<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 17, 1998
SHARES
(R)
LOGO INVESCO GLOBAL FINANCIAL SERVICES FUND
-----------
INVESCO Global Financial Services Fund (the "Fund") is a newly organized,
non-diversified, closed-end management investment company. The Fund's
investment objective is long-term capital appreciation. The Fund seeks to
achieve its objective by investing substantially all of its assets in equity
and related securities of U.S. and foreign companies principally engaged in
creating, providing, developing or distributing financial services ("Financial
Services Companies"). Principal industry groups of Financial Services Companies
include banks, savings institutions, brokerage firms, investment management
companies, finance companies, leasing companies, insurance companies, holding
companies of the foregoing and companies that provide related services to such
companies.
The Fund may invest without limitation in securities denominated in
currencies other than the U.S. dollar, which may involve special risks. Up to
25% of the Fund's total assets may be invested in securities for which there is
no readily available secondary market, including those acquired in private
placements, joint ventures and partnerships. The Fund may also utilize certain
investment practices, including the use of short sales, financial leverage and
foreign currency and other hedging transactions. Under normal market
conditions, the Fund may invest up to 20% of its total assets in equity and
debt securities of U.S. and foreign issuers (whether or not such issuers are
Financial Services Companies), including debt securities rated, or deemed by
the Fund's investment manager to be, below investment grade quality.
Investments in lower grade securities are subject to special risks, including
greater price volatility and a greater risk of loss of principal and interest.
As a non-diversified investment company, the Fund may invest a greater portion
of its assets in a small number of issuers. Investors should carefully assess
the risks associated with an investment in the Fund. SEE "RISK FACTORS AND
SPECIAL CONSIDERATIONS."
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Proceeds to
Public Sales Load (1) Fund (2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $15.00 NONE $15.00
- ------------------------------------------------------------------------------
Total.................................... $ NONE $
- ------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-
Allotment Option (3).................... $ NONE $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Footnotes on the following page)
-----------
The Shares are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
Shares will be made in New York City on or about , 1998.
-----------
PAINEWEBBER INCORPORATED
A.G. EDWARDS & SONS, INC.
SALOMON SMITH BARNEY
-----------
THE DATE OF THIS PROSPECTUS IS AUGUST , 1998.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF THE
FUND AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
NASDAQ MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
----------------
(Continued from cover page)
INVESCO Funds Group, Inc. ("INVESCO"), an indirect wholly owned subsidiary
of AMVESCAP PLC, serves as investment manager to the Fund. The Fund's address
is 7800 E. Union Avenue, Denver, Colorado 80237, and its telephone number is
1-800-528-8765.
At times, the Fund expects to utilize financial leverage through borrowings,
including the issuance of debt securities, or the issuance of preferred shares
or through other transactions, such as reverse repurchase agreements, which
have the effect of financial leverage. Currently, the Fund has not determined
the timing or amount of any financial leverage that it would utilize. The Fund
generally will not utilize leverage if it anticipates that the Fund's
leveraged capital structure would result in a lower return to common
shareholders than that obtainable over time with an unleveraged capital
structure. Use of financial leverage creates an opportunity for increased
capital appreciation for the common shareholders but, at the same time,
creates special risks, and there can be no assurance that a leveraging
strategy will be utilized or, if utilized, that a leveraging strategy will be
successful during any period in which it is employed. SEE "RISK FACTORS AND
SPECIAL CONSIDERATIONS--LEVERAGE."
The Fund is offering its shares of beneficial interest, par value $.001 per
share (the "Shares"). Prior to this offering, there has been no market for the
Fund's Shares. The Fund intends to apply to list its Shares on the New York
Stock Exchange under the symbol "GFN." Shares of closed-end management
investment companies have in the past frequently traded at discounts from
their net asset values and the Fund's Shares may likewise trade at such a
discount. The risks associated with this characteristic of closed-end
management investment companies may be greater for investors expecting to sell
shares of a closed-end management investment company soon after completion of
an initial public offering of the company's shares. The minimum investment in
this offering is 100 Shares ($1,500). This Prospectus sets forth in concise
form information about the Fund that a prospective investor should know before
investing in the Fund. Investors are advised to read this Prospectus carefully
and to retain it for future reference.
----------------
(Footnotes from cover page)
(1) INVESCO or an affiliate (not the Fund) from its own assets will pay a
commission to the Underwriters in the amount of % of the Price to Public
per Share in connection with the sale of the Shares offered hereby. The
Fund and INVESCO have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting organizational and offering expenses payable by the Fund,
including payment of $250,000 to the Underwriters in partial reimbursement
of their expenses, estimated at $ and $ , respectively. Offering
expenses will be deducted from net proceeds, and organizational expenses
will be expensed immediately.
(3) Assuming exercise in full of the 45-day option granted by the Fund to the
Underwriters to purchase up to additional Shares, on the same terms,
solely to cover overallotments. See "Underwriting."
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Investors should carefully
consider information set forth under the heading "Risk Factors and Special
Considerations."
THE FUND.................. INVESCO Global Financial Services Fund (the "Fund")
is a newly organized, non-diversified, closed-end
management investment company. The Fund is managed
by INVESCO Funds Group, Inc. ("INVESCO"). The Fund
is designed for investors seeking to participate in
the potential global growth of companies engaged in
financial services. See "The Fund."
THE OFFERING.............. The Fund is offering Shares of Beneficial In-
terest, par value $.001 per share ("Shares"),
through a group of underwriters ("Underwriters")
led by PaineWebber Incorporated, A. G. Edwards and
Sons, Inc. and Salomon Smith Barney. The Underwrit-
ers have been granted an option to purchase up to
additional Shares solely to cover over-allot-
ments, if any. The initial public offering price is
$15 per share. The minimum investment in the offer-
ing is 100 Shares ($1,500). See "Underwriting."
NO SALES CHARGE........... The Shares will be sold during the initial public
offering without any sales load or underwriting
discounts payable by investors or the Fund. INVESCO
or an affiliate (not the Fund) from its own assets
will pay a commission to the Underwriters in con-
nection with sales of the Shares in this offering.
See "Underwriting."
INVESTMENT OBJECTIVE AND The Fund's investment objective is long-term capi-
POLICIES................. tal appreciation. The Fund seeks to achieve its ob-
jective by investing substantially all of its as-
sets in equity and related securities of U.S. and
foreign companies principally engaged in creating,
providing, developing or distributing financial
services ("Financial Services Companies"). For the
reasons described under "Investment Rationale," be-
low, INVESCO believes that the securities of Finan-
cial Services Companies offer the potential for
long-term capital appreciation. An investment in
the Fund should not itself be considered a balanced
investment program and is not intended to provide
diversification as would a more complete investment
program. No assurance can be given that the Fund
will achieve its investment objective. See "Invest-
ment Objective and Policies."
Under normal market conditions, at least 80% of the
Fund's total assets will be invested in equity and
related securities of Financial Services Companies.
The principal industry groups of Financial Services
Companies include banks, savings institutions, bro-
kerage firms, investment management companies, fi-
nance companies, leasing companies, insurance com-
panies, holding companies of the foregoing and com-
panies that provide related services to such compa-
nies. The Fund expects to invest in Financial Serv-
ices Companies both in large, well-developed
1
<PAGE>
capital and financial markets, such as in the
United States and Western Europe, as well as in
countries with emerging capital and financial mar-
kets. Under normal market conditions, the Fund will
invest at least 65% of its total assets in issuers
that are organized under the laws of, or that main-
tain their principal business operations in, at
least three countries, one of which is expected to
be the United States.
The Fund may invest up to 25% of its total assets
in securities for which there is no readily avail-
able secondary market, including securities ac-
quired in private placements, venture capital op-
portunities, joint ventures and partnerships.
Up to 20% of the Fund's total assets may be invest-
ed, in the aggregate, in: equity and related secu-
rities of companies other than Financial Services
Companies; non-convertible debt securities of Fi-
nancial Services Companies that are not acquired as
units together with equity securities; debt securi-
ties of companies other than Financial Services
Companies; and high grade U.S. dollar denominated
money market instruments having maturities of one
year or less. The non-convertible debt securities
of Financial Services Companies and debt securities
of non-Financial Services Companies may include
debt securities that have been rated below invest-
ment grade by a nationally recognized rating agency
such as Standard & Poor's, a division of The Mc-
Graw-Hill Companies, Inc. ("S&P"), or Moody's In-
vestors Service Inc. ("Moody's") or that are
unrated and are considered by INVESCO to be of com-
parable quality. Such lower grade debt securities
are commonly known as "junk bonds."
The Fund may utilize the technique of short selling
as a means of furthering the Fund's investment ob-
jective of long-term capital appreciation. Short
sales are transactions in which the Fund sells a
security it does not own in anticipation of an ex-
pected decline in the price of that security. The
Fund may also sell short securities it owns to seek
to hedge against potential price declines in such
securities. The Fund may utilize certain other in-
vestment practices, such as repurchase agreements,
when-issued and delayed delivery transactions,
lending portfolio securities, foreign currency and
other derivative transactions. See "Other Invest-
ment Practices."
At times, the Fund expects to utilize financial
leverage through borrowings, including the issuance
of debt securities, or the issuance of preferred
shares or through other transactions, such as re-
verse repurchase agreements, which have the effect
of financial leverage. Currently, the Fund has not
determined the timing or amount of any financial
leverage that it would utilize. The Fund generally
will not utilize leverage if it anticipates that
the Fund's leveraged capital structure would result
in a lower return to Shareholders than that obtain-
able over time with an unleveraged capital struc-
ture. Use of financial leverage creates an opportu-
nity for increased capital appreciation for Share-
holders but, at the same time, creates risks, and
there can be no assurance that a leveraging strat-
egy will be utilized or, if utilized, that a
leveraging
2
<PAGE>
strategy will be successful during any period in
which it is employed. See "Risk Factors and Special
Considerations--Leverage."
"Equity and related securities" consist of: common,
preferred and convertible preferred stocks, whether
or not voting; partnership interests; securities
having equity characteristics such as rights, war-
rants, and convertible debt securities, whether or
not issued by the same issuer as the security to be
issued upon conversion or exercise; non-convertible
debt securities that are acquired as units together
with any of the foregoing, whether or not transfer-
able or separately traded; and short sale and hedge
positions relating to any of such securities. See
"Other Investment Practices--Short Sales" and "--
Derivatives."
For temporary or defensive purposes the Fund may,
without limit, invest in short-term securities is-
sued or guaranteed by the United States government
or one of its agencies or instrumentalities, high
grade debt securities and high grade money market
instruments. See "Investment Objective and Poli-
cies."
INVESTMENT RATIONALE...... INVESCO believes that positive trends and develop-
ing conditions in the global market for Financial
Services Companies offer attractive investment op-
portunities for the Fund, consistent with its in-
vestment objective of long-term capital apprecia-
tion. The primary forces that INVESCO believes
drive the significant growth potential of Financial
Services Companies are:
. DEMOGRAPHICS: As the world population ages,
INVESCO believes that the need for managing and
preserving personal assets grows, increasing the
demand for financial services.
. CONSOLIDATION: Merger and acquisition activity in
the financial services industry has been increas-
ing significantly in recent years, which INVESCO
believes offers benefits to Financial Services
Companies from expense synergies, increased reve-
nue opportunities and expanded market access.
. TECHNOLOGICAL INNOVATION: Increased productivity
has resulted from technological developments in
the financial services industry. INVESCO believes
that trends toward more efficient ways to process
information have allowed Financial Services Com-
panies to reduce transaction costs, enhance cus-
tomer service and increase capacity.
. DEREGULATION: INVESCO believes that recent and
anticipated regulatory developments have broad-
ened business opportunities in the financial
services industry, allowing Financial Services
Companies to further diversity their businesses
and revenues across sectors within the industry.
. DEMUTUALIZATION: The most recent wave of
demutualization is the transference of ownership
of insurance companies from policyholders to pub-
lic shareholders. INVESCO believes that insurance
com-
3
<PAGE>
panies undergoing the demutualization process po-
tentially offer attractive valuations and that the
increase in well-capitalized, strongly positioned
companies with established brand names will foster
continued consolidation in the insurance industry.
. GLOBALIZATION: INVESCO believes that the relax-
ation of international trade barriers, aided by
the evolution of technology, is facilitating in-
creased capital flows and creating an attractive
environment for Financial Services Companies to
expand business beyond traditional borders, gen-
erate increased revenues and enhance earnings.
In the view of INVESCO, these trends combine to
make Financial Services Companies an attractive in-
vestment for investors seeking long-term capital
appreciation through investment in a particular
sector.
INVESTMENT MANAGER AND
ADMINISTRATOR............
INVESCO is the Fund's investment manager and admin-
istrator. INVESCO is an indirect wholly owned sub-
sidiary of AMVESCAP PLC ("AMVESCAP"), a publicly
traded holding company that, through its subsidiar-
ies, engages in the business of investment manage-
ment on an international basis. AMVESCAP maintains
offices around the world--including the U.S., Lon-
don, Eastern Europe, Latin America, Hong Kong and
Tokyo. The company offers a broad array of products
and services to institutions and individuals
through all major distribution channels in over 30
countries. Recent mergers with major firms such as
A I M Management Group Inc., and GT Global (for-
merly the asset management division of Liechten-
stein Global Trust) have positioned AMVESCAP as one
of the world's largest independent fund management
companies. As of March 31, 1998, aggregate assets
under the management of AMVESCAP and its affiliates
worldwide approximately $208 billion.
As part of AMVESCAP, INVESCO draws on the organiza-
tion's global presence and expertise to deliver
portfolio management and investment services to its
clients. INVESCO has built a global reputation by
providing professional investment management to
some of the world's largest institutions and more
than a million individuals. INVESCO provides in-
vestors the perspective gained from more than 65
years of helping clients pursue their financial
goals. As of March 31, 1998, INVESCO managed or ad-
ministered assets of approximately $19 billion, in-
cluding 14 registered open-end investment companies
with 49 separate portfolios.
Since 1984, INVESCO has been a leader in offering
sector funds. One of those portfolios, the INVESCO
Financial Services Portfolio of INVESCO Strategic
Portfolios (the "Financial Services Portfolio")
seeks capital appreciation by investing in Finan-
cial Services Companies, including banks, savings
and loan associations, finance companies, leasing
companies and securities brokerage and insurance
companies. As of June 30, 1998 the Financial Serv-
ices Portfolio had net assets of approximately $1.7
billion. Its average annualized return for the ten-
year period ended June 30, 1998 was 24.98% and for
such ten-year
4
<PAGE>
period the performance of the Financial Services
Portfolio was ranked #3 out of all of the 810 reg-
istered open-end stock funds evaluated for that pe-
riod by Lipper Analytical Services, Inc.
("Lipper"), a recognized, independent fund evalua-
tion service. For further information about the
performance of the Financial Services Portfolio for
the ten-year period ended June 30, 1998 and for
certain other periods, see "The Adviser." Various
policies and restrictions of the Financial Services
Portfolio differ from those of the Fund. The in-
vestment performance of the Financial Services
Portfolio and that of the Fund are expected to dif-
fer. Past performance of the Financial Services
Portfolio is not necessarily indicative of the
Fund's future performance. See "The Adviser."
LISTING................... Prior to this offering, there has been no market
for the Shares. The Fund intends to apply to list
its Shares on the New York Stock Exchange, Inc.
("NYSE") under the symbol "GFN."
DIVIDENDS AND OTHER
DISTRIBUTIONS............
The Fund intends to pay dividends to Shareholders
from its net investment income (including net
short-term capital gains) and make distributions of
its net realized long-term capital gains, if any,
at least annually.
AUTOMATIC DIVIDEND
REINVESTMENT PLAN........
The Fund has established an Automatic Dividend Re-
investment Plan (the "Plan"). Under the Plan, all
dividends and other distributions will be automati-
cally reinvested in additional Shares of the Fund
either (i) purchased in the open market, if the
dividend is payable in cash only and Shares of the
Fund are trading at a discount or (ii) issued by
the Fund, if the dividend is payable in cash or
Shares. Shareholders who intend to hold their
Shares through a broker or nominee should contact
such broker or nominee to determine whether or how
they may participate in the Plan. See "Automatic
Dividend Reinvestment Plan."
CLOSED-END FUND The Fund has been organized as a closed-end manage-
STRUCTURE................ ment investment company (commonly referred to as a
closed-end fund). Closed-end funds differ from
open-end management investment companies (commonly
referred to as mutual funds) in that closed-end
funds generally list their shares for trading on a
securities exchange and do not redeem their shares
at the option of the shareholder. By comparison,
mutual funds issue securities redeemable at net as-
set value at the option of the shareholder and typ-
ically engage in a continuous offering of their
shares. Mutual funds are subject to continuous as-
set in-flows and out-flows that can complicate
portfolio management, whereas closed-end funds gen-
erally can stay more fully invested in securities
consistent with the closed-end fund's investment
objective and policies. In addition, in comparison
to open-end funds, closed-end funds have greater
flexibility in the employment of financial leverage
and in the ability to make certain types of invest-
ments, such as investments in illiquid securities.
However, shares of closed-end funds frequently
trade at a discount from their net asset value.
5
<PAGE>
In recognition of the possibility that the Shares
might trade at a discount to net asset value and
that any such discount may not be in the interest
of Shareholders, the Fund's Board of Trustees (the
"Board"), in consultation with INVESCO, from time
to time may review possible actions to reduce any
such discount, including but not limited to, the
possibility of implementing a "managed distribu-
tion" policy, which would entail quarterly payments
of dividends in an amount equal to a pre-estab-
lished percentage of the Fund's net asset value.
The Board might also consider open market repur-
chases or tender offers for Shares at net asset
value. There can be no assurance that the Board
will decide to undertake any of these actions or
that, if undertaken, such actions would result in
the Shares trading at a price equal to or close to
net asset value per Share. The Board might also
consider the conversion of the Fund to an open-end
mutual fund. The Board believes, however, that the
closed-end structure is desirable, given the Fund's
investment objective and policies. Investors should
assume, therefore, that it is unlikely that the
Board would vote to convert the Fund to an open-end
investment company. See "Description of Shares."
INVESTMENT MANAGEMENT AND
ADMINISTRATION FEE.......
As the Fund's investment manager, INVESCO will de-
termine the composition of the Fund's portfolio,
place all orders for the purchase and sale of secu-
rities and for other transactions, and oversee the
settlement of the Fund's securities and other port-
folio transactions. INVESCO will also provide ad-
ministrative services to the Fund. These will in-
clude, among other things, furnishing officers and
office space, preparing or assisting in preparing
materials for Shareholders and regulatory bodies
and overseeing the provision to the Fund of custo-
dial and accounting services. For these investment
management and administrative services, the Fund
will pay INVESCO a monthly fee at the annual rate
of 1.50% of the average daily total assets of the
Fund minus the sum of accrued liabilities (other
than aggregate indebtedness constituting financial
leverage) ("Managed Assets"). This fee is higher
than fees paid by most U.S. investment companies.
