750%,
$ 1,500,000 $ 1,500,000 $ 3,000,000 6/15/2007 1,632,597 1,632,597 3,265,194
====================================================================================================================================
0.42% INTEGRATED TELECOMMUNICATION SERVICES
Verizon Global Funding, Notes, 6.125%,
$ 3,000,000 $ 3,000,000 $ 6,000,000 6/15/2007 $3,393,066 $ 3,393,066 $ 6,786,132
====================================================================================================================================
0.34% PACKAGED FOODS & MEATS
CPC International, Notes, Series C,
$ 5,000,000 $ 5,000,000 6.150%, 1/15/2006 5,509,055 5,509,055
====================================================================================================================================
0.10% PAPER PRODUCTS
International Paper, Notes, 5.850%,
$ 670,000 $ 730,000 $ 1,400,000 10/30/2012 741,418 807,814 1,549,232
====================================================================================================================================
0.37% RAILROADS
Burlington Northern Santa Fe, Notes,
$ 1,100,000 $ 3,000,000 $ 4,100,000 6.125% , 3/15/2009 1,270,888 3,466,059 4,736,947
$ 1,100,000 $ 1,100,000 Union Pacific, Notes, 6.650%, 1/15/2011 1,293,652 1,293,652
====================================================================================================================================
6,030,599
0.15% SOFT DRINKS
Coca-Cola Enterprises, Notes, 4.375%,
$ 1,075,000 $ 1,250,000 $ 2,325,000 9/15/2009 1,151,025 1,338,401 2,489,426
====================================================================================================================================
TOTAL CORPORATE BONDS (Amortized Cost
$50,577,271, $40,808,634 and
$91,385,905, respectively) 100,191,867
====================================================================================================================================
TOTAL FIXED INCOME SECURITIES
(AMORTIZED COST $235,850,205,
$224,615,067 AND 460,465
RESPECTIVELY) 478,025,670
====================================================================================================================================
3.31% SHORT-TERM INVESTMENTS
0.95% US GOVERNMENT AGENCY OBLIGATIONS
Fannie Mae, Benchmark Notes, 5.125%,
2/13/2004 (Amortized Cost $0,
$14,837,148, and $14,837148,
$ 15,000,000 $ 15,000,000 respectively) 15,409,425 15,409,425
====================================================================================================================================
0.32% CORPORATE BONDS - DIVERSIFIED
FINANCIAL SERVICES
Associates Corp of North America,
Sr Notes, 5.500% 2/15/2004,
(Amortized Cost $0, $4,995,925 and
$ 5,000,000 $ 5,000,000 4,995,925, respectively) 5,150,515 5,150,515
====================================================================================================================================
1.91% COMMERCIAL PAPER
1.42% CONSUMER RECEIVABLES
New Center Asset Trust,
$ 23,000,000 $ 23,000,000 Series 1, Discount Notes, 1.340%, 22,999,144 22,999,144
6/2/2003
====================================================================================================================================
0.49% DIVERSIFIED FINANCIAL SERVICES
State Street Boston, Discount Notes,
$ 8,000,000 $ 8,000,000 1.330%, 6/2/2003 7,999,704 7,999,704
====================================================================================================================================
TOTAL COMMERCIAL PAPER
(Amortized Cost $7,999,704, $22,999,144
and $30,998,848 respectively) 30,998,848
====================================================================================================================================
0.13% REPURCHASE AGREEMENTS
</Table>
<Table>
<Caption>
SHARES OR PRINCIPAL AMOUNT VALUE
- -------------------------------------- -------------------------------------------
TOTAL TOTAL
BALANCED RETURN PRO FORMA BALANCED RETURN PRO FORMA
FUND FUND COMBINED DESCRIPTION FUND FUND COMBINED
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State
Street dated 5/30/2003 due 6/2/2003
at 1.220%, repurchased at $1,900,193,
$291,030 and $2,191,223, respectively
(Collateralized by Federal Farm Credit
Bank, Bonds, due 12/15/2004 at 3.875%,
value $1,944,099 and Federal Home Loan
Bank, Bonds, due 3/29/2004 at 1.400%,
value $301,003, and pro forma combined
valued at $2,245,102, respectively)
(Cost $1,900,000, $291,000 and
$ 1,900,000 $ 291,000 $ 2,191,000 $2,191,000, respectively) 1,900,000 291,000 2,191,000
===================================================================================================================================
TOTAL SHORT-TERM INVESTMENTS
(Amortized Cost $9,899,704, $43,123,217
and 53,749,788, respectively) 53,749,788
===================================================================================================================================
100.12% TOTAL INVESTMENTS AT VALUE
(COST $734,591,888, $820,554,273
AND $1,555,146, RESPECTIVELY 788,367,258 837,295,543 1,625,662,801
===================================================================================================================================
-0.12% OTHER ASSETS LESS LIABILITIES 22,728,518 (24,605,674) (1,877,156)
===================================================================================================================================
100.00% NET ASSETS AT VALUE $811,095,776 $ 812,689,869 $1,623,785,645
===================================================================================================================================
</Table>
(a) Security is non-income producing.