See "Management of the Fund."
SHAREHOLDER SERVICING
AGENT, CUSTODIAN AND
TRANSFER AND DIVIDEND
DISBURSING AGENT.........
PaineWebber Incorporated will act as Shareholder
Servicing Agent for the Fund pursuant to a Share-
holder Servicing Agreement with INVESCO. INVESCO
will pay a monthly fee at the annual rate of 0.10%
of the Fund's average daily Managed Assets (as de-
fined above) for such services. State Street Bank
and Trust Company ("State Street") will act as cus-
todian for the Fund and may employ sub-custodians
outside the U.S. approved by the Trustees of the
Fund in accordance with regulations of the Securi-
ties and Exchange Commission. State Street will
also act as the Fund's Transfer and Dividend Dis-
bursing Agent. See "Shareholder Servicing Agent,
Custodian and Transfer and Dividend Disbursing
Agent."
RISK FACTORS AND SPECIAL
CONSIDERATIONS...........
Investors are advised to consider carefully the
special risks involved in investing in the Fund.
6
<PAGE>
General. The Fund is a newly organized, non-diver-
sified, closed-end management investment company
and has no operating history. The Fund has been de-
signed, and the Shares are intended, primarily for
long-term investors and the Shares should not be
considered a vehicle for trading purposes. The net
asset value of the Fund's Shares will fluctuate
with price changes of the Fund's portfolio securi-
ties and these fluctuations are likely to be
greater during periods in which the Fund utilizes a
leveraged capital structure. See "Other Investment
Practices--Leverage."
Financial Services Industry. The Fund will invest
substantially all of its assets in Financial Serv-
ices Companies and generally the Fund's holdings
will be concentrated in that single, specific busi-
ness sector. Compared to the broad market, an indi-
vidual sector may be more strongly affected by
changes in the economic climate, broad market
shifts, moves in a particular dominant stock, or
regulatory changes. Financial Services Companies in
general are subject to extensive governmental regu-
lation, which may change frequently. The profit-
ability of Financial Services Companies is largely
dependent upon the availability and cost of capital
funds, and may fluctuate significantly in response
to changes in interest rates, as well as changes in
general economic conditions. From time to time, se-
vere competition may also affect the profitability
of Financial Services Companies.
Foreign Securities. The Fund may invest in securi-
ties of issuers domiciled outside of the United
States or that are denominated in various foreign
currencies and multinational foreign currency
units. Investing in securities of foreign entities
and securities denominated in foreign currencies
involves certain risks not involved in domestic in-
vestments, including, but not limited to, fluctua-
tions in foreign exchange rates, future foreign po-
litical and economic developments, different legal
systems and the possible imposition of exchange
controls or other foreign governmental laws or re-
strictions. Securities prices in different coun-
tries are subject to different economic, financial,
political and social factors. Since the Fund may
invest in securities denominated or quoted in cur-
rencies other than the U.S. dollar, changes in for-
eign currency exchange rates may affect the value
of securities in the Fund and the unrealized appre-
ciation or depreciation of investments. Currencies
of certain countries may be volatile and therefore
may affect the value of securities denominated in
such currencies. The Fund may engage in certain
transactions to hedge the currency-related risks of
investing in non-U.S. dollar denominated securi-
ties. See "Other Investment Practices." In addi-
tion, with respect to certain foreign countries,
there is the possibility of expropriation of as-
sets, confiscatory taxation, difficulty in ob-
taining or enforcing a court judgment, economic,
political or social instability or diplomatic de-
velopments that could affect investments in those
countries. Moreover, individual foreign economies
may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross domes-
tic product, rates of inflation, capital reinvest-
ment, resources, self-sufficiency and balance of
payments position.
7
<PAGE>
Certain foreign investments also may be subject to
foreign withholding taxes. These risks often are
heightened for investments in smaller, emerging
capital markets.
As a result of these potential risks, INVESCO may
determine that, notwithstanding otherwise favorable
investment criteria, it may not be practicable or
appropriate to invest in a particular country. The
Fund may invest in countries in which foreign in-
vestors, including INVESCO, have had no or limited
prior experience.
Leverage. The Fund has the right to use financial
leverage and expects it may do so from time to time
in the future. Currently, however, the Fund has not
determined the timing or amount of financial lever-
age that it would utilize. The use of leverage by
the Fund creates an opportunity for increased capi-
tal appreciation for the Shares, but, at the same
time, creates special risks. There can be no assur-
ance that a leveraging strategy will be utilized
or, if utilized, that a leveraging strategy will be
successful during any period in which it is em-
ployed. The Fund intends to utilize leverage to
provide the holders of Shares with a potentially
higher return. Leverage creates risks for holders
of Shares including the likelihood of greater vola-
tility of net asset value and market price of the
Shares and the risk that fluctuations in interest
rates on borrowings or in the dividend rates on any
preferred shares may affect the return to the hold-
ers of Shares. To the extent the capital apprecia-
tion, if any, or any income derived from securities
purchased with funds received from leverage exceeds
the cost of leverage, the Fund's return will be
greater than if leverage had not been used. Con-
versely, if the capital appreciation, if any, or
any income derived from the securities purchased
with such funds is not sufficient to cover the cost
of leverage, the return to the Fund will be less
than if leverage had not been used, and therefore
the amount available for distribution to Sharehold-
ers as dividends and other distributions will be
reduced. In the latter case, INVESCO in its best
judgment may nevertheless determine to maintain the
Fund's leveraged position if it deems such action
to be appropriate in the circumstances. During pe-
riods in which the Fund is utilizing financial lev-
erage, the investment management and administrative
fee, which is payable to INVESCO as a percentage of
the Fund's Managed Assets, will be higher than if
the Fund did not utilize a leveraged capital struc-
ture. Certain types of borrowings by the Fund may
result in the Fund being subject to covenants in
credit agreements relating to asset coverage and
portfolio composition requirements. The Fund may be
subject to certain restrictions on investments im-
posed by guidelines of one or more rating agencies,
which may issue ratings for any debt securities or
preferred shares issued by the Fund. These guide-
lines may impose asset coverage or portfolio compo-
sition requirements that are more stringent than
those imposed by the Investment Company Act of
1940, as amended (the "Investment Company Act"). It
is not anticipated that these covenants or guide-
lines will impede INVESCO in managing the Fund's
portfolio in accordance with the Fund's investment
objective and policies. The Fund at times may bor-
row from affiliates of
8
<PAGE>
INVESCO, provided that the terms of such borrowings
are no less favorable than those available from
comparable sources of funds in the marketplace. As
discussed under "Management of the Fund," the fee
paid to INVESCO will be calculated on the basis of
the Fund's assets including proceeds from
borrowings for leverage and the issuance of pre-
ferred shares. See "Risk Factors and Special Con-
siderations--Leverage."
Lower Grade Securities. The Fund may invest up to
20% of its total assets, in the aggregate, in non-
convertible debt securities of Financial Services
Companies and in debt securities of companies other
than Financial Services Companies. These securities
may include securities that have been rated as low
as C in the rating categories established by S&P
and Moody's, or may be unrated if deemed to be of
comparable credit quality by INVESCO. These securi-
ties, which are commonly referred to as "junk
bonds," are regarded, on balance, as predominantly
speculative in terms of the ability of the issuer
to pay interest or repay principal in accordance
with the terms of the obligation and accordingly
involve more credit risk than securities rated in
the higher rating categories. Such debt securities
are dependent upon favorable business, financial or
economic conditions, may be subordinated to senior
debt and can be regarded as having extremely poor
prospects of ever attaining any real investment
standing. The prices of these securities are gener-
ally more volatile than the prices of higher rated
debt securities. See "Risk Factors and Special Con-
siderations--Lower Grade Securities." Such securi-
ties may be illiquid. See "Risk Factors and Special
Considerations--Illiquid Investments."
Special Investment Practices. The Fund may make
short sales, which are transactions in which the
Fund sells a security it may not own in anticipa-
tion of an expected decline in the market value of
that security. However, the Fund will incur a loss
if the price of the security increases between the
date of the short sale and the date on which the
Fund purchases the security to close its short po-
sition. See "Other Investment Practices--Short
Sales."
The Fund may also engage in certain currency and
other hedging transactions, purchase securities on
a when-issued or a delayed delivery basis, enter
into repurchase agreements and lend its portfolio
securities. These transactions involve certain
risks and may result in losses to the Fund. See
"Other Investment Practices."
Illiquid Securities. The Fund may invest up to 25%
of its total assets in securities for which no
readily available market exists or which are other-
wise illiquid. The Fund may not be able readily to
dispose of such securities at prices that approxi-
mate those at which the Fund could sell such secu-
rities if they were more widely traded and, as a
result of such illiquidity, the Fund may have to
sell other investments or engage in borrowing
transactions if necessary to raise cash to meet its
obligations.
9
<PAGE>
Non-Diversified Status. The Fund is classified as a
"non-diversified" investment company under the In-
vestment Company Act, which means that the Fund may
invest a greater portion of its assets in a limited
number of issuers than would be the case if the
Fund were classified as a "diversified" investment
company. Accordingly, the Fund may be subject to
greater risk with respect to its portfolio securi-
ties than an investment company that is "diversi-
fied" because changes in the financial condition or
market assessment of a single issuer may cause
greater fluctuations in the net asset value of the
Shares.
Market Price, Discount and Net Asset Value of
Shares. Shares of closed-end management investment
companies in the past frequently have traded at a
discount to their net asset values. The risk of
loss associated with this characteristic of closed-
end management investment companies may be greater
for investors purchasing Shares in the initial pub-
lic offering and expecting to sell the Shares soon
after the completion thereof. Whether investors
will realize gains or losses upon the sale of
Shares will not depend directly upon the Fund's net
asset value, but will depend upon the market price
of the Shares at the time of sale. Since the market
price of the Shares will be determined by such fac-
tors as relative demand for and supply of the
Shares in the market, general market and economic
conditions and other factors beyond the control of
the Fund, the Fund cannot predict whether the
Shares will trade at, below or above net asset
value or at, below or above the initial offering
price. The Shares are designed primarily for long-
term investors. Investors in the Shares should not
view the Fund as a vehicle for trading purposes,
and should not invest in the Fund on the assumption
that it may convert to an open-end investment com-
pany. See "Risk Factors and Special Considerations"
and "Description of Shares."
Anti-Takeover Provisions. The Fund's Declaration of
Trust contains provisions limiting (i) the ability
of other entities or persons to acquire control of
the Fund, (ii) the Fund's freedom to engage in cer-
tain transactions and (iii) the ability of the
Fund's Trustees or Shareholders to amend the Decla-
ration of Trust. These provisions of the Declara-
tion of Trust may be regarded as "anti-takeover"
provisions. These provisions could have the effect
of depriving the Shareholders of opportunities to
sell their Shares at a premium over prevailing mar-
ket prices by discouraging a third party from seek-
ing to obtain control of the Fund in a tender offer
or similar transaction. See "Risk Factors and Spe-
cial Considerations" and "Description of Shares."
10
<PAGE>
FEE TABLE
The following tables are intended to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, directly or
indirectly.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price).......................... None
Automatic Dividend Reinvestment Plan Fees............................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO SHARES)(1)(2)
Management and Administrative Fee....................................... 1.50%
Interest Payments on Borrowed Funds..................................... None
Other Expenses.......................................................... 0.25%
----
Total Annual Fund Expenses............................................ 1.75%
</TABLE>
- --------
(1) See "Management of the Fund" for additional information. The Fund has the
authority to utilize financial leverage and expects it may do so from time
to time in the future. Currently, however, the Fund has not determined the
timing or amount of financial leverage that it would utilize. Leverage
would generally increase the Fund's expenses as a percentage of net assets
attributable to the Shares. For example, in the event the Fund utilizes
leverage by borrowing an amount equal to approximately 25% of the Fund's
total assets (including the amount obtained from leverage), it is
estimated that, as a percentage of net assets attributable to the Shares,
the Management and Administration Fee would be 2.00%, Interest Payments on
Borrowed Funds (assuming an interest rate of 6.00%) would be 2.00%, Other
Expenses would be .33% and Total Annual Fund Expenses would be 4.33%.
"Other Expenses" have been estimated. See "Special Considerations and Risk
Factors--Leverage" and "Other Investment Policies--Leverage."
(2) The Fund has agreed to reimburse the Underwriters up to $250,000 for
expenses. A portion of the management and administrative fee may be used
by INVESCO as reimbursement for compensation paid to the Underwriters.
EXAMPLE
The following Example demonstrates the projected dollar amount of total
cumulative expense that would be incurred over various periods with respect to
a hypothetical investment in the Fund. These amounts are based upon payment by
the Fund of operating expenses at the levels set forth in the above table.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would directly or indirectly
pay the following expenses on a $1,000
investment in the Fund, assuming a 5%
annual return throughout the relevant
period and reinvestment of all
dividends and distributions at net
asset value: $18 $56 $96 $208
</TABLE>
This Example assumes that the percentage amount listed under Total Annual
Fund Expenses remains the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return and reinvestment at net asset
value are required by regulation of the Securities and Exchange Commission
applicable to all investment companies; the assumed 5% annual return is not a
prediction of, and does not represent, the projected or actual performance of
the Shares. Actual expenses and annual rates of return may be more or less
than those assumed for purposes of the Example. In addition, although the
Example assumes reinvestment of all dividends and other distributions at net
asset value, participants in the Fund's Automatic Dividend Reinvestment Plan
may receive Shares obtained by the Plan Agent at or based on the market price
in effect at that time, which may be at, above or below net asset value. The
Fund has the authority to utilize financial leverage and expects that it may
do so in the future. Currently, however, the Fund has not determined the
timing or amount of financial leverage that it would utilize. For example, in
the event the Fund utilizes leverage by borrowing an amount equal to
approximately 25% of the Fund's total assets (including the amount borrowed)
and assuming an interest rate of 6.00%, an investor in the Shares would pay
the following expenses based on the assumptions in this Example: One Year--
$45; Three Years--$134; Five Years--$225 and Ten Years--$457.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES,
AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
11
<PAGE>
THE FUND
INVESCO Global Financial Services Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act") as a
non-diversified, closed-end management investment company. The Fund was
organized as a business trust under the laws of The Commonwealth of
Massachusetts on July 13, 1998 and has no operating history. The Fund's
principal office is located at 7800 E. Union Avenue, Denver, Colorado 80237,
and its telephone number is 1-800-528-8765. INVESCO Funds Group, Inc.
("INVESCO") is the Fund's investment manager.
THE ADVISER
INVESCO has been retained to provide investment advice to the Fund and to
conduct the management and investment program of the Fund. INVESCO is an
indirect, wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"), a publicly
traded holding company that, through its subsidiaries, engages in the business
of investment management on an international basis. AMVESCAP maintains offices
around the world--including the U.S., London, Eastern Europe, Latin America,
Hong Kong and Tokyo. The company offers a broad array of products and services
to institutions and individuals through all major distribution channels in
over 30 countries. Recent mergers with major firms such as AIM Management
Group Inc., and GT Global (formerly the asset management division of
Liechtenstein Global Trust) have positioned AMVESCAP as one of the world's
largest independent fund management companies. As of March 31, 1998, aggregate
assets under the management of AMVESCAP and its affiliates worldwide
approximately $208 billion. With a team of approximately 330 investment
professionals located in 25 offices spanning 4 continents, AMVESCAP is
committed to managing assets regionally and believes that its local investment
managers provide the company with a competitive advantage. In addition, within
each investment product category the company utilizes multiple investment
styles which allows the company to offer its worldwide clients a diverse range
of product alternatives.
As part of AMVESCAP, INVESCO draws upon the organization's worldwide
presence and expertise to deliver portfolio management and investment services
to its clients. INVESCO has built a global reputation by providing
professional investment management to some of the world's largest institutions
and more than a million individuals. INVESCO provides investors the
perspective gained from more than 65 years of helping clients pursue their
financial goals. As of March 31, 1998, INVESCO served as investment adviser to
various accounts having assets of approximately $19 billion, including 14
registered open-end investment companies with 49 separate investment
portfolios.
Since 1984, INVESCO has been a leader in offering sector funds. The
Financial Services Portfolio of INVESCO Strategic Portfolios, Inc. (the
"Financial Services Portfolio"), which is managed by INVESCO, seeks capital
appreciation by investing, under normal conditions, at least 80% of its total
assets in equity securities (common and preferred stocks, and convertible
bonds) of financial services companies, including commercial and industrial
banks, savings and loan associations, consumer and industrial finance
companies, leasing companies, securities brokerage firms and insurance
companies. As of June 30, 1998, the Financial Services Portfolio had assets of
approximately $1.7 billion. Its investment performance for the ten-, five-,
three- and one-year periods ended June 30, 1998 was ranked by Lipper
Analytical Services, Inc. ("Lipper"), a recognized, independent fund
evaluation service, as #3, #41, #12 and #147, respectively, out of all of the
810, 1,815, 3,367 and 5,346, respectively, registered open-end stock funds
evaluated by Lipper for those periods.
Set forth below are certain performance data provided by INVESCO with
respect to the Financial Services Portfolio, the only account managed by
INVESCO with an investment objective and policies substantially similar to
those of the Fund. This information is provided solely to illustrate INVESCO's
historical performance in managing an investment portfolio that invests in
securities of companies engaged in the financial services industry, as
measured against certain broad-based market indices and against the composite
performance of other open-end investment companies having investment
objectives similar to that of the Financial Services Portfolio.
12
<PAGE>
Various policies and restrictions of the Financial Services Portfolio differ
from those of the Fund. The investment performance of the Financial Services
Portfolio and that of the Fund are expected to differ. Past performance of the
Financial Services Portfolio is not necessarily indicative of the Fund's
future performance. The following data should be read in conjunction with the
notes that follow.
INVESCO STRATEGIC PORTFOLIOS, INC.