(b) HOLDRs - Holding Company Depositary Receipts.
* As of 5/31/03, all of the securities held by the INVESCO Balanced Fund would
comply with the compliance guidelines and/or investment restrictions of the
INVESCO Total Return Bond Fund.
See Notes to Financial Statements
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
MAY 31, 2003
UNAUDITED
<Table>
<Caption>
TOTAL
BALANCED RETURN PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 734,591,888 $ 820,554,273 $ 1,555,146,161
==========================================================================================================================
At Value(a) $ 788,367,258 $ 837,295,543 $ 1,625,662,801
Cash 558,787 661,095 1,219,882
Receivables:
Investment Securities Sold 24,219,797 1,133,180 25,352,977
Fund Shares Sold 658,905 1,021,595 1,680,500
Dividends and Interest 2,324,794 2,952,911 5,277,705
Due from Advisor -- -- $ 539,700 539,700
Prepaid Expenses and Other Assets 71,256 124,740 195,996
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 816,200,797 843,189,064 539,700 1,659,929,561
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Distributions to Shareholders 3,808 82,497 86,305
Investment Securities Purchased 4,269,554 16,793,034 21,062,588
Fund Shares Repurchased 631,812 13,271,979 13,903,791
Accrued Distribution Expenses
Investor Class 112,036 171,386 283,422
Class A 108 164 272
Class B 197 407 604
Class C 2,181 638 2,819
Class K 3,271 -- 3,271
Accrued Merger Expenses -- -- 539,700 539,700
Accrued Expenses and Other Payables 82,054 179,090 261,144
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,105,021 30,499,195 539,700 36,143,916
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 811,095,776 $ 812,689,869 $ 0 $ 1,623,785,645
==========================================================================================================================
NET ASSETS
Paid-in Capital $ 1,100,589,202 $ 846,270,108 $ 1,946,859,310
Accumulated Undistributed Net
Investment Income (Loss) 641,155 (23,154) 618,001
Accumulated Undistributed Net Realized
Loss on Investment (343,909,951) 50,298,355 394,208,306
Net Appreciation of Investment Securities 53,775,370 16,741,270 70,516,640
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE, APPLICABLE TO SHARES
OUTSTANDING 811,095,776 $ 812,689,869 $ 1,623,785,645
==========================================================================================================================
NET ASSETS AT VALUE:
Institutional Class $ 261,560,380 -- $ 261,560,380
==========================================================================================================================
Investor Class $ 537,542,996 $ 810,787,002 $ 1,348,329,998
==========================================================================================================================
Class A $ 376,364 $ 546,166 8,483,051 $ 9,405,581
==========================================================================================================================
Class B $ 255,409 $ 569,733 $ 825,142
==========================================================================================================================
Class C $ 2,877,576 $ 786,968 $ 3,664,544
==========================================================================================================================
Class K $ 8,483,051 $ -- (8,483,051)$ 0
==========================================================================================================================
Shares Outstanding
Institutional Class 20,469,404 -- 11,910,764 (b)(c) 11,910,764
Investor Class 41,332,600 36,923,936 24,478,279 (b) 61,402,215
Class A 29,812 25,439 412,642 (b) 438,081
Class B 20,550 26,741 11,985 (b) 38,726
Class C 220,821 36,652 134,028 (b) 170,680
Class K 658,739 -- (658,739)(b) 0
==========================================================================================================================
NET ASSET VALUE PER SHARE:
Institutional Class, Offering and Redemption
Price per Share $ 12.78 -- $ 21.96
Investor Class, Offering and Redemption
Price per share $ 13.01 $ 21.96 $ 21.96
Class A
Redemption Price per Share $ 12.62 $ 21.47 $ 21.47
Offering Price per Share (Maximum sales
charge of 5.50%, 13.35 and 5.50%,22.72
respectively) $ 13.35 $ 22.72 $ 22.72
lass B, Offering and Redemption Price per Share $ 12.43 $ 21.31 $ 21.31
Class C, Offering and Redemption Price per Share $ 13.03 $ 21.47 $ 21.47
Class K, Offering and Redemption Price per Share $ 12.88 -- --
==========================================================================================================================
</Table>
(a) Investment securities at cost and value at May 31, 2003 include repurchase
agreements of $1,900,000, $291,000 and $2,191,000, respectively, for
Balanced Fund, Total Return Fund and Pro Forma Combined.