FINANCIAL SERVICES PORTFOLIO
SCHEDULE OF INVESTMENT PERFORMANCE(1)
<TABLE>
<CAPTION>
LIPPER STOCK LIPPER FINANCIAL
FINANCIAL SERVICES S&P 500 FUNDS SERVICES FUNDS
PORTFOLIO(2) INDEX(3)(6) (4)(6) (5)(6)
------------------ ----------- ------------ ----------------
<S> <C> <C> <C> <C>
Average Annual total
return for period ended
June 30, 1998 and
beginning:
June 30, 1997 (one
year)................ 38.25% 30.15% 15.19% 35.16%
June 30, 1995 (three
years)............... 37.84 30.19 18.12 34.81
June 30, 1993 (five
years)............... 24.98 23.04 15.50 25.79
June 30, 1988 (ten
years)............... 24.98 18.53 14.02 22.74
</TABLE>
- --------
Notes to Schedule
(1) The performance data included in the schedule above reflect the total
returns of the Financial Services Portfolio, a securities index and two
mutual fund group averages for the periods shown. Total return is a
measure of investment performance that is based upon the change in the
value of an investment from the beginning to the end of a specified
period, assuming reinvestment of all dividends and other distributions.
Other methods of computing average annual returns may produce different
results and performance results for different periods may vary. The
performance information set forth is not performance information relating
to the Fund, which is a newly organized company and has no performance
record, and is not necessarily indicative of the Fund's future investment
performance. Various policies and restrictions of the Financial Services
Portfolio differ from those of the Fund. The investment performance of the
Financial Services Portfolio and that of the Fund are expected to differ.
(2) The Financial Services Portfolio is a separate series of an open-end,
management investment company registered under the Investment Company Act,
and the Financial Services Portfolio commenced its investment operations
on June 2, 1986. INVESCO manages the investment operations of the
Financial Services Portfolio. Institutional Trust Company ("ITC"), a
subsidiary of INVESCO, managed the investments of the Financial Services
Portfolio until February 3, 1998, at which time ITC's investment advisory
operations were assumed by INVESCO. ITC's investment professionals have
continued to provide advisory services to the Financial Services Portfolio
in their capacities as officers of INVESCO. The foregoing event effected
no change in the personnel providing investment advisory services to the
Financial Services Portfolio.
The investment objective of the Financial Services Portfolio is capital
appreciation. It pursues this objective through the investment of its
assets in equity securities, common and preferred stocks and convertible
debt of companies principally engaged in financial services (including
commercial and industrial banks, savings and loan associations, consumer
and industrial finance leasing companies and securities brokerage and
insurance companies). Under normal market conditions, the Financial
Services Portfolio invests at least 80% of its total assets in such
securities. The Financial Services Portfolio is managed using substantially
the same investment strategies and techniques as contemplated for the Fund,
except that up to 25% of the Financial Services Portfolio's assets may be
invested in foreign securities (securities of Canadian issuers and American
Depository Receipts not being subject to this limitation) and the Financial
Services Portfolio may invest only up to 10% of its total assets in
securities that have no readily available secondary market, and except that
the Fund is authorized to engage in certain investment practices such as
short sales, financial leverage, options and futures transactions and
lending portfolio securities.
13
<PAGE>
The average annual returns of the Financial Services Portfolio are computed
in accordance with the standardized formula for such computations required
by the Securities and Exchange Commission for use by open-end investment
companies. Average annual return is based upon the change in value of an
assumed initial investment of $1,000 in the Financial Services Portfolio
from the beginning of a period through the end of a period, and assumes
reinvestment of all dividends and distributions. This result is then
annualized and expressed as a percentage of the initial investment, and
includes the effect of the Financial Services Portfolio's operating
expenses, including advisory fees and brokerage commissions.
(3) Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index") is a
widely recognized, unmanaged index of market activity based upon the
aggregate performance of a selected portfolio of publicly traded common
stocks, including monthly adjustments to reflect the reinvestment of
dividends and other distributions.
(4) The Lipper Stock Funds Average ("Lipper Stock Funds Average") reflects the
composite simple average total return performance, as computed by Lipper,
of the U.S. registered open-end investment companies (including the
Financial Services Portfolio) that invest primarily in stocks and equity
securities generally, and assumes reinvestment of dividends and other
distributions on the ex-dividend date and includes the effect of the
operating expenses, including advisory fees and brokerage commissions, of
the funds included in the average. The total return performance of each
fund is measured by comparing a fund's net asset value at the beginning and
end of a period, with the results being expressed as a percent change of
the beginning net asset value. For the ten-year period indicated above,
there were 810 open-end funds included in the Lipper Stock Funds Average,
for the five-year period indicated above there were 1,815 open-end funds
included in Lipper Stock Funds Average, for the three-year period indicated
above, there were 3,367 open-end funds included in the Lipper Stock Funds
Average, and for the one-year period indicated above, there were 5,346
open-end funds included in the Lipper Stock Funds Average, in each case
including the Financial Services Portfolio.
(5) The Lipper Financial Services Funds Average ("Lipper Financial Services
Funds Average") reflects the composite simple average total return
performance, as computed by Lipper, of the U.S. registered open-end
investment companies (including the Financial Services Portfolio) that
invest primarily in equity securities of companies engaged in financial
services and assumes reinvestment of dividends and other distributions on
the ex-dividend date and includes the effect of the operating expenses,
including advisory fees and brokerage commissions, of the funds included in
the average. The total return performance of each fund is measured by
comparing a fund's net asset value at the beginning and end of a period,
with the results being expressed as a percent change of the beginning net
asset value. For the ten-year period indicated above, there were 11 open-
end funds included in the Lipper Financial Services Funds Average, for the
five-year period indicated above, there were 15 open-end funds included in
the Lipper Financial Services Funds Average, for the three-year period
indicated above, there were 19 open-end funds included in the Lipper
Financial Services Funds Average, and for the one-year period indicated
above, there were 34 open-end funds included in the Lipper Financial
Services Funds Average, in each case including the Financial Services
Portfolio.
(6) The S&P 500 Index does not include the effect of brokerage commissions
which would be incurred by an investor who purchased the stocks included in
that index. The Lipper Stock Funds Average and the Lipper Financial
Services Average include the effect of brokerage commissions incurred by
the funds included in the average, but exclude the impact of any taxes and
sales charges incurred by the shareholders.
The composition of the S&P 500 Index, which includes a broad selection of
companies in diverse industries, differs from the composition, during the
periods shown above, of the investments of the Financial Services Portfolio
which consisted primarily of stocks of companies principally engaged in
financial services. During various periods, the performance of the stocks
for companies engaged in financial services may be greater than, less than
or comparable to the composite performance of a broad selection of stocks of
companies engaged in diverse and unrelated industries. For the periods shown
above, the performance of stocks of Financial Services Companies exceeded
that of the stock market generally. However, during prior periods, financial
services stocks have under performanced the market and may also do so during
future periods.
14
<PAGE>
USE OF PROCEEDS
The proceeds of this initial public offering are estimated at $ ($ if
the Underwriters' overallotment option is exercised in full) before payment of
organizational and offering expenses (estimated at $ and $ ,
respectively). The proceeds will be invested in accordance with the Fund's
investment objective and policies during a period not to exceed six months
from the closing of the initial public offering. Pending such investment, the
proceeds may be invested in U.S. dollar-denominated, high quality, short-term
instruments. A portion of the Fund's organizational and offering expenses has
been advanced by INVESCO and will be repaid by the Fund upon completion of the
initial public offering. There is no sales load or underwriting discount
imposed on sales of Shares in the initial public offering. INVESCO or an
affiliate (not the Fund) will pay a commission from its own assets to the
Underwriters in connection with sales of Shares in this offering. See
"Underwriting."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital appreciation. The Fund
is designed for investors seeking to participate in the potential global
growth of companies engaged in financial services. The Fund's investment
objective cannot be changed without approval by the holders of a majority (as
defined in the Investment Company Act) of the Fund's outstanding voting
securities. The investment and other policies of the Fund (other than policies
which are designated as "fundamental") may be changed by the Board of Trustees
(the "Board").
The Fund seeks to achieve its objective by investing substantially all of
its assets in equity and related securities of U.S. and foreign companies
principally engaged in creating, providing, developing or distributing
financial services ("Financial Services Companies"). INVESCO believes that the
securities of Financial Services Companies offer the potential for long-term
capital appreciation based upon positive trends and developing conditions in
the global market for Financial Services Companies.
In the view of INVESCO, these trends combine to make Financial Services
Companies an attractive investment opportunity for investors seeking long-term
capital appreciation through investment in a particular sector. An investment
in the Fund should not itself be considered a balanced investment program and
is not intended to provide diversification as a more complete investment
program would. No assurance can be given that the Fund will achieve its
investment objective.
The principal industry groups of Financial Services Companies include banks,
savings institutions, brokerage firms, investment management companies,
finance companies, leasing companies, insurance companies, holding companies
of the foregoing, and companies that provide related services to such
companies.
Banks and savings institutions provide services to customers such as demand,
savings and time deposit accounts and a variety of lending and related
services. Brokerage firms provide services to customers in connection with the
purchase and sale of securities. Investment management companies provide
investment advisory and related services to retail customers, high net-worth
individuals and institutions. Finance companies provide consumer or commercial
financing, such as commercial revolving credit to dealers, manufacturers or
distributors and consumer revolving credit. Leasing companies are involved in
a variety of tax-advantaged investment activities, such as advising on or
investing in leases for commercial aircraft or major industrial and power
production equipment. Insurance companies provide a wide range of commercial,
life, health, disability, personal property and casualty insurance products
and services to businesses, governmental units, associations and individuals.
Under normal market conditions, at least 80% of the Fund's total assets will
be invested in equity and related securities of Financial Services Companies.
The Fund expects to invest in Financial Services Companies both in large,
well-developed capital and financial markets, such as in the United States and
Western Europe, as well as Financial Services Companies in countries with
emerging capital and financial markets.
15
<PAGE>
The Fund will seek investment opportunities on a global basis by investing
in securities of foreign issuers and securities traded in foreign markets
("foreign securities") as well as in securities of U.S. issuers in the United
States. Under normal market conditions, the Fund will invest at least 65% of
its total assets in issuers that are organized under the laws of, or that
maintain their principal business operations in, at least three countries, one
of which is expected to be the United States. However, there is no requirement
that any specific percentage of the Fund's assets be invested in companies
located in any specific country. Investments in foreign securities involve
certain risks not necessarily associated with investments in U.S. companies.
See "Risk Factors and Special Considerations--Foreign Securities."
A company will be considered a Financial Services Company if INVESCO
determines that the company derives more than 50% of its gross income from the
provision of financial or related services, or that the company dedicates more
than 50% of its assets to the production of revenues from the financial
services industry. If, based on available information, a question exists
whether a company meets one of these standards, INVESCO may determine that the
company is a Financial Services Company.
Up to 20% of the Fund's total assets may be invested, in the aggregate, in:
equity and related securities of companies other than Financial Services
Companies; non-convertible debt securities of Financial Services Companies
that are not acquired as units together with equity securities; debt
securities of companies other than Financial Services Companies; and high
grade U.S. dollar-denominated money market instruments having maturities of
one year or less. The non-convertible debt securities of Financial Services
Companies and debt securities of non-Financial Services Companies may include
debt securities that have been rated below investment grade by a nationally
recognized rating agency such as Standard & Poor's, a division of The McGraw-
Hill Companies, Inc. ("S&P"), or Moody's Investor Services, Inc. ("Moody's")
or that are unrated and are considered by INVESCO to be of comparable quality.
Such lower grade debt securities are commonly known as "junk bonds." See "Risk
Factors and Special Considerations--Lower Grade Securities."
The Fund may invest up to 25% of its total assets in securities for which
there is no readily available secondary market, including securities acquired
in private placements, venture capital opportunities, joint ventures and
partnerships. See "Risk Factors and Special Considerations--Illiquid
Securities."
The Fund may utilize the technique of short selling as a means of furthering
its investment objective of long-term capital appreciation. Short sales are
transactions in which the Fund sells a security it may not own in anticipation
of an expected decline in the price of that security. The Fund may also sell
short securities it owns to seek to hedge against potential price declines in
such securities. The Fund may utilize certain other investment practices, such
as repurchase agreements, when-issued and delayed delivery transactions,
lending portfolio securities, foreign currency and other derivative
transactions. See "Other Investment Practices."
At times, the Fund expects to utilize financial leverage through borrowings,
including the issuance of debt securities, or the issuance of preferred shares
or through other transactions, such as reverse repurchase agreements, which
have the effect of financial leverage. The Fund generally will not utilize
leverage if it anticipates that the Fund's leveraged capital structure would
result in a lower return to Shareholders than that obtainable over time with
an unleveraged capital structure. Use of financial leverage creates an
opportunity for increased capital appreciation for Shareholders but, at the
same time, creates risks, and there can be no assurance that a leveraging
strategy will be utilized or, if utilized, that a leveraging strategy will be
successful during any period in which it is employed. See "Risk Factors and
Special Considerations--Leverage."
"Equity and related securities" consist of: common, preferred and
convertible preferred stocks, whether or not voting; partnership interests;
securities having equity characteristics such as rights, warrants, and
convertible debt securities, whether or not issued by the same issuer as the
security to be issued upon conversion or exercise;
16
<PAGE>
non-convertible debt securities that are acquired as units together with any
of the foregoing, whether or not transferable or separately traded; and short
sale and hedge positions relating to any of such securities.
For temporary or defensive purposes the Fund may, without limit, invest in
short-term securities issued or guaranteed by the United States government or
one of its agencies or instrumentalities, high grade debt securities and high
grade money market instruments. See "Portfolio Securities--Temporary or
Defensive Policy."
INVESTMENT RATIONALE
INVESCO believes positive trends and developing conditions in the global
market for Financial Services Companies offer attractive investment
opportunities for investors who seek long-term capital appreciation.
INVESCO believes the primary forces driving the significant growth potential
of Financial Services Companies are:
.Demographics
.Consolidation
.Technological Innovation
.Deregulation
.Demutualization
.Globalization
DEMOGRAPHICS. Global demographic trends are generating increasing demand for
financial service products. As the world population ages, INVESCO believes
that the need for managing and preserving personal assets grows, increasing
the demand for financial services such as banking, brokerage, finance,
investment management and insurance.
INVESCO believes that individuals over the age of forty use a higher
proportion of financial services as they approach their peak earning years and
plan for retirement and wealth transfer. The consumption of financial products
and services does not end when individuals have accumulated sufficient wealth
to meet retirement and other financial needs, but continues into retirement
when individuals need insurance products to protect their wealth and health.
17
<PAGE>
The following chart illustrates the evolving demographics of people above
age 40.
PERCENTAGE OF INDIVIDUALS ABOVE AGE 40(/1/)
[Horizontal Bar Chart Comparing Percentage of Individuals Above Age 40 in
Specified Countries or Regions in 1998 compared to Projected Percentage in 2010.
Source: U.S. Census Bureau, Emerging Markets Companion, with the Following Plot
Points, in percentages:
1998 2010
---- ----
United States 40 46
United Kingdom 45 51
Italy 50 58
Japan 50 58
Germany 49 60
France 45 52
Canada 42 50
Asia 25 33
Eurasia 40 44
Eastern Europe 38 42
Latin America 24 30]
Source: U.S. Census Bureau
Emerging Markets Companion
(1) As of June 30, 1998
The more developed countries, such as the Group of Seven ("G7") countries,
have a large and growing percentage of their population reaching age 40 and
above, the age segment that INVESCO believes will be the primary consumers of
financial services. By the year 2010, the lesser-developed regions'
populations are projected to be more comparable to those of more developed
countries, such as the G7. INVESCO believes these demographic trends offer the
Fund significant investment opportunities in Financial Services Companies on a
global basis.
18
<PAGE>
CONSOLIDATION. Merger and acquisition activity in the financial services
industry has been increasing significantly in the last five years. As of June
29, 1998, the value of announced transactions worldwide has surpassed the
record levels set in 1997. INVESCO expects the consolidation trend to continue
as companies strive to grow businesses, enhance earnings and increase
shareholder value.
ANNOUNCED MERGERS & ACQUISITIONS ACTIVITY IN THE FINANCIAL SERVICES SECTOR
1994-1998(/1/)
[Vertical Bar Chart Showing Announced Mergers & Acquisitions Activity in the
Financial Services Sector from the year 1994 through 1998 in terms of value.
Source: Securities Data Company, with the following plot points in billions:
1994 $134.276
1995 $264.702
1996 $197.452
1997 $511.535
1998 (YTD) $549.064]
[Vertical Bar Chart Showing Announced Mergers & Acquisitions Activity in the
Financial Services Sector from the year 1994 through 1998 in terms of numbers of
deals, Source: Securities Data Company, with the following plot points in deals:
1994 $1,374
1995 $1,406
1996 $1,484
1997 $2,048
1998 (YTD) $1,316]
Source: Securities Data Company
(1) As of June 29, 1998
19
<PAGE>
INVESCO believes the benefits of these consolidation transactions include:
Expense Synergies: Back office and data processing as well as other
administrative functions can be streamlined or eliminated. Combined with
the elimination of redundant facilities and operations, these mergers
produce efficiencies of volume and scale. The reduction in costs creates a
more competitive company that is better positioned to withstand
unanticipated dramatic changes in the industry.
Revenue Opportunities: Through the addition of complementary product lines
and distribution channels, the combined companies can satisfy a broader
scope of client needs, providing the potential for revenue growth.
Expanded Markets: As a means to strengthen existing market presence within
geographic areas or access new markets, financial institutions may acquire
companies with established local business infrastructure and customer base
from which to distribute their products and services.
INVESCO also believes consolidation activity will provide opportunities to
realize attractive returns from the purchase price premiums that are typically
paid to acquire Financial Services Companies.
TECHNOLOGICAL INNOVATION. Increased productivity has resulted from
technological developments in the financial services industry. Trends toward
more efficient ways to process information have allowed institutions to reduce
transaction costs and enhance customer service. Financial institutions are
continually exploring and implementing new channels to distribute their
products and services, such as by telephone, Automatic Teller Machines ("ATM")
and the Internet, which are less expensive to operate than traditional branch
networks, provide greater convenience for clients and increase the
institutions' capacity to conduct transactions.
Technology has also enabled institutions to more effectively profile and
gather client information, allowing more efficient target-marketing of their
products and services, thereby enhancing customer profitability.
Technology has been a major contributor to the emergence of financial
services-related firms responsible for maintaining customer databases and
providing administrative functions and data processing, such as credit card
processing, on-line trading and mutual fund accounting. These companies
provide additional investment opportunities for the Fund as it becomes more
cost effective for financial product creation and distribution companies to
outsource these functions.
DEREGULATION. Recent and anticipated regulatory developments have broadened
business opportunities for Financial Services Companies. For example, in the
United States regulators continue to ease restrictions imposed by the Glass-
Steagall Act, allowing Financial Services Companies to further diversify their
businesses and revenues across sectors within the industry. In Europe, the
European Union has initiated actions to remove barriers for conducting
business across borders of member countries, creating a common market with a
soon-to-be-implemented common currency, further promoting an integrated
European financial services market. In Japan, the Ministry of Finance has
announced sweeping changes to its laws relating to Financial Services
Companies.
INVESCO also believes the demand for certain financial services products
will be enhanced as a result of trends in government-sponsored pension and
retirement programs throughout the world. These trends are oriented toward
mandatory contribution requirements, the liberalization of retirement fund
investment parameters and the shift from defined benefit to defined
contribution plans. For example, in Latin America, Chile pioneered changes in
its government-sponsored pension system, which are being adopted in various
forms by other countries, including Argentina, Brazil and Mexico.
20
<PAGE>
DEMUTUALIZATION. The trend toward demutualization has been in effect for
over a decade. While savings institutions began transferring ownership from
depositors to public shareholders in the 1980s through mutual-to-stock
conversions, the most recent wave of demutualization is the transference of
ownership of insurance companies from policyholders to public shareholders.
One of the primary drivers for companies to demutualize is to increase
significantly the flexibility to grow such businesses organically and/or
through acquisitions. INVESCO believes that insurance companies undergoing the
demutualization process offer attractive valuations and that the increase in
well-capitalized, strongly positioned companies with established brand names
will foster continued consolidation in the insurance industry. Although life
insurance companies in North America currently represent approximately $160
billion in market capitalization, INVESCO expects that $80 billion in market
capitalization could be added as a result of the demutualization process
within the next two years.
GLOBALIZATION. The relaxation of international trade barriers, aided by the
evolution of technology, is facilitating increased capital flows and creating
an attractive environment for Financial Services Companies. INVESCO believes
that fragmented national markets are converging into regional blocs, creating
a single vast global market. As this global marketplace grows, Financial
Services Companies are well-positioned to expand businesses beyond traditional
borders and reach a broader more diversified client base, which helps offset
the variability of local and regional market cycles.
PORTFOLIO SECURITIES
EQUITY SECURITIES. The Fund may invest in the following types of equity
securities: common stock, preferred stock, securities convertible into common
stock, American Depository Receipts ("ADRs"), American Depository Shares
("ADSs"), European Depository Receipts ("EDRs"), rights and warrants to
acquire such securities and substantially similar forms of equity with
comparable risk characteristics. These securities may be listed on securities
exchanges, traded in various over-the-counter ("OTC") markets, have no
organized market, or be contractually or legally restricted as to transfer.
Common Stock. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits, if any, of the
corporation, without preference over any other shareholder or class of
shareholders, after making required payments to holders of such entity's
preferred stock and other senior equity. Common stock usually carries with it
the right to vote and frequently an exclusive right to do so.
Preferred Stock. Preferred stock generally has a preference as to dividends
and upon liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Preferred stock generally pays
dividends in cash (or additional shares of preferred stock) at a defined rate
but, unlike interest payments on debt securities, preferred stock dividends
are payable only if declared by the issuer's board of directors. Dividends on
preferred stock may be cumulative, meaning that, in the event the issuer fails
to make one or more dividend payments on the preferred stock, no dividends may
be paid on the issuer's common stock until all unpaid preferred stock
dividends have been paid. Preferred stock also may be subject to optional or
mandatory redemption provisions.
Convertible Securities. Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is senior to
shares of common stock, of the same issuer. Because of the subordination
feature, however, convertible securities typically have lower ratings than
similar non-convertible securities.
21
<PAGE>
Although to a lesser extent than with fixed-income securities, the market
value of convertible securities tends to decline as interest rates increase
and, conversely, tends to increase as interest rates decline. In addition,
because of the conversion feature, the market value of convertible securities
tends to vary with fluctuations in the market value of the underlying common
stock. A unique feature of convertible securities is that as the market price
of the underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of
the underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
Convertible securities are investments that provide for a stable stream of
income with generally higher yields than common stock. There can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. A convertible security, in addition to
providing fixed income, offers the potential for capital growth through the
conversion feature, which enables the holder to benefit from increases in the
market price of the underlying common stock. There can be no assurance of
capital growth, however, because securities prices fluctuate. Convertible
securities, however, generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital growth.
FOREIGN SECURITIES. The Fund may invest without limitation in securities of
issuers domiciled outside the United States or that are denominated in various
foreign currencies and multinational foreign currency units. Foreign
securities markets generally are not as developed or efficient as those in the
United States. Securities of some foreign issuers are less liquid and more
volatile than securities of comparable U.S. issuers. Similarly, volume and
liquidity in most foreign securities markets are less than in the United
States and, at times, volatility of price can be greater than in the United
States.
Because evidence of ownership of such securities usually are held outside
the United States, the Fund will be subject to additional risks that include
possible adverse political and economic developments, seizure or
nationalization of foreign deposits and adoption of governmental restrictions,
which might adversely affect or restrict the payment of principal and interest
on the foreign securities to investors located outside the country of the
issuer, whether from currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Fund have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in currencies
of foreign countries, the value of these assets as measured in U.S. dollars
may be affected favorably or unfavorably by changes in currency rates and
exchange control regulations. The Fund may engage in certain transactions to
seek to hedge the currency-related risks of investing in non-U.S. dollar
denominated securities. See "Other Investment Practices" and "Risk Factors and
Special Considerations--Foreign Securities."
DEPOSITORY RECEIPTS. The Fund may hold securities of foreign issuers in the
form of ADRs, ADSs and EDRs or other securities convertible into securities of
eligible foreign issuers. These securities may not necessarily be denominated
in the same currency as the securities for which they may be exchanged. ADRs
and ADSs are typically issued by an American bank or trust company and
evidence ownership of underlying securities issued by a foreign corporation.
EDRs, which are sometimes referred to as Continental Depository Receipts
("CDRs"), are issued in Europe typically by foreign banks and trust companies
and evidence ownership of either foreign or domestic securities. Generally,
ADRs and ADSs in registered form are designed
22
<PAGE>
for use in U.S. markets and EDRs in bearer form are designed for use in
European securities markets. For purposes of the Fund's investment policies,
ADRs, ADSs and EDRs will be deemed to be investments in the equity securities
representing securities of foreign issuers into which they may be converted.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually
charges fees upon the deposit and withdrawal of the deposited securities, the
conversion of dividends into U.S. dollars, the disposition of non-cash
distributions, and the performance of other services. The depository of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of deposited securities or
to pass through voting rights to ADR holders in respect of the deposited
securities. Sponsored ADR facilities are created in generally the same manner
as unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depository. The deposit agreement
sets out the rights and responsibilities of the issuer, the depository and the
ADR holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as
dividend payment fees of the depository), although ADR holders continue to
bear certain other costs (such as deposit and withdrawal fees). Under the
terms of most sponsored arrangements, depositories agree to distribute notices
of shareholder meetings and voting instructions and to provide shareholder
communications and other information to the holders at the request of the
issuer of the deposited securities. The Fund may invest in both sponsored and
unsponsored ADRs.
WARRANTS OR RIGHTS. Warrants or rights may be acquired by the Fund in
connection with other securities or separately, and provide the Fund with the
right to purchase other securities of the issuer at a later date.
LOWER GRADE SECURITIES. Under normal market conditions, the Fund may invest
up to 20% of its total assets, in the aggregate, in non-convertible debt
securities of Financial Services Companies that are not acquired as units
together with equity securities and in debt securities of companies other than
Financial Services Companies. Such debt securities may be rated below
investment grade quality (lower than Baa by Moody's or lower than BBB by S&P
or comparably rated by another rating agency) or may be unrated debt
securities that INVESCO determines to be of comparable quality. Securities
rated Ba by Moody's are judged to have speculative elements; their future
cannot be considered as well assured and often the protection of interest and
principal payments may be very moderate. Securities rated BB by S&P are
regarded as having predominantly speculative characteristics and, while such
obligations have less near-term vulnerability to default than other
speculative grade debt, in the opinion of S&P 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. Securities rated C by Moody's are regarded by Moody's as
having extremely poor prospects of ever attaining any real investment
standing. See "Risk Factors and Special Considerations--Lower Grade
Securities."
TEMPORARY OR DEFENSIVE POLICY. For temporary purposes, and when in INVESCO's
judgment conditions in the securities markets generally or in the market for
the securities of Financial Services Companies, would make achievement of the
Fund's investment objective impracticable, the Fund may assume a defensive
investment position. During these periods, the Fund may without limit invest
in U.S. dollar-denominated, high grade money market instruments rated or, if
unrated, in INVESCO's opinion comparable to instruments rated, in the top
three rating categories utilized by at least one nationally recognized
statistical rating organization and having maturities at the time of purchase
of one year or less, including securities issued or guaranteed by the United
States government or one of its agencies or instrumentalities ("U.S.
Government Securities"), certificates of deposit, bankers' acceptances,
commercial paper, short-term corporate securities, and repurchase agreements
with respect to any of the foregoing. While the Fund is in a defensive
position, the opportunity to achieve capital appreciation will be limited,
and, to the extent that INVESCO's assessment of market conditions is
incorrect, the
23
<PAGE>
Fund will be foregoing the opportunity to benefit from capital appreciation
resulting from increases in the value of equity investments; however, the
ability to maintain a defensive investment position provides the flexibility
for the Fund to seek to avoid capital loss during market downturns. It is
impossible to predict when, or for how long, any such investment position will
be maintained.
OTHER INVESTMENT PRACTICES
The Fund may utilize other investment practices and portfolio management
techniques as set forth below.
LEVERAGE. At times, the Fund expects to utilize leverage through borrowings
or issuance of debt securities or preferred shares. Currently, the Fund has
not determined the timing or amount of any financial leverage that it would
utilize. The Fund generally will not utilize leverage if it anticipates that
the Fund's leveraged capital structure would result in a lower return to
holders of the Shares than that obtainable if the Shares were unleveraged for
any significant amount of time. The Fund also may borrow money as a temporary
measure for extraordinary or emergency purposes, including the payment of
dividends and the settlement of securities transactions which otherwise may
require untimely dispositions of Fund securities.
Leverage creates risks for holders of the Shares, including the likelihood
of greater volatility of net asset value and market price of the Shares, and
the risk that fluctuations in interest rates on borrowings or in the dividend
rates on any preferred shares may affect the return to the holders of the
Shares. To the extent the capital appreciation, if any, or any income derived
from securities purchased with funds received from leverage exceeds the cost
of leverage, the Fund's return will be greater than if leverage had not been
used. Conversely, if the capital appreciation, if any, or any income from the
securities purchased with such funds is not sufficient to cover the cost of
leverage, the return on the Fund will be less than if leverage had not been
used, and therefore the amount available for distribution to Shareholders as
dividends and other distributions will be reduced. In the latter case, INVESCO
in its best judgment nevertheless may determine to maintain the Fund's
leveraged position if it deems such action to be appropriate under the
circumstances. As discussed under "Management of the Fund," the fee paid to
INVESCO will be calculated on the basis of the Fund's assets including
proceeds from borrowings for leverage and the issuance of preferred shares.
Capital raised through leverage will be subject to interest costs or
dividend payments which may exceed any capital appreciation or income earned
on the assets purchased with such capital. The Fund also may be required to
maintain minimum average balances in connection with borrowings or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements will increase the cost of borrowing over the stated interest
rate. The issuance of additional classes of preferred shares involves offering
expenses and other costs and may limit the Fund's freedom to pay dividends on
Shares or to engage in other activities. Borrowings and the issuance of a
class of preferred shares having priority over the Fund's Shares create an
opportunity for greater return per Share, but at the same time such leveraging
is a speculative technique in that it will increase the Fund's exposure to
capital risk. Unless the income and appreciation, if any, on assets acquired
with borrowed funds or preferred shares offering proceeds exceed the cost of
borrowing or dividends on preferred securities, the use of leverage will
diminish the investment performance of the Fund compared with what it would
have been without leverage.
Certain types of borrowings may result in the Fund being subject to
covenants in credit agreements relating to asset coverage and portfolio
composition requirements. The Fund may be subject to certain restrictions on
investments imposed by guidelines of one or more rating agencies which may
issue ratings for the corporate debt securities or preferred shares issued by
the Fund. These guidelines may impose asset coverage or portfolio composition
requirements that are more stringent than those imposed by the Investment
Company Act. It is not anticipated that these covenants or guidelines will
impede INVESCO from managing the Fund's portfolio in accordance with the
Fund's investment objective and policies.
24
<PAGE>
Under the Investment Company Act, the Fund is not permitted to incur
indebtedness unless immediately after such incurrence the Fund has an asset
coverage of at least 300% of the aggregate outstanding principal balance of
indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the Fund's
total assets, including the amount borrowed). Additionally, under the
Investment Company Act, the Fund may not declare any dividend or other
distribution upon any class of its capital shares, or purchase any such
capital shares, unless the aggregate indebtedness of the Fund has, at the time
of the declaration of any such dividend or distribution or at the time of any
such purchase, an asset coverage of at least 300% after deducting the amount
of such dividend, distribution, or purchase price, as the case may be. Under
the Investment Company Act, the Fund is not permitted to issue preferred
shares unless immediately after such issuance the net asset value of the
Fund's portfolio is at least 200% of the liquidation value of the outstanding
preferred shares (i.e., such liquidation value may not exceed 50% of the
Fund's total assets, including the amount attributable to the preferred
shares). In addition, the Fund is not permitted to declare any cash dividend
or other distribution on its Shares unless, at the time of such declaration,
the net asset value of the Fund's portfolio (determined after deducting the
amount of such dividend or other distribution) is at least 200% of such
liquidation value. If preferred shares are issued, the Fund intends, to the
extent possible, to purchase or redeem preferred shares from time to time to
maintain coverage of any preferred shares of at least 200%. In addition,
during any period when preferred shares are outstanding, the Investment
Company Act would require that two of the Fund's Trustees be elected by the
holders of the preferred shares, voting separately as a class, and that during
any period in which the Fund was in arrears in an amount greater than two full
years' dividends on such preferred shares, a majority of the Fund's Trustees
be so elected.
The Fund's willingness to borrow money and issue new securities for
investment purposes, and the amount the Fund will borrow or issue, will depend
on many factors, the most important of which are investment outlook, market
conditions and costs of leverage. Successful use of a leveraging strategy
depends on INVESCO's ability to predict correctly the costs of leverage and
market movements, and there is no assurance that a leveraging strategy will be
successful during any period in which it is employed.
The Fund has the authority to utilize financial leverage and expects that it
may do so from time to time in the future. Currently, however, the Fund has
not determined the timing or amount of financial leverage that it would
utilize. Assuming the utilization of leverage by borrowings in the amount of
approximately 25% of the Fund's total assets, and an annual interest rate of
6.00% payable on such leverage based on market rates as of the date of this
Prospectus, the annual return that the Fund's portfolio must experience (net
of expenses) in order to cover such interest payments would be 2.00%.
The following table is designed to illustrate the effect on the return to a
holder of the Fund's Shares of the leverage obtained, for example, by
borrowings in the amount of approximately 25% of the Fund's total assets,
assuming hypothetical annual returns of the Fund's portfolio of minus 10% to
plus 10%. As the table shows, the leverage generally increases the return to
Shareholders when portfolio return is positive and greater than the cost of
leverage and decreases the return when the portfolio return is negative or
less than the cost of leverage. The figures appearing in the table are
hypothetical and actual returns may be greater or less than those appearing in
the table.
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed
Portfolio
Return (net
of
expenses)... (10)% (5)% 0 % 5% 10%
Corresponding
Share
Return...... (15)% (9)% (2)% 5% 11%
</TABLE>
Until the Fund borrows or issues preferred shares, the Fund's Shares will
not be leveraged, and the risks and special considerations related to leverage
described in this Prospectus will not apply. Such leveraging of the Shares
cannot be fully achieved until the proceeds resulting from the use of leverage
have been invested in longer-term instruments in accordance with the Fund's
investment objective and policies.
SHORT SALES. In furtherance of its objective of long-term capital
appreciation, the Fund may effect short sales of any securities that it has
authority to purchase. Short sales are transactions in which the Fund sells a
security it may not own in anticipation of an expected decline in the price of
that security. In such a transaction, the Fund must borrow the security to
make delivery to the buyer. The Fund is obligated to replace the borrowed
25
<PAGE>
security and may realize a gain if it purchases the security for replacement
at a lower price. However, the price at which the Fund purchases the security
may be more or less than the price at which the security was sold. The Fund
will incur a loss as a result of a short sale if the cost of purchasing the
borrowed security, and transaction and carrying costs associated with the
short sale, are more than the amount realized from the short sale. Although
the Fund's potential for gain as a result of a short sale is limited to the
price at which it sold the security short less the cost of borrowing the
security, its potential for loss is theoretically unlimited because there is
no limit to the cost of replacing the borrowed security. The Fund may also
sell short securities it owns to seek to hedge against potential price
declines in such securities.
If the Fund borrows a security in order to enter into a short sale, the
proceeds of the short sale will be retained by a broker, as security for the
borrowing to the extent necessary to meet margin requirements, until the short
position is closed out. The Fund is also required to pay to the lender of the
security the amount of any dividends or interest paid on the borrowed
security. To borrow the security, the Fund also may be required to pay a
premium, which would increase the cost of the security sold short. The amount
of any gain will be decreased, and the amount of any loss increased, by the
amount of any premium or dividends or interest paid on the borrowed security
that the Fund may be required to pay in connection with the short sale.
A short sale "against the box" is a transaction in which the Fund enters
into a short sale of a security that the Fund owns or has the right to acquire
at no additional cost. The proceeds of the short sale are held by a broker
until the Fund delivers the security to close the short position, at which
time the Fund will receive the net proceeds from the sale. The Fund generally
will be required to recognize any gain, but may not recognize any loss, with
respect to the security sold short at the time it enters into the short sale
"against the box" even though the Fund will not receive the net proceeds form
the sale until it delivers the security to close the short position. See
"Taxation."
When the Fund engages in short sales other than "against the box," the Fund
will "cover" its position in one of two ways. The Fund may cover by holding a
call option on the security sold short having a strike price no higher than
the price at which the security was sold. Alternatively, the Fund may maintain
in an account with its custodian a segregated amount of cash or U.S.
Government Securities equal to the excess of (1) the market value of the
securities sold short at the time they were sold short, over (2) any cash or
U.S. Government Securities required by the broker to be deposited as
collateral in connection with the short sale (not including the proceeds from
the short sale). Until the borrowed security is replaced, the Fund will
maintain this account at a level so that the amount deposited in the account,
plus the collateral deposited with the broker, will equal the current market
value of the securities sold short, but not less than the market value of the
securities at the time they were sold short.