(b) Adjustment to reflect the exchange of shares of common stock outstanding
from Balanced Fund to Total Return Fund and Balanced Fund - Class K shares
of common stock outstanding to Total Return Fund - Class A shares.
(c) Conversion of Balanced Fund - Institutional Class shares at Total Return
Fund - Investor Class shares net asset value per share.
See Notes to Financial Statements
PRO FORMA STATEMENT OF OPERATIONS
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
YEAR ENDED MAY 31, 2003
UNAUDITED
<Table>
<Caption>
TOTAL
BALANCED RETURN PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
-------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 6,876,181 $ 12,122,216 $ 18,998,397
Dividends from Affiliated Investment Companies 22,089 0 22,089
Interest 14,498,434 15,452,484 29,950,918
Securities Loaned Income 0 15,284 15,284
Foreign Taxes Withheld (31,236) (67,567) (98,803)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 21,365,468 27,522,417 48,887,885
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees 4,664,989 6,156,885 $ (325,257)(a) 10,496,617
Distribution Expenses
Investor Class 1,482,411 2,174,838 3,657,249
Class A 892 1,515 33,243 (a)(b) 35,650
Class B 1,445 2,659 4,104
Class C 28,287 6,915 35,202
Class K 42,740 -- (42,740)(b) 0
Transfer Agent Fees
Institutional Class 690,836 -- 690,836
Investor Class 2,305,641 3,868,389 6,174,030
Class A 1,058 739 1,797
Class B 660 714 1,374
Class C 22,286 6,950 29,236
Class K 37,166 -- 37,166
Administrative Services Fees 382,599 402,096 (10,000)(a) 774,695
Custodian Fees and Expenses 112,798 113,868 226,666
Directors' Fees and Expenses 75,730 80,775 (8,000)(b) 148,505
Interest Expenses 1,456 4,049 5,505
Professional Fees and Expenses 73,033 79,210 (28,947)(b) 123,296
Registration Fees and Expenses
Institutional Class 11,621 -- 11,621
Investor Class 22,485 24,273 46,758
Class A 650 684 1,944 (b) 3,278
Class B 647 655 1,302
Class C 1,581 1,537 3,118
Class K 1,944 -- (1,944)(b) 0
Reports to Shareholders 140,704 87,009 227,713
Other Expenses 52,387 51,128 21,380 (b) 124,895
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 10,156,046 13,064,888 (360,321) 22,860,613
Fees and Expenses Absorbed/Reimbursed by Investment Adviser
Institutional Class 0 -- (68,006)(c) (68,006)
Investor Class (319,653) (2,080,446) 215,867 (c) (2,184,232)
Class A (2,966) (2,592) (9,464)(c) (15,022)
Class B (3,523) (3,513) 3,838 (c) (3,198)
Class C (20,720) (8,666) (3,122)(c) (32,508)
Class K (5,723) -- 5,723 (c) 0
Fees and Expenses Paid Indirectly (1,433) (707) (2,140)
- -------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 9,802,028 10,968,964 (215,485) 20,555,507
- -------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 11,563,440 16,553,453 215,485 28,332,378
- -------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on Investment Securities (115,948,604) (45,793,592) (161,742,196)
Change in Net Appreciation/Depreciation
of Investment Securities 44,906,678 (34,951,619) 9,955,059
- -------------------------------------------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENT SECURITIES (71,041,926) (80,745,211) (151,787,137)
- -------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (59,478,486)$ (64,191,758) $ 215,485 $(123,454,759)
===============================================================================================================================
</Table>
(a) Reflects adjustments to Investment Advisory Fees, Distribution Expenses
and Administrative Services Fees based on the surviving Fund's contractual
fee obligation.
(b) Reflects elimination of duplicate services or fees and reflects
adjustments for Balanced Fund - Class K moving to Total Return - Class A.
(c) Reflects adjustment to the level of the surviving Fund's voluntary expense
reimbursement.
See Notes to Financial Statements
PRO FORMA NOTES TO FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 -- BASIS OF COMBINATION
On June 9, 2003, the Board of Directors of INVESCO Combination Stock & Bond
Funds, Inc. - Balanced Fund and Total Return Fund (collectively the "Funds",
individually the "Fund"), approved an Agreement and Plan of Reorganization (the
"Plan") whereby, subject to approval by the shareholders of Balanced Fund, Total
Return Fund will acquire all of the assets of Balanced Fund subject to the
liabilities of such Fund, in exchange for a number of shares of Total Return
Fund equal in value to the net assets of Balanced Fund (the "Merger").
The Merger will be accounted for as a tax-free merger of investment companies.
The unaudited pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of what the
actual combined financial statements would have been had the reorganization
occurred at May 31, 2003. The unaudited pro forma statement of investment
securities and statement of assets and liabilities reflect the financial
position of the Funds at May 31, 2003. The unaudited pro forma statement of
operations reflects the results of operations of the Funds for the year ended
May 31, 2003. These statements have been derived from the Funds' respective
books and records utilized in calculating daily net asset value at the date
indicated above for each Fund under generally accepted accounting principles.
The historical cost of investment securities will be carried forward to the
surviving entity and the results of operations of Total Return Fund for
pre-combination periods will not be restated.
The unaudited pro forma statement of investment securities, unaudited statement
of assets and liabilities and statement of operations should be read in
conjunction with the historical financial statements of each Fund which are
incorporated by reference in the Statement of Additional Information.
NOTE 2 -- SECURITY VALUATION
Domestic (U.S.) equity securities traded on national securities exchanges or in
the over-the-counter market are valued at the last sales price at the close of
the regular trading day on the exchange (generally 4:00 p.m. Eastern time) where
such securities are primarily traded. If last sales prices are not available,
securities are valued at the closing bid price for the regular trading day as
obtained from one or more dealers making a market for such securities or by a
pricing service approved by the Fund's board of directors.
Debt securities are valued at evaluated bid prices as determined by a pricing
service approved by the Fund's board of directors. If evaluated bid prices are
not available, debt securities are valued by averaging the bid prices obtained
from one or more dealers making a market for such securities.
Investments in shares of investment companies are valued at the net asset value
of the respective fund as calculated each day.
If market quotations or pricing service valuations are not readily available, or
events or circumstances that may affect the value of portfolio securities are
identified between the closing of their principal markets and the time that the
net asset value per share is determined, securities are valued at fair value as
determined in good faith under procedures established by the Fund's board of
directors.
Short-term securities are stated at amortized cost (which approximates market
value) if maturity is 60 days or less at the time of purchase, or market value
if maturity is greater than 60 days.
NOTE 3 -- CAPITAL SHARES
The unaudited pro forma net asset value per share assumes additional shares of
common stock of Total Return Fund issued in connection with the proposed
acquisition of Balanced Fund by Total Return Fund as of May 31, 2003. The number
of additional shares issued was calculated by dividing the net asset value of
each Class of Balanced Fund by the respective Class' net asset value per share
of Total Return Fund.
NOTE 4 -- UNAUDITED PRO FORMA ADJUSTMENTS
The accompanying unaudited pro forma financial statements reflect changes in
fund shares as if the merger had taken place on May 31, 2003. Balanced Fund
expenses were adjusted assuming Total Return Fund's fee structure was in effect
for the entire year ended May 31, 2003.
NOTE 5 -- MERGER COSTS
Merger costs are estimated at approximately $539,700 and are not included in the
unaudited pro forma statement of operations since these costs are not recurring.
These costs represent the estimated expense of both Funds carrying out their
obligations under the Plan and consist of management's estimate of legal fees,
accounting fees, printing costs and mailing charges related to the proposed
merger. INVESCO Funds Group, Inc., Investment Adviser to the Funds, will bear
all of the cost of the Reorganization. The Funds will bear no expenses relating
to the proposed Reorganization.
NOTE 6 -- FEDERAL INCOME TAXES
The Fund has complied, and continues to comply, with the provisions of the
Internal Revenue Code applicable to regulated investment companies and,
accordingly, has made or intends to make sufficient distributions of net
investment income and net realized capital gains, if any, to relieve it from all
federal and state income taxes and federal excise taxes.
The Fund intends to offset any net capital gains with any available capital loss
carry forward until each carry forward has been fully utilized or expires. The
amount of capital loss carry forward, which may offset Total Return Fund's
capital gains in any given year may be limited as a result of previous
reorganizations. In addition, no capital gain distribution shall be made until
the capital loss carry forward has been fully utilized or expires.