LOANS OF PORTFOLIO SECURITIES. In an attempt to make productive use of its
assets, the Fund may lend its portfolio securities, subject to the limitation
that the Fund will not lend a security if, as a result of such loan, all
securities then subject to loans would exceed 33 1/3% of the Fund's total
assets. Under applicable regulatory requirements (which are subject to
change), the loan collateral must, on each business day, be at least equal to
the value of the loaned securities and must consist of cash, bank letters of
credit or U.S. Government Securities. To be acceptable as collateral, letters
of credit must obligate a bank to pay amounts demanded by the Fund if the
demand meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. When the Fund lends a security, it continues to be
entitled to receive any dividends or interest on the loaned security and also
receives one or more of: (i) a negotiated loan fee; (ii) interest on
securities used as collateral for the loan; or (iii) interest on short-term
debt securities purchased with the loan collateral. Either type of interest
may be shared with the borrower of the security. The Fund may also pay
reasonable finder's, custodian and administrative fees. The terms of the
Fund's loans of securities must meet certain tests under the Internal Revenue
Code of 1986, as amended (the "Code"), and permit the Fund to reacquire loaned
securities on five days' notice or in time to vote on any important matter.
The Fund will make such loans only to banks and dealers deemed to be
creditworthy pursuant to guidelines adopted by the Board. If the borrower
fails to return the loaned security, the Fund's risks include: (1) any costs
in disposing of the collateral; (2) loss from a decline in value of the
collateral to an amount less than 100% of the securities loaned; (3) being
unable to exercise its voting or
26
<PAGE>
consent rights with respect to the security; (4) any loss arising from the
Fund being unable to settle a sale of such securities in a timely manner; and
(5) the inability of the Fund to reacquire the loaned securities.
ILLIQUID SECURITIES. When purchasing securities that have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and are not readily marketable, the Fund may endeavor, to the extent
practicable, to obtain the right to registration at the expense of the issuer.
Generally, there will be a lapse of time between the Fund's decision to sell
any such security and the registration of the security permitting sale. During
any such period, the price of the securities will be subject to market
fluctuations. However, where a substantial market of qualified institutional
buyers has developed for certain unregistered securities purchased by the Fund
pursuant to Rule 144A under the Securities Act, the Fund intends to treat such
securities as liquid securities in accordance with procedures approved by the
Fund's Board. Because it is not possible to predict with assurance how the
market for specific restricted securities sold pursuant to Rule 144A will
develop, the Fund's Board has directed INVESCO to monitor carefully the Fund's
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information. To
the extent that, for a period of time, qualified institutional buyers cease
purchasing restricted securities pursuant to Rule 144A, the Fund's investing
in such securities may have the effect of increasing the level of illiquidity
in its investment portfolio during such period.
With respect to liquidity determinations generally, the Fund's Board has the
ultimate responsibility for determining whether specific securities, including
restricted securities, are liquid or illiquid. The Board has delegated the
function of making determinations of liquidity to INVESCO, in accordance with
procedures approved by the Board. INVESCO takes into account a number of
factors in making liquidity determinations, including, but not limited to, (i)
the frequency of trading in the security; (ii) the number of dealers that make
quotes for the security; (iii) the number of dealers that have undertaken to
make a market in the security; (iv) the number of other potential purchasers;
and (v) the nature of the security and how trading is effected (e.g., the time
needed to sell the security, how offers are solicited and the mechanics of
transfer.) INVESCO monitors the liquidity of securities held by the Fund and
periodically reports such determinations to the Fund's Board. If the Fund's
percentage limitation on illiquid securities is satisfied at the time of an
investment, a later increase in the percentage of illiquid securities held by
the Fund resulting from a change in market value or assets will not constitute
a violation of the restriction. If as a result of a change in market value or
assets, the percentage of illiquid securities held by the Fund increases above
25%, INVESCO will take appropriate steps to bring the aggregate amount of
illiquid assets back within the prescribed limitation as soon as reasonably
practicable, taking into account the effect of any disposition on the Fund.
DERIVATIVES. The Fund may invest in, or use, derivatives. These are
financial instruments that derive their performance, at least in part, from
the performance of an underlying asset, index or interest rate
("Derivatives"). The Derivatives the Fund may use include options, futures
contracts, forward currency contracts and swaps. The Fund may invest in, or
enter into, Derivatives for a variety of reasons, including to seek to hedge
certain market risks, including currency risk, provide a substitute for
purchasing or selling particular securities, or increase potential income or
gain. Derivatives may provide a cheaper, quicker or more specifically focused
way for the Fund to invest than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by purchasing or
selling specific securities.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in Derivatives could have a
large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inopportune times or judges market
conditions incorrectly, such investments may lower the Fund's return or result
in a loss. The Fund also could experience losses if its Derivatives were
poorly correlated with its other investments, or if the Fund were unable to
liquidate its position
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because of an illiquid secondary market. The market for many Derivatives is,
or suddenly can become, illiquid. Changes in liquidity may result in
significant, rapid and unpredictable changes in the prices for Derivatives.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives. Exchange-
traded Derivatives generally are guaranteed by the clearing agency that is the
issuer or counterparty to such Derivatives. This guarantee usually is
supported by a daily payment system (i.e., variation margin requirements)
operated by the clearing agency in order to reduce overall credit risk. As a
result, unless the clearing agency defaults, there is relatively little
counterparty credit risk associated with Derivatives purchased on an exchange.
By contrast, no clearing agency guarantees over-the-counter Derivatives.
Therefore, each party to an over-the-counter Derivative bears the risk that
the counterparty will default. Accordingly, INVESCO will consider the
creditworthiness of counterparties to over-the-counter Derivatives in the same
manner as it would review the credit quality of a security to be purchased by
the Fund. Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only investor
with sufficient understanding of the Derivative to be interested in bidding
for it.
Futures and Options on Futures Transactions--In General. The Fund may enter
into futures contracts and options on futures contracts in U.S. domestic
markets, such as the Chicago Board of Trade and the International Monetary
Market of the Chicago Mercantile Exchange or on exchanges located outside the
United States, such as the London International Financial Futures Exchange and
the Sydney Futures Exchange Limited. Foreign markets may offer advantages such
as trading opportunities or arbitrage possibilities not available in the
United States. Foreign markets, however, may have greater risk potential than
domestic markets. For example, some foreign exchanges are principal markets so
that no common clearing facility exists and an investor may look only to the
broker for performance of the contract. In addition, any profits that the Fund
might realize in trading could be eliminated by adverse changes in the
exchange rate, or the Fund could incur losses as a result of those changes.
Transactions on foreign exchanges may include both commodities which are
traded on domestic exchanges and those that are not. Unlike trading on
domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the Commodity Futures Trading Commission ("CFTC").
Engaging in these transactions involves risk of loss to the Fund that could
adversely affect the value of the Fund's net assets. Although the Fund intends
to purchase or sell futures contracts and options thereon only if there is an
active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract or option prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may
be made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract or option prices
could move to the limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures or option positions
and potentially subjecting the Fund to substantial losses. Successful use of
futures and options on futures by the Fund also is subject to the ability of
INVESCO to predict correctly movements in the direction of the relevant market
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction being hedged and
the price movements of the futures contract or option thereon. For example, if
the Fund uses futures to hedge against the possibility of a decline in the
market value of securities held in its portfolio and the prices of such
securities instead increase, the Fund will lose part or all of the benefit of
the increased value of securities that it has hedged because it will have
offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. The Fund may have to sell such
securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission, the Fund may be required to segregate cash or other
liquid assets in connection with its futures and options on futures
transactions in an amount generally equal to the value of the underlying
commodity. The segregation of such assets will have the effect of limiting the
Fund's ability otherwise to invest those assets.
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To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, that are 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. (In general, a call option on a
futures contract is "in-the-money" if the value of the underlying futures
contract exceeds the exercise ("strike") price of the call; a put option on a
futures contract is "in-the-money" if the value of the underlying futures
contract is exceeded by the strike price of the put.) 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.
Forward Currency Contracts. The Fund 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 into. Forward currency contracts are traded
directly between currency traders (usually large commercial banks) and their
customers.
The 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. The 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 Fund may
also use forward currency contracts to shift the Fund's exposure to foreign
currency exchange rate changes from one currency to another. For example, if
the Fund owns securities denominated in a foreign currency and INVESCO
believes that currency will decline relative to another currency, it might
enter into a forward currency contract to sell the appropriate amount of the
first foreign currency with payment to be made in the second currency. The
Fund may also purchase forward currency contracts to enhance income when
INVESCO anticipates that the foreign currency will appreciate in value but
securities denominated in that currency do not present attractive investment
opportunities.
The Fund 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. The
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 into 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 Fund 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 INVESCO anticipates that
there will be a correlation between the two currencies.
The cost to the 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 the 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.
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 the 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
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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 maintain cash or liquid
assets in a segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the
forward currency contract has been established. Thus, the 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.
Options--In General. The Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security or securities at the exercise price at any time during
the option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy,
the underlying security or securities at the exercise price at any time during
the option period, or at a specific date.
A covered call option written by the Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the
transaction by segregating cash or other liquid assets. A put option written
by the Fund is covered when, among other things, cash or liquid assets having
a value equal to or greater than the exercise price of the option are placed
in a segregated account with the Fund's custodian to fulfill the obligation
undertaken. The principal reason for writing covered call and put options is
to realize, through the receipt of premiums, a greater return than would be
realized on the underlying securities alone. The Fund receives a premium from
writing covered call or put options which it retains whether or not the option
is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of
the clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Specific Options Transactions. The Fund may purchase and sell call and put
options on foreign currency. These options convey the right to buy or sell the
underlying currency at a price which is expected to be lower or higher than
the spot price of the currency at the time the option is exercised or expires.
The Fund may purchase and sell call and put options in respect of specific
securities (or groups or "baskets" of specific securities) or indices listed
on national securities exchanges or traded in the over-the-counter market. An
option on an index is similar to an option in respect of specific securities,
except that settlement does not occur by delivery of the securities comprising
the index. Instead, the option holder receives an amount of cash if the
closing level of the index upon which the option is based is greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option. Thus, the effectiveness of purchasing or writing index options
will depend upon price movements in the level of the index rather than the
price of a particular security.
The Fund also may purchase cash-settled options on swaps in pursuit of its
investment objective. A cash-settled option on a swap gives the purchaser the
right, but not the obligation, in return for the premium paid, to
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receive an amount of cash equal to the value of the underlying swap as of the
exercise date. These options typically are purchased in privately negotiated
transactions from financial institutions, including securities brokerage
firms.
Successful use by the Fund of options will be subject to the ability of
INVESCO to predict correctly movements in the prices of individual securities,
the securities markets generally, foreign currencies, or interest rates. To
the extent such predictions are incorrect, the Fund may incur losses.
Future Developments. The Fund may take advantage of opportunities in the
area of options and futures contracts and options on futures contracts and any
other Derivatives that are not presently contemplated for use by the Fund or
that are not currently available but that may be developed, to the extent such
opportunities are both consistent with the Fund's investment objective and
legally permissible for the Fund.
FORWARD COMMITMENTS; WHEN-ISSUED SECURITIES. The Fund may purchase
securities on a forward commitment or when-issued basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase. The payment obligation on a forward commitment or
when-issued security are fixed when the Fund enters into the commitment, but
the Fund does not make payment until it receives delivery from the
counterparty. The Fund will commit to purchase such securities only with the
intention of actually acquiring the securities, but the Fund may sell these
securities before the settlement date if it is deemed advisable. The Fund will
set aside in a segregated account of the Fund permissible liquid assets at
least equal at all times to the amount of the commitments.
Securities purchased on a forward commitment or when-issued basis may expose
the Fund to risks because they may experience such fluctuations prior to their
actual delivery. Purchasing securities on a when-issued basis can involve the
additional risk that the yield available in the market when the delivery takes
place actually may be higher than that obtained in the transaction itself.
Purchasing securities on a forward commitment or when-issued basis when the
Fund is fully or almost fully invested may result in greater potential
fluctuation in the value of the Fund's net assets and its net asset value per
share.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors are advised to consider carefully the special risks involved in
investing in the Fund.
GENERAL
The Fund is a newly organized, non-diversified, closed-end management
investment company and has no operating history. Accordingly, the Shares are
designed primarily for long-term investors and should not be considered a
vehicle for trading purposes. The net asset value of the Fund's Shares will
fluctuate with interest rate changes as well as with price changes of the
Fund's portfolio securities and these fluctuations are likely to be greater in
the case of a fund having a leveraged capital structure, as contemplated for
the Fund. Because the Fund's investments are concentrated in the financial
services industry, an investment in the Fund is subject to greater risk than
an investment in a fund that does not so concentrate its portfolio. The
performance of the Fund will be particularly sensitive to regulatory, economic
and competitive developments affecting Financial Services Companies.
FINANCIAL SERVICES INDUSTRY
The financial services industry in a given country may be subject to greater
governmental regulation than many other industries, and changes in
governmental policies and the need for regulatory approval may have a material
effect on the services offered by companies in the financial services
industry. Governmental regulation may limit both the financial commitments
banks can make, including the amounts and types of loans, and the interest
rates and fees they can charge. In addition, governmental regulation in
certain foreign countries may impose interest rate controls, credit controls
and price controls.
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Companies in the financial services sector are subject to rapid business
changes, significant competition, value fluctuations due to the concentration
of loans in particular industries significantly affected by economic
conditions (such as real estate or energy) and volatile performance based upon
the availability and cost of capital and prevailing interest rates. In
addition, general economic conditions significantly affect these companies.
Credit and other losses resulting from the financial difficulties of borrowers
or other third parties potentially may have an adverse effect on companies in
these industries. Foreign banks, particularly those in Japan and certain Asian
countries, have reported financial difficulties attributed to increased
competition, regulatory changes, and general economic conditions.
The financial services industry in the United States currently is changing
relatively rapidly as historical distinctions between various financial
service segments become less clear. For instance, recent business combinations
have included insurance, finance, investment management services and
securities brokerage under single ownership. Some primarily retail
corporations have expanded into securities and insurance fields. Investment
banking, securities brokerage and investment management firms, like banks, are
subject to government regulation and risk due to securities trading and
underwriting activities.
Under current regulations of the Securities and Exchange Commission, the
Fund may not invest more than 5% of its total assets in the securities of any
company that derives more than 15% of its gross revenues from securities
brokerage, underwriting or investment management activities. In addition, the
Fund may not acquire more than 5% of the outstanding equity securities, or
more than 10% of the outstanding principal amount of debt securities of any
such company. This may limit the Fund's ability to invest in certain Financial
Services Companies.
In addition to the risks of the Fund's investments in Financial Services
Companies generally, investments in certain types of Financial Services
Companies are subject to additional risks.
Banks may invest and operate in an especially highly regulated environment
and are subject to extensive supervision by numerous federal and state
regulatory agencies including, but not limited to, the Federal Reserve Board,
the Federal Deposit Insurance Corporation and state banking authorities. Such
regulation is intended primarily for the protection of bank depositors and
customers rather than for the benefit of investors. Changes in regulations and
governmental policies and accounting principles could adversely affect the
business and operations of banks in which the Fund invests.
Savings institutions frequently have a large proportion of their assets in
the form of loans and securities secured by residential real estate. As a
result, the financial condition and results of operations of such savings
institutions would likely be affected by the conditions in the residential
real estate markets in the areas in which these savings institutions do
business.
Investment management companies in which the Fund may invest operate in a
highly competitive environment with investors generally favoring investment
advisers with a sustained successful performance record. The performance of
investment management companies may be affected by factors over which such
companies have little or no control, including general economic conditions,
other factors influencing the capital markets, the net sales of mutual fund
shares generally, and interest rate fluctuations.
Finance companies can be highly dependent upon access to capital markets and
any impediments to such access, such as general economic conditions or a
negative perception in the capital markets of a finance company's financial
condition or prospects could adversely affect its business. Leasing companies
can be negatively impacted by changes in tax laws which affect the types of
transactions in which such companies engage.
The performance of the Fund's investments in insurance companies will be
subject to risk from several additional factors. The earnings of insurance
companies will be affected by, in addition to general economic
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conditions, pricing (including severe pricing competition from time to time),
claims activity, and marketing competition. Particular insurance lines will
also be influenced by specific matters. Property and casualty insurer profits
may be affected by certain weather catastrophes and other disasters. Life and
health insurer profits may be affected by mortality and morbidity rates.
Individual companies may be exposed to material risks, including reserve
inadequacy, problems in investment portfolios (due to real estate or "junk"
bond holdings, for example), and the inability to collect from reinsurance
carriers. Insurance companies are subject to extensive governmental
regulation, including the imposition of maximum rate levels, which may not be
adequate for some lines of business. Proposed or potential anti-trust or tax
law changes also may affect adversely insurance companies' policy sales, tax
obligations and profitability.
FOREIGN SECURITIES
Political, Social and Economic Risks. Investing in securities of non-U.S.
companies may entail additional risks due to the potential political, social
and economic instability of certain countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment, or on the convertibility of currencies into U.S. dollars and on
repatriation of capital invested. In the event of such expropriation,
nationalization or other confiscation by any country, the Fund could lose its
entire investment in such country.
Foreign Investment Restrictions. Certain countries prohibit, or impose
substantial restrictions on, investment in their capital markets, particularly
their equity markets, by foreign entities such as the Fund. These restrictions
or controls may at times limit or preclude investment in certain securities
and may increase the cost and expenses of the Fund. For example, certain
countries require prior governmental approval before investments by foreign
persons may be made, or may limit the amount of investment by foreign persons
in a particular company or limit the investment by foreign persons to only a
specific class of securities of a company that may have less advantageous
terms than securities of the company available for purchase by nationals.
Moreover, the national policies of certain countries may restrict investment
opportunities in issuers or industries deemed sensitive to national interest.
In addition, some countries require governmental approval for the repatriation
of investment income, capital or the proceeds of securities sales by foreign
investors. In addition, if there is a deterioration in a country's balance of
payments or for other reasons, a country may impose restrictions on foreign
capital remittances abroad. The Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental approval for repatriation, as
well as by the application to it of other restrictions on investments.