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
PART C. OTHER INFORMATION
ITEM 15. Indemnification provisions for officers, directors, and employees of
the Company are set forth in Article VII of the Articles of Amendment and
Restatement of the Articles of Incorporation, and are hereby incorporated by
reference. See Item 16(1) below. 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 16. EXHIBITS
(1) Articles of Amendment and Restatement of Articles of
Incorporation filed December 2, 1999.(7)
(a) Articles of Amendment to the Articles of Amendment
and Restatement of the Articles of Incorporation
filed May 17, 2000.(8)
(b) Articles Supplementary to the Articles of Amendment
and Restatements of Articles of Incorporation filed
December 8, 2000.(9)
(c) Articles Supplementary to the Articles of Amendment
and Restatement of Articles of Incorporation filed
August 20, 2001.(11)
(d) Certificate of Correction to the Articles of
Amendment and Restatement of the Articles of
Incorporation filed January 28, 2002.(13)
(e) Articles Supplementary to the Articles of Amendment
and Restatement of Articles of Incorporation filed
January 29, 2002.(13)
(f) Articles Amendment of the Articles of Amendment and
Restatement of the Articles of Incorporation filed
March 25, 2002.(14)
(g) Articles Supplementary to the Articles of Amendment
and Restatement filed July 11, 2003.(15)
(h) Certificate of Correction to the Articles
Supplementary filed on July 31, 2003.(16)
(2) Bylaws.(2)
(3) Voting Trust Agreement - none
(4) Agreement and Plan of Reorganization is filed herewith as
Appendix I to the Combined Proxy Statement and Prospectus
contained in this Registration Statement and is incorporated
herein by reference.
(5) Provisions of instruments defining the rights of holders of
Registrant's securities are contained in Articles III, IV, and
VII of the Articles of Amendment and Restatement of the
Articles of Incorporation and Articles II, VI, VII, VIII, and
IX of the Bylaws of the Registrant.
(6) 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 to Advisory Agreement dated May 13,
1999.(5)
(7) Underwriting Agreement between Registrant and A I M
Distributors, Inc. dated July 1, 2003.(16)
(8) (a) INVESCO Funds Retirement Plan for Independent Directors
dated October 30, 2001.(13)
(b) Deferred Retirement Plan Account Agreement for
Independent Directors.(16)
(9) Custody Agreement between Registrant and State Street Bank and
Trust Company dated May 8, 2001, as amended September 28,
2001, October 5, 2001, October 19, 2001, March 29, 2002, April
30, 2002, July 31, 2002, August 30, 2002, October 21, 2002,
November 1, 2002, November 30, 2002, December 26, 2002,
January 31, 2003 and February 10, 2003.(16)
(10) (a) Amended and Restated Master Plan and Agreement of
Distribution adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940 dated July 1, 2003 with respect
to the Funds' Investor Class shares.(16)
(b) Amended and Restated Master Distribution Plan and Agreement
adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 dated July 1, 2003 with respect to the Funds'
Class A shares.(16)
(c) Amended and Restated Master Distribution Plan and Agreement
adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 dated July 1, 2003 with respect to the Funds'
Class B shares.(16)
(d) Amended and Restated Master Distribution Plan and Agreement
adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 dated July 1, 2003 with respect to the Funds'
Class C shares.(16)
(e) Amended and Restated Master Distribution Plan and Agreement
adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 dated July 1, 2003 with respect to the Funds'
Class K shares.(16)
(f) Multiple Class Plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 adopted July 1, 2003.(16)
(11) Opinion and Consent of Kirkpatrick & Lockhart LLP regarding
the legality of the securities being registered (filed
herewith).
(12) Opinion and Consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters and consequences to shareholders discussed
in the Combined Proxy Statement and Prospectus (to be filed).
(13) (a) Transfer Agency Agreement between Registrant and INVESCO
Funds Group, Inc. dated June 1, 2000, as amended August 23,
2000, November 8, 2000, November 28, 2000, November 29, 2000,
May 15, 2001, September 28, 2001, October 5, 2001, October 19,
2001, March 29, 2002, April 30, 2002, July 31, 2002, August
30, 2002, October 21, 2002, November 1, 2002, November 30,
2002, December 26, 2002, January 31, 2003, and February 10,
2003.(16)
(b) Administrative Services Agreement between Registrant and
INVESCO Funds Group, Inc. dated June 1, 2000, as amended
August 23, 2000, November 8, 2000, November 28, 2000, November
29, 2000, May 15, 2001, September 28, 2001, October 5, 2001,
October 19, 2001, March 29, 2002, April 30, 2002, July 31,
2002, August 30, 2002, October 21, 2002, November 1, 2002,
November 30, 2002, December 26, 2002, January 31, 2003, and
February 10, 2003.(16)
(14) Consent of Independent Accountants (filed herewith).