Non-Uniform Corporate Disclosure Standards and Governmental
Regulation. Foreign companies are subject to accounting, auditing and
financial standards and requirements that differ, in some cases significantly,
from those applicable to U.S. companies. In particular, the assets,
liabilities and profits appearing on the financial statements of such a
company may not reflect its financial position or results of operations in the
way they would be reflected had such financial statements been prepared in
accordance with U.S. generally accepted accounting principles. Most of the
foreign securities held by the Fund will not be registered with the Securities
and Exchange Commission or regulators in any foreign country, nor will the
issuers thereof be subject to the reporting requirements of the Securities and
Exchange Commission. Thus, there will be less available information concerning
most foreign issuers of securities held by the Fund than is available
concerning U.S. issuers. In instances where the financial statements of an
issuer are not deemed to reflect accurately the financial situation of the
issuer, INVESCO will take appropriate steps to evaluate the proposed
investment, which may include on-site inspection of the issuer, interviews
with its management and consultations with accountants, bankers and other
specialists. There is substantially less publicly available information about
foreign companies than there are reports and ratings published about U.S.
companies and the U.S. government. In addition, where public information is
available, it may be less reliable than public information regarding U.S.
issuers. Issuers of securities in foreign jurisdictions are generally not
subject to the same degree of regulation as are U.S. issuers with respect to
such matters as restrictions on market manipulation, insider trading rules,
shareholder proxy requirements and timely disclosure of material information.
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Currency Fluctuations. Because the Fund, in normal circumstances, will
invest a substantial portion of its total assets in the securities of foreign
issuers which are denominated in foreign currencies, the strength or weakness
of the U.S. dollar against such foreign currencies will account for part of
the Fund's investment performance. A decline in the value of any particular
currency against the U.S. dollar will cause a decline in the U.S. dollar value
of the Fund's holdings of securities and cash denominated in such currency
and, therefore, will cause an overall decline in the Fund's net asset value
and any net investment income and capital gains derived from such securities
to be distributed in U.S. dollars to shareholders of the Fund. Moreover, if
the value of the foreign currencies in which the Fund receives its income
falls relative to the U.S. dollar between the time the income is received and
the time of the Fund's distributions, the Fund may be required to liquidate
securities in order to make distributions if the Fund has insufficient cash in
U.S. dollars to meet distribution requirements.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors, including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the
relative movement of interest rates and the pace of business activity in other
countries and the United States, and other economic and financial
circumstances affecting the world economy.
Although the Fund values its assets weekly in terms of U.S. dollars, the
Fund does not intend to convert its holdings of foreign currencies into U.S.
dollars on a weekly basis. The Fund will do so, however, from time to time,
and investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference ("spread") between the prices at which they buy
and sell various currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lower rate of exchange
should the Fund desire to sell that currency to the dealer.
Adverse Market Characteristics. Securities of many foreign issuers may be
less liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities markets and brokers generally are
subject to less governmental supervision and regulation than U.S. markets and
brokers, and foreign securities transactions usually are subject to fixed
commissions, which generally are higher than negotiated commissions on U.S.
transactions. Foreign securities transactions may also be subject to
difficulties associated with the settlement of such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could either result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. INVESCO will consider such difficulties when
determining the allocation of the Fund's assets, although INVESCO does not
believe that such difficulties will have a material adverse effect on the
Fund's portfolio trading activities.
The Fund may use foreign custodians, which may involve risks in addition to
those related to its use of U.S. custodians. Such risks include uncertainties
relating to determining and monitoring the foreign custodian's financial
strength, reputation and standing, maintaining appropriate safeguards for the
Fund's investments, and possible difficulties in obtaining and enforcing
judgments against such custodians.
Withholding Taxes. The Fund's net investment income from foreign issuers may
be subject to withholding taxes by the foreign issuer's country, thereby
reducing that income or delaying the receipt of income when those taxes may be
recaptured. See "Taxes."
Geographic Concentration. To the extent the Fund invests a significant
portion of its assets in securities of issuers located in a particular country
or region of the world, the Fund may be subject to greater risks and may
experience greater volatility than a fund that is more broadly diversified
geographically.
Special Considerations Affecting Emerging Markets. Investing in the
securities of companies in emerging markets may entail special risks relating
to potential political and economic instability and the risks of
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<PAGE>
expropriation, nationalization, confiscation or the imposition of restrictions
on foreign investment, convertibility of currencies into U.S. dollars, the
lack of hedging instruments, and on repatriation of capital invested. In the
event of expropriation, nationalization or other confiscation by any country,
the Fund could lose its entire investment in such country.
Emerging securities markets are substantially smaller, less developed, less
liquid and more volatile than the major securities markets. The limited size
of emerging securities markets and limited trading value in issuers compared
to the volume of trading in U.S. securities could cause prices to be erratic
for reasons apart from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly influenced by
traders who control large positions. Adverse publicity and investors'
perceptions, whether or not based on fundamental analysis, may decrease the
value and liquidity of portfolio securities, especially in these markets. In
addition, securities traded in certain emerging markets may be subject to
risks due to the inexperience of financial intermediaries, a lack of modern
technology, the lack of a sufficient capital base to expand business
operations, and the possibility of temporary or permanent termination of
trading.
Settlement mechanisms in emerging securities markets may be less efficient
and reliable than in more developed markets. In such emerging securities
markets, there may be share registration and delivery delays or failures.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have
had and may continue to have negative effects on the economies and securities
markets of certain emerging market countries.
LEVERAGE
The use of leverage by the Fund creates an opportunity for increased capital
appreciation for the Shares, but, at the same time, creates special risks. The
Fund has the right to use financial leverage and expects it may do so from
time to time in the future. Currently, however, the Fund has not determined
the timing or amount of financial leverage that it would utilize. The Fund
would utilize leverage to provide the holders of Shares with a potentially
higher return. Leverage creates risks for holders of Shares including the
likelihood of greater volatility of net asset value and market price of the
Shares and the risk that fluctuations in interest rates on borrowings or in
the dividend rates on any preferred shares may affect the return to the
holders of Shares. To the extent the capital appreciation, if any, or any
income derived from securities purchased with funds received from leverage
exceeds the cost of leverage, the Fund's return will be greater than if
leverage had not been used. Conversely, if the capital appreciation, if any,
or any income from the securities purchased with such funds is not sufficient
to cover the cost of leverage, the return to the Fund will be less than if
leverage had not been used, and therefore the amount available for
distribution to Shareholders as dividends and other distributions will be
reduced. In the latter case, INVESCO in its best judgment nevertheless may
determine to maintain the Fund's leveraged position if it deems such action to
be appropriate in the circumstances. During periods in which the Fund is
utilizing financial leverage, the management and administrative fee, which is
payable to INVESCO as a percentage of the Fund's Managed Assets (as defined
under "Management of the Fund"), will be higher than if the Fund did not
utilize a leveraged capital structure. Certain types of borrowings by the Fund
may result in the Fund's being subject to covenants in credit agreements
relating to asset coverage and portfolio composition requirements. The Fund
may be subject to certain restrictions on investments imposed by guidelines of
one or more rating agencies, which may issue ratings for any debt securities
or preferred shares issued by the Fund. These guidelines may impose asset
coverage or portfolio composition requirements that are more stringent than
those imposed by the Investment Company Act. It is not anticipated that these
covenants or guidelines will impede INVESCO in managing the Fund's portfolio
in accordance with the Fund's investment objective and policies. As discussed
under "Management of the Fund," the fee paid to INVESCO will be calculated on
the basis of the Fund's assets including proceeds from borrowings for leverage
and the issuance of preferred shares.
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<PAGE>
LOWER GRADE SECURITIES
Lower grade securities are regarded as being predominantly speculative as to
the issuer's ability to make payments of principal and interest. Investment in
such securities involves substantial risk. Lower grade securities are commonly
referred to as "junk bonds." Issuers of lower grade securities may be highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risks associated with acquiring the securities of
such issuers generally are greater than is the case with higher-rated
securities. For example, during an economic downturn or a sustained period of
rising interest rates, issuers of lower grade securities may be more likely to
experience financial stress, especially if such issuers are highly leveraged.
During periods of economic downturn, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations also may be adversely affected by specific issuer
developments, the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. Therefore, there can
be no assurance that in the future there will not exist a higher default rate
relative to the rates currently existing in the market for lower grade
securities. The risk of loss due to default by the issuer is significantly
greater for the holders of lower grade securities because such securities may
be unsecured and may be subordinate to other creditors of the issuer. The
lower grade securities in which the Fund may invest do not include instruments
which, at the time of investment, are in default or the issuers of which are
in bankruptcy. However, there can be no assurance that such events will not
occur after the Fund purchases a particular security, in which case the Fund
may experience losses and incur costs.
DERIVATIVE TRANSACTIONS
Transactions in Derivatives involve certain risks, which include: (i)
dependence on INVESCO's ability to predict movements in the prices of
individual securities, fluctuations in the general securities markets or in
the financial services industry and movements in interest rates and currency
markets; (ii) imperfect correlation, or even no correlation, between movements
in the price of options, forward contracts, futures contracts or options
thereon and movements in the price of the currency or security hedged or used
for cover; (iii) the fact that skills and techniques needed to trade options,
futures contracts and options thereon or to use forward currency contracts are
different from those needed to select the securities in which the Fund
invests; (iv) lack of assurance that a liquid secondary market will exist for
any particular option, futures contract or option thereon at a particular
time; (v) the possible loss of principal under certain conditions; (vi) the
potential lack of appropriate hedging instruments for a particular risk; and
(vii) the possible inability of the Fund to purchase or sell a portfolio
security at a time when it would otherwise be favorable for it do so, or the
possible need for the Fund to sell a security at a disadvantageous time, due
to the need for the Fund to maintain "cover" or to set aside securities in
connection with hedging transactions.
ILLIQUID SECURITIES
The Fund may invest up to 25% of its net assets in securities for which no
readily available market exists or that are otherwise considered illiquid. The
Fund may not be able readily to dispose of such securities at prices that
approximate those at which the Fund could sell such securities if they were
more widely traded and, as a result of such illiquidity, the Fund may have to
sell other investments if necessary to raise cash to meet its obligations.
NON-DIVERSIFIED STATUS
The Fund is classified as a "non-diversified" investment company under the
Investment Company Act, which means that the Fund may invest a greater portion
of its assets in a limited number of issuers than would be the case if the
Fund were classified as a "diversified" investment company. Accordingly, the
Fund may be subject to greater risk with respect to its portfolio securities
than an investment company that is "diversified" because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the net asset value of the Shares.
36
<PAGE>
MARKET PRICE, DISCOUNT AND NET ASSET VALUE OF SHARES
Shares of closed-end management investment companies in the past frequently
have traded at a discount to their net asset values. The risk of loss
associated with this characteristic of closed-end management investment
companies may be greater for investors purchasing Shares in the initial public
offering and expecting to sell the Shares soon after the completion thereof.
The Board believes, however, that the closed-end fund structure is desirable,
given the investment objective of the Fund. Although the Board may consider
various approaches to narrowing any discount, investors should assume that it
is unlikely that the Board would vote to convert the Fund to an open-end
structure. See "Description of Shares."
Whether investors will realize gains or losses upon the sale of Shares will
not depend directly upon the Fund's net asset value, but will depend upon the
market price of the Shares at the time of sale. Since the market price of the
Shares will be determined by such factors as relative demand for and supply of
the Shares in the market, general market and economic conditions and other
factors beyond the control of the Fund, the Fund cannot predict whether the
Shares will trade at, below or above net asset value or at, below or above the
initial offering price. The Shares are designed primarily for long-term
investors, and investors in the Shares should not view the Fund as a vehicle
for trading purposes.
ANTI-TAKEOVER PROVISIONS
The Fund's Declaration of Trust contains provisions limiting (i) the ability
of other entities or persons to acquire control of the Fund, (ii) the Fund's
freedom to engage in certain transactions and (iii) the ability of the Fund's
Trustees or Shareholders to amend the Declaration of Trust. These provisions
of the Declaration of Trust may be regarded as "anti-takeover" provisions.
These provisions could have the effect of depriving the Shareholders of
opportunities to sell their Shares at a premium over prevailing market prices
by discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction.
YEAR 2000 RISKS
Like other investment companies, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by INVESCO and the Fund's other service providers do not
properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem."
INVESCO is taking steps to address the Year 2000 Problem with respect to the
computer systems that it uses and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. At this time,
however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Fund.
INVESTMENT RESTRICTIONS
The Fund has adopted investment restrictions numbered 2 through 6 as
fundamental policies, which cannot be changed without approval by the holders
of a majority (as defined in the Investment Company Act) of the Fund's
outstanding voting shares. Unless expressly designated as fundamental, any
policy of the Fund may be changed by the Board without shareholder approval.
The Fund may not:
1. Change the Fund's classification from a non-diversified company to
diversified under the Investment Company Act.
2. Invest in commodities or commodity contracts, except that the Fund may
purchase and sell futures contracts and options thereon.
3. Issue senior securities or borrow money except as permitted by the
Investment Company Act.
4. Make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements. However, the Fund may lend its
portfolio securities in an amount not to exceed 33 1/3% of the
37
<PAGE>
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and the Fund's Board.
5. Act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter under the Securities Act of
1933 as amended, by virtue of disposing of portfolio securities.
6. 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).
7. Invest in the securities of a company for the purpose of exercising
management or control, but the Fund will vote the securities it owns in its
portfolio as a shareholder in accordance with its views.
8. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with
respect to options, forward contracts, futures contracts, options on
futures contracts, swaps, caps, collars and floors.
9. Purchase securities of other investment companies, except to the
extent permitted under the Investment Company Act.
MANAGEMENT OF THE FUND
INVESTMENT MANAGER
INVESCO Funds Group, Inc., a Delaware corporation ("INVESCO"), is employed
as the Fund's investment adviser. INVESCO also serves as an investment adviser
to INVESCO Strategic Portfolios, Inc., INVESCO Global Health Sciences, INVESCO
Capital Appreciation Funds, Inc., INVESCO Diversified Funds, Inc., INVESCO
Emerging Opportunity Funds, Inc., INVESCO Growth Fund, Inc., INVESCO Income
Funds, Inc., INVESCO Industrial Income Fund, Inc., INVESCO International
Funds, Inc., INVESCO Money Market Funds, Inc. INVESCO Multiple Asset Funds,
Inc., INVESCO Specialty Funds, Inc., INVESCO Tax-Free Income Funds, Inc.,
INVESCO Value Trust and INVESCO Variable Investment Funds, Inc.
INVESCO is an indirect wholly owned subsidiary of AMVESCAP, a publicly
traded holding company that, through its subsidiaries, engages in the business
of investment management on an international basis. AMVESCAP maintains offices
around the world--including the U.S., London, Eastern Europe, Latin America,
Hong Kong and Tokyo. The company offers a broad array of products and services
to institutions and individuals through all major distribution channels in
over 30 countries. Recent mergers with major firms such as A I M Management
Group Inc., and GT Global (formerly the asset management division of
Liechtenstein Global Trust) have positioned AMVESCAP as one of the world's
largest independent fund management companies. As of March 31, 1998, AMVESCAP
and its affiliates had approximately $208 billion in assets under management.
As of March 31, 1998, INVESCO managed 14 open-end mutual funds, consisting of
49 portfolios, on behalf of over 878,000 shareholders. AMVESCAP's other North
American subsidiaries include the following:
--INVESCO Capital Management, Inc. of Atlanta, Georgia manages
institutional investment portfolios, consisting primarily of discretionary
employee benefit plans for corporations, state and local governments and
endowment funds. INVESCO Capital Management, Inc. is the sole shareholder
of INVESCO Services, Inc., a registered broker-dealer.
--INVESCO Distributors, Inc. of Denver, Colorado is a registered broker-
dealer that acts as distributor of all retail open-end mutual funds
advised by INVESCO.
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<PAGE>
--INVESCO Management & Research, Inc. of Boston, Massachusetts primarily
manages pension and endowment accounts.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky specializes in
managing stable return investments, principally on behalf of Section
401(k) retirement plans.
--INVESCO Realty Advisors, Inc. of Dallas, Texas is responsible for
providing advisory services in the U.S. real estate markets for pension
plans and public pension funds, as well as endowment and foundation
accounts.
--Institutional Trust Company of Denver, Colorado ("Institutional Trust")
provides retirement account custodian and/or trust services for individual
retirement accounts and other retirement plan accounts. This includes
services such as recordkeeping, tax reporting and compliance.
Institutional Trust acts as trustee or custodian to these plans.
Institutional Trust accepts contributions and provides, through INVESCO,
complete transfer agency functions (correspondence, subaccounting,
telephone communications and processing of distributions).
--A I M Advisors, Inc. of Houston, Texas provides investment advisory and
administrative services for retail and institutional mutual funds.
--A I M Capital Management, Inc. of Houston, Texas provides investment
advisory services to individuals, corporations, pension plans and other
private investment advisory accounts and also serves as a sub-adviser to
certain retail and institutional mutual funds, one Canadian mutual fund
and one portfolio of an open-end registered investment company that is
offered to separate accounts of variable insurance companies.
--A I M Distributors, Inc. and Fund Management Company of Houston, Texas
are registered broker-dealers that act as the principal underwriters for
retail and institutional mutual funds.
The corporate headquarters of AMVESCAP are located at 11 Devonshire Square,
London, EC2M4YR, England.
INVESCO permits investment and other personnel to purchase and sell
securities for their own accounts in accordance with a policy governing
personal investing by directors, officers and employees of INVESCO and its
North American affiliates. The policy requires officers, inside directors,
investment and other personnel of INVESCO and its North American affiliates to
pre-clear all transactions in securities that are not exempt under the policy.
Requests for trading authority will be denied when, among other reasons, the
proposed personal transaction would be contrary to the provisions of the
policy or would be deemed to affect adversely any transaction then known to be
under consideration for or to have been effected on behalf of any client
account, including the Fund.
In addition to the pre-clearance requirement described above, the policy
subjects officers, inside directors, investment and other personnel of INVESCO
and its North American affiliates to various trading restrictions and
reporting obligations. All reportable transactions are reviewed for compliance
with the policy. The provisions of the policy are administered by and subject
to exceptions authorized by INVESCO.
MANAGEMENT AND ADMINISTRATION AGREEMENT. INVESCO provides investment
management and administrative services pursuant to the Management and
Administration Agreement (the "Agreement") dated August , 1998 with the Fund.
As compensation for INVESCO's services to the Fund, the Fund has agreed to pay
INVESCO a monthly investment management and administration fee at the annual
rate of 1.50% of the average daily total assets of the Fund minus the sum of
accrued liabilities (other than aggregate indebtedness constituting financial
leverage) ("Managed Assets"). This fee is higher than that charged by most
registered investment advisers. The initial term of the Agreement is for two
years, and thereafter the Agreement is subject to annual approval by (i) the
Fund's Board or (ii) vote of a majority (as defined in the Investment Company
Act) of the outstanding voting securities of the Fund, provided that in either
event the continuance also is approved by a majority of the Board members who
are not "interested persons" (as defined in the Investment Company
39
<PAGE>
Act) of the Fund or INVESCO, by vote cast in person at a meeting called for
the purpose of voting on such approval. The Agreement was approved by the
Fund's Board, including a majority of the Board members who are not
"interested persons" of any party to the Agreement, at a meeting held on
August , 1998. The Agreement was approved by the Fund's initial shareholder
on August , 1998. The Agreement is terminable without penalty, on 60 days'
notice, by the Fund's Board or by vote of the holders of a majority of the
Fund's Shares. The Agreement will terminate automatically in the event of its
assignment (as defined in the Investment Company Act).
INVESCO manages the Fund's investments in accordance with the stated
policies of the Fund, subject to the supervision of the Fund's Board. INVESCO
is responsible for investment decisions, and provides the Fund with portfolio
managers who are authorized by the Board to execute purchases and sales of
securities. INVESCO and its affiliates also maintain a research department
with a professional staff of portfolio managers and securities analysts who
provide research services for the Fund as well as for other funds advised by
INVESCO and its affiliates.
INVESCO maintains office facilities on behalf of the Fund, and furnishes
statistical and research data, clerical help, accounting, data processing,
bookkeeping and internal auditing and certain other required services to the
Fund. INVESCO also may make such advertising and promotional expenditures,
using its own resources, as it from time to time deems appropriate.
The management team of the portfolios in the INVESCO Strategic Portfolios,
Inc., including the Financial Services Portfolio, adheres to an established
investment process. INVESCO portfolio managers and analysts place their
emphasis on identifying equity securities of companies with strong
fundamentals, which may include strong management leadership and earnings or
revenue growth. INVESCO employs a bottom-up approach in building investment
portfolios for specific sector funds, such as the Fund. Portfolio managers for
INVESCO meet periodically to discuss portfolio positioning. In employing this
approach to build its portfolio, the Fund will focus on some of the fastest
growing Financial Services Companies throughout the world. Pursuant to its
investment philosophy, INVESCO will seek holdings which can generate above-
average growth in revenues and earnings for prolonged periods of time,
emphasizing leading companies with defensible market positions. INVESCO
expects to maintain broad diversification across the entire financial services
sector.
Jeffrey G. Morris is the Lead Portfolio Manager of the Fund. He is also a
vice president of INVESCO Funds Group, Inc. Mr. Morris co-manages Financial
Services Portfolio. Mr. Morris joined INVESCO Trust Company in 1992 and served
as a research analyst from 1994 to 1995. Mr. Morris received a M.S. in Finance
from the University of Colorado-Denver and a B.S. in Business Administration
from Colorado State University. Mr. Morris is also a Certified Financial
Analyst.
Daniel B. Leonard is Co-Portfolio Manager of the Fund. Mr. Leonard has
provided assistance in the management of certain portfolios that comprise
INVESCO Strategic Portfolios, Inc., including the Financial Services
Portfolio, since 1988, and since March 1997, Mr. Leonard has supervised the
overall management of such portfolios. He is also a senior vice president of
INVESCO Funds Group, Inc. Mr. Leonard also manages INVESCO Strategic Gold
Portfolio and co-manages INVESCO Strategic Technology Portfolio and INVESCO
VIF-Technology Fund. Mr. Leonard was previously a portfolio manager (1977-
1983; 1985-1991) and senior vice president (1975-1983; 1985-1991) of INVESCO
Funds Group, Inc. and a vice president (1977-1983) of Institutional Trust
Company. Mr. Leonard received a B.A. from Washington & Lee University.
EXPENSES. All expenses incurred in the operation of the Fund are borne by
the Fund, except to the extent specifically assumed by INVESCO. The expenses
borne by the Fund include: organizational costs, taxes, interest, interest and
distributions paid on securities sold short, brokerage fees and commissions,
if any, fees of Board members who are not officers, directors, employees,
holders of 5% or more of the outstanding voting securities of INVESCO or any
of its affiliates, Securities and Exchange Commission fees, state Blue Sky
qualification fees, advisory and administration fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain
40
<PAGE>
insurance premiums, industry association fees, outside auditing and legal
expenses, costs of maintaining the Fund's existence, costs of independent
pricing services, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of preparing and printing
prospectuses, statements of additional information and proxy statements, costs
of Shareholders' reports and meetings, and any extraordinary expenses.
TRUSTEES AND OFFICERS OF THE FUND
The Fund has a Board composed of five Trustees which supervises the Fund's
investment activities and reviews contractual arrangements with companies that
provide the Fund with services. The Trustees and officers and their positions
with the Fund and their present and principal occupations during the past five
years are listed below. Each Trustee who is an "interested person" of the Fund
(as defined in the Investment Company Act) is indicated by an asterisk (*).
Each Trustee who is not an "interested person" serves on the Audit Committee
and the Nominating Committee of the Board.
All of the officers and trustees of the Fund hold comparable positions with
INVESCO Strategic Portfolios, Inc., INVESCO Global Health Sciences Fund,
INVESCO Capital Appreciation Funds, Inc., INVESCO Diversified Funds, Inc.,
INVESCO Emerging Opportunities Funds, Inc., INVESCO Growth Fund, Inc., INVESCO
Income Funds, Inc., INVESCO Industrial Income Fund Inc., INVESCO International
Funds, Inc. INVESCO Money Market Funds, Inc., INVESCO Multiple Asset Funds,
Inc., INVESCO Specialty Funds, Inc., INVESCO Tax-Free Income Funds, Inc. and
INVESCO Variable Investment Funds, Inc. (Collectively, with INVESCO Value
Trust, referred to as "INVESCO Funds"). All of the trustees of the Fund also
serve as trustees of INVESCO Value Trust.
CHARLES W. BRADY,* Chairman of the Board. Chairman of INVESCO Funds and
INVESCO Treasurer's Series Trust. Chief Executive Officer and Director of
AMVESCAP PLC, London, England, and of various subsidiaries thereof. Born: May
11, 1935.
MARK H. WILLIAMSON,* Vice Chairman of the Board and President of the Fund.
President and CEO of INVESCO Funds Group, Inc. since March, 1998. Formerly,
Chairman and CEO of NationsBanc Advisors, Inc. 1995 to 1997 and Chairman of
NationsBanc Investments, Inc. 1997-1998. Born: May 24, 1951.
FRED A. DEERING, Trustee. Vice Chairman of INVESCO Funds and INVESCO
Treasurer's Series Trust. Formerly, Chairman of the Executive Committee and
Chairman of the board of Security Life of Denver Insurance Company, Denver,
Colorado; Director of ING America Life Insurance Company. Address: Security
Life Center, 1290 Broadway, Denver, Colorado. Born: January 12, 1928.
JOHN W. MCINTYRE, Trustee. Retired. Formerly, Vice Chairman of the board of
Directors of the Citizens and Southern Corporation and Chairman of the board
and Chief Executive Officer of the Citizens and Southern Georgia Corporation
and Citizens and Southern National Bank. Trustee of INVESCO Treasurer's Series
Trust. Trustee of Gables Residential Trust. Address: 7 Piedmont Center, Suite
100, Atlanta, Georgia. Born: September 14, 1930.
LARRY SOLL, Ph.D., Trustee. Retired. Formerly, Chairman of the board (1987
to 1994), Chief Executive Officer (1982 to 1989 and 1993 to 1994) and
President (1982 to 1989) of Synergen Corp., Director of Synergen Corp. since
its incorporation in 1982. Director of ISIS Pharmaceuticals, Inc. Trustee of
INVESCO Treasurer's Series Trust. Address: 345 Poorman Road, Boulder,
Colorado. Born: April 26, 1942.
JEFFREY G. MORRIS,* Vice President and Lead Portfolio Manager. Vice
President of INVESCO Funds Group, Inc. Mr. Morris joined Institutional Trust
Company in 1992 and served as a research analyst from 1994 to 1995. Mr. Morris
received a M.S. in Finance from the University of Colorado-Denver and a B.S.
in Business Administration from Colorado State University. Born: November 17,
1967.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995), General
Counsel and Secretary of INVESCO Funds Group, Inc., and INVESCO Distributors,
Inc. (since 1997); Vice President (May 1989 to April
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<PAGE>
1995), Secretary and General Counsel of INVESCO Funds Group, Inc.; formerly,
employee of a U.S. regulatory agency, Washington, D.C. (June 1973 through May
1989). Born: September 25, 1947
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
Funds Group, Inc. (since 1988). Senior Vice President and Treasurer of INVESCO
Distributors, Inc. (since 1997). Born: October 1, 1946.
Unless otherwise indicated, the address of each trustee and officer of the
Fund is Post Office Box 173706, Denver, Colorado 80217-3706.
All shares prior to the offering were held by INVESCO.
No officer or employee of the Fund receives any compensation from the Fund
for serving as an officer or Trustee of the Fund. In addition, no officer or
employee of INVESCO (or of any parent, subsidiary or affiliate thereof)
receives compensation for serving as an officer or Trustee of the Fund. The
Fund pays each non-interested Trustee $6,000 per annum (and an additional $500
per meeting for the Chairman of the Audit Committee of the Fund). In addition,
the Fund pays each Trustee $500 per Board meeting attended and reimburses each
Trustee for travel and out-of-pocket expenses.
<TABLE>
<CAPTION>
ESTIMATED AGGREGATE TOTAL COMPENSATION FROM THE
COMPENSATION FUND AND FUND COMPLEX
NAME OF BOARD MEMBER FROM FUND PAID TO BOARD MEMBER*
- -------------------- ------------------- ---------------------------
<S> <C> <C>
Fred A. Deering................. $ 9,175 $113,500
John W. McIntyre................ 10,175 104,000
Larry Soll, Ph.D................ 9,175 78,000
Total........................... 9,175 292,350
% of Net Assets................. 0.0017%
</TABLE>
- --------
* Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1997.
BROKERAGE AND PORTFOLIO TRANSACTIONS
INVESCO places orders for the purchase and sale of securities with brokers
and dealers based upon its evaluation of the brokers' and dealers' financial
responsibility subject to their ability to effect transactions at the best
available prices. INVESCO evaluates the overall reasonableness of brokerage
commissions paid by reviewing the quality of executions obtained on the 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. In seeking to ensure that the commissions
charged the Fund are consistent with prevailing and reasonable commissions,
INVESCO also endeavors to monitor brokerage industry practices with regard to
the commissions charged by broker/dealers on transactions effected for other
comparable institutional investors. While INVESCO seeks reasonably competitive
rates, the Fund does not necessarily pay the lowest commissions available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, INVESCO may select brokers that provide research
services to effect such transactions. Research services consist of statistical
and analytical reports relating to issuers, industries, securities and
economic factors and trends, which may be of assistance or value to INVESCO in
making informed investment decisions. Research services prepared and furnished
by brokers through which the 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 the Fund. In recognition of the above-
described brokerage and research services provided by certain brokers,
INVESCO, consistent with the standard of seeking to obtain the best execution
on portfolio transactions, may place orders with such brokers for the
execution of Fund transactions on which the commissions are in excess of those
which other brokers might have charged for effecting the same transactions.
One or more of the other accounts which INVESCO manages may own, from time
to time, the same investments as the Fund. Investment decisions for the Fund
are made independently from those of such other
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accounts; however, from time to time, the same investment decision may be made
for more than one company or account, including the Fund. When two or more
companies or accounts, including the Fund, seek to purchase or sell the same
securities, the securities actually purchased or sold will be allocated among
the companies and accounts on a good faith equitable basis by the INVESCO in
its discretion in accordance with the accounts' various investment objectives
and other factors. In some cases, this system may adversely affect the price
or size of the position obtainable for the Fund. In other cases, however, the
ability of the Fund to participate in volume transactions may produce better
execution for the Fund. It is the opinion of the Board that this advantage,
when combined with the other benefits available due to INVESCO's organization,
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.
Transactions in foreign securities markets often involve the payment of
fixed brokerage commissions, which are usually higher than commission rates
available in the United States. In such transactions, the Fund will seek to
obtain prompt execution of orders at the most favorable net price consistent
with the description above relating to best execution.
PORTFOLIO TURNOVER
Portfolio turnover may vary from year to year as well as within a year. It
is anticipated that in any fiscal year the turnover rate may exceed 100% for
the Fund. In periods in which extraordinary market conditions prevail, INVESCO
will not be deterred from changing the Fund's investment strategy as rapidly
as INVESCO determines to be necessary, in which case higher turnover rates can
be anticipated which would result in greater brokerage expenses. The overall
reasonableness of brokerage commissions paid is evaluated by INVESCO based
upon its knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable services. A
turnover rate of 100% is equivalent to the Fund buying and selling all of the
securities in its portfolio once in the course of a year. Higher portfolio
turnover rates usually generate additional brokerage commissions and expenses,
and the short-term gains realized from these transactions are taxable to
Shareholders as ordinary income when distributed to them.
DETERMINATION OF NET ASSET VALUE
The Fund intends to calculate the net asset value of its Shares daily and to
make that information available for publication. Currently, The Wall Street
Journal and Barron's publish net asset values for closed-end investment
companies each week. Net asset value per Share will be determined daily on
each day the New York Stock Exchange is open, as of the close of trading on
the New York Stock Exchange that day, and is calculated by dividing the
aggregate value of all securities held by the Fund and its other assets
(including dividends and interest accrued but not collected) less the Fund's
liabilities (including accrued expenses attributable to financial leverage) by
the number of outstanding Shares. All assets and liabilities initially
expressed in foreign currencies will be converted into U.S. dollars at the
mean between the bid and offer prices of such currencies against U.S. dollars
last quoted by a major bank selected by the Fund's custodian. Securities
traded on securities exchanges are valued at their last sale prices as of 4:00
p.m. New York time on the exchanges where such securities are primarily
traded. Securities traded in the over-the-counter market and listed securities
for which no sales are reported on a particular day are valued at their bid
prices (or for debt securities yield equivalents thereof) obtained from one or
more dealers making markets for such securities. If market quotations are not
readily available, a security will be valued at fair value as determined in
good faith by, or under the supervision of, the Board. The Board will review
the method of valuation on a current basis. In making their good faith
valuation of a security, the Board members generally will take the following
factors into consideration: restricted securities which are, or are
convertible into, securities of the same class of securities for which a
public market exists usually will be valued at market value less the same
percentage discount at which purchased. This discount will be revised
periodically by the Board if it believes that the discount no longer reflects
the value of the restricted securities. Restricted securities not of the same
class as securities for which a public market exists usually will be valued
initially at cost. Any subsequent adjustment from cost will be based upon
considerations deemed relevant by the Board.
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The holidays (as observed) on which the New York Stock Exchange is closed
currently are: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
Debt securities will be valued in accordance with the procedures above,
which with respect to such securities may include the use of valuations
furnished by a pricing service which employs a matrix to determine valuations
for normal institutional size trading units. Prior to utilizing a pricing
service, the Board will review the methods used by such service to assure
itself that securities will be valued at their fair values. The Board also
will periodically monitor the methods used by any such pricing service. Debt
securities with remaining maturities of 60 days or less will, absent unusual
circumstances, be valued at amortized cost, so long as such valuation is
determined by the Board to represent fair value. Futures contracts and options
thereon, which are traded on commodities exchanges, are valued at their
settlement value as of the close of such commodities exchanges.
Trading in foreign securities generally is completed, and thus, the values
of such securities are determined, prior to the close of the New York Stock
Exchange. Foreign currency exchange rates are also generally determined prior
to the close of the New York Stock Exchange. On occasion, the values of such
securities and such exchange rates may be affected by events occurring between
the time as of which determinations of such values or such exchange rates are
made and the close of the New York Stock Exchange. When such events materially
affect the values of securities held by the Fund or its liabilities, such
securities and liabilities will be valued at fair value as determined in good
faith by, or under the supervision of, the Board.
DIVIDENDS AND OTHER DISTRIBUTIONS
It is the Fund's present policy, which may be changed by the Board, to
distribute to its Shareholders at least annually, substantially all of its net
investment income and net realized long-term capital gains, if any. Net
investment income includes dividends, interest and net short-term capital
gains earned or realized by the Fund on its portfolio holdings, net of its
expenses. The Fund also will distribute to its Shareholders at least annually,
all net realized gains from foreign currency transactions, if any. The Fund
may make additional distributions if necessary to avoid a 4% federal excise
tax on certain undistributed income and capital gain. See "Taxes."
Under the Investment Company Act, the Fund is not permitted to incur
indebtedness unless after such incurrence the Fund has an asset coverage of at
least 300% of the aggregate outstanding principal balance of indebtedness.
Additionally, under the Investment Company Act, the Fund may not declare any
dividend or other distribution upon any class of its capital shares, or
purchase any such capital shares, unless the aggregate indebtedness of the
Fund has, at the time of the declaration of any such dividend or other
distribution or at the time of any such purchase, an asset coverage of at
least 300% after deducting the amount of such dividend, other distribution, or
purchase price, as the case may be. While any preferred shares are
outstanding, the Fund may not declare any cash dividend or other distribution
on the Shares, unless at the time of such declaration, (i) all accumulated
preferred share dividends have been paid and (ii) the net asset value of the
Fund's portfolio (determined after deducting the amount of such dividend or
other distribution) is at least 200% of the liquidation value of the
outstanding preferred shares (expected to be equal to the original purchase
price per share plus any accumulated and unpaid dividends thereon). In
addition to the limitations imposed by the Investment Company Act as described
in this paragraph, certain lenders may impose additional restrictions on the
payment of dividends or other distributions on the Shares in the event of a
default on the Fund's borrowings. Any limitation on the Fund's ability to make
distributions on the Shares could in certain circumstances impair the ability
of the Fund to maintain its qualification for taxation as a regulated
investment company. See "Other Investment Practices--Leverage" and "Taxes."
See "Automatic Dividend Reinvestment Plan" for information concerning the
manner in which dividends and other distributions to holders of Shares may be
automatically reinvested in Shares. Dividends and other distributions will be
taxable to Shareholders whether they are reinvested in Shares or received in
cash.
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TAXES
The Fund intends to elect to be, and to qualify to be treated as, a
regulated investment company ("RIC") under the Code. For each taxable year
that the Fund so qualifies, the Fund (but not its Shareholders) will be
relieved of federal income tax on that part of its investment company taxable
income (consisting generally of net investment income, net short-term capital
gain and net gains from certain foreign currency transactions) and net capital
gain (the excess of net long-term capital gain over net short-term capital
loss) that it distributes to its Shareholders.
In order to qualify for treatment as a RIC under the Code, the Fund must
make an election to be so treated and must distribute to its Shareholders for
each taxable year at least 90% of its investment company taxable income
("Distribution Requirement") and must meet several additional requirements.