(15) Financial Statements omitted pursuant to Item 14(a)(1) - None.
(16) Powers of Attorney - Previously filed on August 12, 2003 in
Post-Effective Amendment No 23 to the Registrant's
Registration Statement on Form N-1A and incorporated herein by
reference.
(17) Proxy Card (filed herewith).
(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.
(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. 9 to the Registration
Statement on September 28, 1999, and incorporated by reference herein.
(6) Previously filed with Post-Effective Amendment No. 10 to the Registration
Statement on November 1, 1999, and incorporated by reference herein.
(7) Previously filed with Post-Effective Amendment No. 11 to the Registration
Statement on December 31, 1999, and incorporated by reference herein.
(8) Previously filed with Post-Effective Amendment No. 12 to the Registration
Statement on September 26, 2000, and is incorporated by reference herein.
(9) Previously filed with Post-Effective Amendment No. 14 to the Registration
Statement on December 11, 2000 and incorporated by reference herein.
(10) Previously filed with Post-Effective Amendment No. 15 to the Registration
Statement on July 2, 2001, and incorporated by reference herein.
(11) Previously filed with Post-Effective Amendment No. 16 to the Registration
Statement on August 30, 2001, and incorporated by reference herein.
(12) Previously filed with Post-Effective Amendment No. 17 to the Registration
Statement on December 5, 2001, and incorporated by reference herein.
(13) Previously filed with Post-Effective Amendment No. 18 to the Registration
Statement on January 30, 2002, and incorporated by reference herein.
(14) Previously filed with Post-Effective Amendment No. 20 to the Registration
Statement on September 6, 2002 and incorporated by reference herein.
(15) Previously filed with Post-Effective Amendment No. 22 to the Registration
Statement on July 25, 2003.
(16) Previously filed with Post-Effective Amendment No. 23 to the Registration
Statement on August 12, 2003.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
as amended ("1933 Act") the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by persons who
may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
SIGNATURES
As required by the Securities Act of 1933, as amended, the Registrant
has duly caused this Registration Statement on Form N-14 to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Denver and
the State of Colorado, on this 13th day of August, 2003.
ATTEST: INVESCO Combination Stock & Bond
Funds, Inc.
/s/ GLEN A. PAYNE By: /s/ RAYMOND R. CUNNINGHAM
- ------------------------------------ ---------------------------------
Glen A. Payne Raymond R. Cunningham
Secretary President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated:
<Table>
<Caption>
Signature Title Date
- --------- ----- ----
/s/ RAYMOND R. CUNNINGHAM President, Director and Chief August 13, 2003
- --------------------------------------- Executive Officer
Raymond R. Cunningham
/s/ RONALD L. GROOMS Treasurer and Chief Financial August 13, 2003
- --------------------------------------- and Accounting Officer
Ronald L. Grooms
* Director August 13, 2003
- ---------------------------------------
Sueann Ambron
* Director August 13, 2003
- ---------------------------------------
Victor L. Andrews
* Director August 13, 2003
- ---------------------------------------
Bob R. Baker
* Director August 13, 2003
- ---------------------------------------
Lawrence H. Budner
* Director August 13, 2003
- ---------------------------------------
James T. Bunch
* Director August 13, 2003
- ---------------------------------------
Richard W. Healey
* Director August 13, 2003
- ---------------------------------------
Gerald J. Lewis
* Director August 13, 2003
- ---------------------------------------
John W. McIntyre
* Director August 13, 2003
- ---------------------------------------
Larry Soll
By: * August 13, 2003
----------------------------------
Edward F. O'Keefe
Attorney in Fact
By: /s/ GLEN A. PAYNE August 13, 2003
----------------------------------
Glen A. Payne
Attorney in Fact
</Table>
- ----------------------
* Original Powers of Attorney authorizing Edward F. O'Keefe and Glen A. Payne,
and each of them, to execute this 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 July 28, 2003.
Exhibit Index
<Table>
<Caption>
Exhibit
Number Exhibit
------- -------
11 Opinion and Consent of Kirkpatrick & Lockhart LLP
14 Consent of Independent Accountants
17 Proxy Card
</Table>