These requirements include the following: (1) the Fund must derive at least
90% of its gross income each taxable year from dividends, interest, payments
with respect to securities loans and gains from the sale or other disposition
of securities or foreign currencies, or other income (including gains from
options, futures or forward contracts) derived with respect to its business of
investing in securities or those currencies ("Income Requirement"); (2) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. government
securities, securities of other RICs and other securities that are limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value
of the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (3) at the close of each quarter
of the Fund's taxable year, not more than 25% of the value of its total assets
may be invested in securities of any one issuer (other than U.S. government
securities or the securities of other RICs). If the Fund failed to qualify for
treatment as a RIC for any taxable year, it would be taxed as an ordinary
corporation on its taxable income for that year (even if that income was
distributed to its Shareholders) and all distributions out of its earnings and
profits would be taxable to its Shareholders as dividends (i.e., ordinary
income).
A portion of the dividends from the Fund's investment company taxable income
(whether paid in cash or reinvested in additional Fund shares) may be eligible
for the dividends-received deduction allowed to corporations. The eligible
portion may not exceed the aggregate dividends the Fund receives from domestic
corporations. However, dividends received by a corporate Shareholder and
deducted by it pursuant to the dividend-received deduction are subject
indirectly to the federal alternative minimum tax. The Fund will notify
Shareholders of the amount of any dividends that may be taken into account for
purposes of the dividend-received deduction not later than 60 days after the
close of its taxable year.
The Fund will be subject to a non-deductible 4% excise tax ("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 capital gain net
income for the one-year period ending on October 31st of that year, plus
certain other amounts. For these purposes, any such income retained by the
Fund, and on which it pays federal income tax, will be treated as having been
distributed.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation--other than a "controlled foreign
corporation" (i.e., a foreign corporation in which, on any day during its
taxable year, more than 50% of the total voting power of all stock therein or
the total value of all stock therein is owned, directly, indirectly or
constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly or constructively, at least 10% of that
voting power) as to which the Fund is a U.S. shareholder--that, in general,
meets either of the following tests: (i) at least 75% of its gross income is
passive income or (ii) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances,
the Fund will be subject to federal income tax on a portion of any "excess
distribution" received on the stock of a PFIC or of any gain on disposition of
that stock (collectively, "PFIC Income"), plus interest thereon, even if the
Fund distributes the PFIC income as a taxable dividend to its Shareholders.
The balance of the PFIC income will be included in the Fund's investment
company taxable income and, accordingly, will not be taxable to it to the
extent that such income is distributed to its
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Shareholders. If the Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund," then, in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain--which most likely would have to be distributed by the Fund to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax--
even if those earnings and gain were not distributed to the Fund. In most
instances, it will be very difficult, if not impossible, to make this election
because of certain requirements for making the election.
As an alternative to the election to treat a PFIC as a qualified electing
fund, the Fund may elect to "mark to market" its stock in any PFIC. "Marking-
to-market," in this context, means including in ordinary income each taxable
year the excess, if any, of the fair market value of the PFIC's stock over the
Fund's adjusted basis in that stock as of the end of that year. Pursuant to
the election, the Fund may also deduct (as an ordinary, not capital, loss) the
excess, if any, of its adjusted basis in PFIC stock over the fair market value
of that stock as of the taxable year-end, but only to the extent of any net
mark-to-market gains with respect to that stock included by the Fund for prior
taxable years. The Fund's adjusted basis in each PFIC's stock with respect to
which it makes this election will be adjusted to reflect the amounts of income
included and deductions taken under the election. The use of certain
Derivatives, such as selling (writing) and purchasing options and futures and
entering into forward currency contracts, involves complex rules that will
determine for federal income tax purposes the amount, character and timing of
recognition of the gains and losses the Fund realizes in connection therewith.
These rules also may require the Fund to "mark to market" (that is, treat as
sold for their fair market value) at the end of each taxable year certain
positions in its portfolio, which may cause the Fund to recognize income or
gain without receiving cash with which to make distributions necessary to
satisfy the Distribution Requirement and to avoid imposition of the Excise
Tax.
Gains from the disposition of foreign currencies, and gains from options,
futures and forward currency contracts derived by the Fund with respect to its
business of investing in securities or foreign currencies, will be treated as
qualifying income under the Income Requirement. Under section 988 of the Code,
foreign currency gains or losses from certain forward contracts not traded in
the interbank market, as well as certain other gains or losses attributable to
currency exchange rate fluctuations, are typically treated as ordinary income
or loss. Such income or loss may increase or decrease (or possibly eliminate)
the Fund's income available for distribution.
Income received by the Fund from investments in foreign securities may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Tax conventions between certain countries and the United
States may reduce or eliminate those taxes. Shareholders may be entitled to
claim United States foreign tax credits with respect to such taxes, subject to
certain provisions and limitations contained in the Code. If more than 50% of
the Fund's total assets at the close of its taxable year consists of stocks or
securities of foreign corporations, the Fund will be eligible to file an
election with the Internal Revenue Service to pass through to Shareholders the
amount of foreign taxes paid by the Fund. Pursuant to this election,
Shareholders will, in general, be required to (i) include in gross income (in
addition to taxable dividends actually received) their respective pro rata
shares of foreign taxes paid by the Fund and (ii) treat their respective pro
rata shares of such foreign taxes as having been paid by them. Shareholders
will be entitled, subject to certain limitations, to either deduct their
respective pro rata portions of such foreign taxes in computing their taxable
incomes or use them as foreign tax credits against their United Stated federal
income taxes. No deduction for foreign taxes may be claimed by a Shareholder
who does not itemize deductions. A tax-exempt Shareholder will not ordinarily
benefit from this election by the Fund. Each Shareholder will be notified
annually whether the foreign taxes paid by the Fund will "pass through" for
that year and, if so, such notification will designate (i) the Shareholder's
portion of the foreign taxes paid to each country and (ii) the portion of
dividends that represent income derived from sources within each country. The
amount of foreign taxes for which a Shareholder may claim a credit in any year
will be subject to an overall limitation such that the credit may not exceed
the Shareholder's United Stated federal income tax attributable to the
Shareholder's foreign source taxable income. This limitation generally applies
separately to certain specific categories of foreign source income including
"passive income," which includes, among other types of income, dividends and
interest. If the Fund is not eligible or does not elect to pass through to
Shareholders the foreign taxes paid by the Fund, the Fund will be entitled to
claim a deduction
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for such foreign taxes. However, any such taxes will reduce the income
available for distribution to the Shareholders.
If the Fund has an "appreciated financial position"--generally, an interest
(including an interest through an option, futures or forward currency
contract, or short sale) with respect to any stock, debt instrument (other
than "straight debt") or partnership interest the fair market value of which
exceeds its adjusted basis--and enters into a "constructive sale" of the same
or substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that
time. A constructive sale generally consists of a short sale, an offsetting
notional principal contract or futures or forward currency contract entered
into by the Fund or a related person with respect to the same or substantially
similar property. In addition, if the appreciated financial position is itself
a short sale or such a contract, acquisition of the underlying property or
substantially similar property will be deemed a constructive sale.
Dividends from the Fund's investment company taxable income (whether
received in cash or reinvested in additional Shares) generally are taxable to
its Shareholders as ordinary income to the extent of its earnings and profits.
Distributions of the Fund's net capital gain (whether received in cash or
reinvested in additional Shares), when designated as such, are taxable to its
Shareholders as long-term capital gain, regardless of how long they have held
their Shares. See below for a summary of the tax rates applicable to capital
gain distributions. A participant in the Automatic Dividend Reinvestment Plan
will be treated as having received a distribution in the amount of the cash
used to purchase Shares on his or her behalf, including a pro rata portion of
the brokerage fees incurred by the Transfer Agent. Distributions by the Fund
to its Shareholders in any year that exceed the Fund's earnings and profits
generally may be applied by each Shareholder against his or her basis for the
Shares and will be taxable at capital gain rates (assuming the Shares are held
as a capital asset) to any Shareholder only to the extent the distributions to
the Shareholder exceed the Shareholder's basis for his or her Shares.
Shareholders who are not liable for tax on their income and whose Shares are
not debt-financed generally are not required to pay tax on dividends or other
distributions they receive from the Fund.
The Fund may retain for investment its net capital gain. However, if the
Fund does so, it will be subject to a tax of 35% on the amount retained. In
that event, the Fund expects to designate the retained amount as undistributed
capital gain in a notice to its Shareholders, who (i) will be required to
include in income for tax purposes, as long-term capital gain, their
proportionate shares of such undistributed amount, (ii) will be entitled to
credit their proportionate shares of the 35% tax paid by the Fund against
their federal income tax liabilities, if any, and to claim refunds to the
extent the credit exceeds those liabilities, and (iii) will increase the tax
basis of their Fund Shares by an amount equal to the difference between (x)
the respective amounts included in income as long-term capital gain and (y)
their respective proportionate shares of the tax paid by the Fund.
The Internal Revenue Service has taken the position in a revenue ruling that
if a RIC has two classes of shares, it may designate distributions made to
each class in any year as consisting of no more than such class's
proportionate share of particular types of income based on the total
distributions paid to each class for such year, including distributions out of
net capital gain. Consequently, if both Shares and preferred stock are
outstanding, the Fund intends to designate distributions made to the classes
as consisting of particular types of income in accordance with the classes'
proportionate shares of such income. Thus, distributions of net capital gain
will be allocated between Shareholders and holders of preferred stock, if any,
in proportion to the total distributions made to each class during the taxable
year, or otherwise as required by applicable law.
The Fund will notify its Shareholders following the end of each calendar
year of the amounts of dividends and capital gain distributions paid (or
deemed paid) that year and undistributed capital gain designated for that
year. The information regarding capital gain distributions and undistributed
capital gain will designate the portion thereof subject to the different
maximum rates of tax applicable to noncorporate taxpayers' net capital gain
indicated below.
Dividends and other distributions declared by the Fund in December of any
year and payable to Shareholders of record on a date in that month will be
deemed to have been paid by the Fund and received by
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the Shareholders on December 31st if the distributions are paid by the Fund
during the following January. Accordingly, those distributions will be taxed
to Shareholders for the year in which that December 31st falls.
An investor should be aware that, if such investor purchases Shares shortly
before the record date for any dividend or other distribution, he or she will
pay full price for the Shares and will receive some portion of the purchase
price back as a taxable distribution.
Upon the sale or exchange of Shares (including a sale pursuant to a Share
repurchase or tender offer by the Fund), a Shareholder generally will
recognize a taxable gain or loss equal to the difference between his or her
adjusted basis for the Shares and the amount received. Any such gain or loss
will be treated as a capital gain or loss if the Shares are capital assets in
the Shareholder's hands and will be long-term capital gain or loss if the
Shares have been held for more than one year. See below for a discussion of
the tax rates applicable to capital gains. Any loss recognized on a sale or
exchange of Shares that were held for six months or less will be treated as
long-term, rather than short-term, capital loss to the extent of any capital
gain distributions previously received thereon. A loss realized on a sale or
exchange of Shares will be disallowed to the extent those Shares are replaced
by other Shares within a period of 61 days beginning 30 days before and ending
30 days after the date of disposition of the Shares (which could occur, for
example, as a result of participation in the Automatic Dividend Reinvestment
Plan). In that event, the basis of the replacement Shares will be adjusted to
reflect the disallowed loss.
The maximum tax applicable to net capital gains recognized by individuals
and other non-corporate taxpayers is (i) the same as the ordinary income tax
rate for capital assets held for one year or less; (ii) 28% for capital assets
held for more than one year but not more than 18 months or (iii) 20% (10% for
taxpayers in the 15% marginal tax bracket) for capital assets held for more
than 18 months. The maximum net capital gain tax rate for corporations is 35%.
The tax rates described above will apply to distributions of net capital gain
by the Fund (if, as expected, the Fund designates net capital gain
distributions as 28% rate gain distributions or 20% rate gain distributions,
in accordance with its holding periods for the securities it sold that
generated the distributed gains) as well as to sales and exchanges of Shares.
With respect to capital losses recognized on dispositions of Shares held six
months or less where such losses are treated as long-term capital losses to
the extent of prior capital gain distributions received thereon (see
discussion in the preceding paragraph), it is unclear how such capital losses
offset the capital gains referred to above. Shareholders should consult their
own tax advisers as to the application of the foregoing capital gain rates to
their particular circumstances. Proposed legislation, which has been passed by
Congress, would, if signed by the President, make net capital gain recognized
by individuals and other non-corporate taxpayers on assets held for more than
one year (instead of 18 months) eligible for the 20% capital gain tax rate. No
assurance can be given that such proposed legislation will be enacted in the
form proposed, or at all.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individual Shareholders
and certain other non-corporate Shareholders who do not provide the Fund with
a correct taxpayer identification number. The Fund is also required to
withhold 31% of all dividends and capital gain distributions payable to such
Shareholders who otherwise are subject to backup withholding.
The foregoing is only a brief summary of some of the important federal
income tax considerations generally affecting the Fund and its Shareholders.
There may be other federal, state, local or foreign tax considerations
applicable to a particular investor. Prospective investors are urged to
consult their tax advisers regarding the specific federal income tax
consequences of purchasing, holding and disposing of Shares, as well as the
effects of state, local and foreign tax laws and any proposed tax law changes.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"),
unless a Shareholder otherwise elects, all dividends and other distributions
(collectively referred to in this section as "dividends") will be
automatically reinvested by State Street Bank and Trust Company ("State
Street"), as agent for
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Shareholders in administering the Plan (the "Plan Agent"), in additional
Shares of the Fund. Shareholders who elect not to participate in the Plan will
receive all dividends payable in cash by check mailed directly to the
Shareholder of record (or, if the Shares are held in street or other nominee
name, then to such nominee) by State Street as dividend disbursing agent. Such
participants may elect not to participate in the Plan and to receive in cash
all dividends payable in cash by sending written instructions to State Street,
as dividend disbursing agent, at the address set forth below. Participation in
the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by written notice if received by the Plan Agent not less than
thirty days prior to any dividend record date; otherwise such termination will
be effective with respect to any subsequently declared dividend or other
distribution.
Whenever the Fund declares an income dividend payable in cash, non-
participants in the Plan will receive cash and participants in the Plan will
receive the equivalent in Shares. Whenever the Fund declares dividends in
additional unissued but authorized Shares ("newly issued Shares") non-
participants in the Plan will receive newly issued Shares and participants
will receive Shares under the Plan as described as follows. The Shares will be
acquired by the Plan Agent for the participants' accounts, depending upon the
circumstances described below, either (i) through receipt of newly issued
Shares or (ii) by purchase of outstanding Shares on the open market ("open-
market purchases") on the New York Stock Exchange or elsewhere. If on the
payment date for a dividend payable in either cash or Shares, the net asset
value per Share is equal to or less than the market price per Share plus
estimated brokerage commissions (such condition being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued Shares on behalf of the participants. The number of newly issued Shares
to be credited to each participant's account will be determined by dividing
the dollar amount of the dividend by the net asset value per Share on the date
the Shares are issued, provided that the maximum discount from the then
current market price per Share on the date of issuance may not exceed 5%. If
on the dividend payment date for a dividend payable only in cash the net asset
value per Share is greater than the market value (such condition being
referred to herein as "market discount"), the Plan Agent will invest the
dividend amount in Shares acquired on behalf of the participants in open-
market purchases.
In the event of a market discount on the dividend payment date for a
dividend payable only in cash, the Plan Agent will have no more than 30 days
after the dividend payment date (the "last purchase date") to invest the
dividend amount in Shares acquired in open-market purchases. If, before the
Plan Agent has completed its open-market purchases, the market price of a
Share exceeds the net asset value per Share, the average per Share purchase
price paid by the Plan Agent may exceed the net asset value of the Shares,
resulting in the acquisition of fewer Shares than if the dividend had been
paid in newly issued Shares on the dividend payment date. Because of the
foregoing difficulty with respect to open-market purchases, the Plan provides
that if the Plan Agent is unable to invest the full dividend amount in open-
market purchases by the last purchase date or if the market discount shifts to
a market premium by that date, the Plan Agent will cease making open-market
purchases and will invest the uninvested portion of the dividend amount in
newly issued Shares at the close of business on the last purchase date.
The Plan Agent maintains all Shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by Shareholders for tax records. Shares in the account of
each Plan participant will be held by the Plan Agent on behalf of the Plan
participant, and each Shareholder proxy will include those Shares purchased or
received pursuant to the Plan. The Plan Agent will forward all proxy
solicitation materials to participants and vote proxies for Shares held
pursuant to the Plan in accordance with the instructions of the participants.
In the case of Shareholders such as banks, brokers or nominees that hold
Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Shares certified from time
to time by the record Shareholder's name and held for the account of
beneficial owners who participate in the Plan.
There will be no brokerage charges with respect to Shares issued directly by
the Fund as a result of dividends payable either in Shares or in cash.
However, each Plan participant will pay a pro rata share of
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brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends will not relieve Plan participants
of any federal, state or local income tax that may be payable (or required to
be withheld) on such dividends. See "Taxes."
Shareholders participating in the Plan may receive benefits not available to
Shareholders not participating in the Plan. If the market price (plus
commissions) of the Fund's Shares is above their net asset value, participants
in the Plan will receive Shares of the Fund at less than they could otherwise
purchase them and will have Shares with a cash value greater than the value of
any cash distribution they would have received on their Shares. If the market
price plus commissions is below the net asset value, participants will receive
distributions in Shares with a net asset value greater than the value of any
cash distribution they would have received on their Shares. However, there may
be insufficient Shares available in the market to make distributions in Shares
at prices below the net asset value. Also, since the Fund does not redeem its
Shares, the price on resale may be more or less than the net asset value. See
"Taxes" for a discussion of tax consequences of the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by
the participants.
All correspondence concerning the Plan should be directed to the Plan Agent
at 225 Franklin Street, Boston, Massachusetts 02110.
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York;
A.G. Edwards & Sons, Inc., One North Jefferson Street, St. Louis, Missouri and
Smith Barney Inc., 338 Greenwich Street, New York, New York as their
representatives (the "Representatives") have severally agreed, subject to the
terms and conditions of the Underwriting Agreement with the Fund and INVESCO
(the "Underwriting Agreement"), to purchase from the Fund the number of Shares
set forth opposite their respective names. The Underwriters are committed to
purchase all of such Shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
PaineWebber Incorporated.......................................
A.G. Edwards & Sons, Inc. .....................................
Smith Barney Inc...............................................
---
Total......................................................
===
</TABLE>
The Fund has granted to the Underwriters an option, exercisable for 45 days
from the date of this Prospectus to purchase up to an additional Shares to
cover over-allotments, if any, at the initial offering price. The Underwriters
may exercise such option solely for the purpose of covering over-allotments
incurred in the sale of the Shares offered hereby. To the extent that the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase an additional number of
Shares proportionate to such Underwriter's initial commitment.
As set forth in the notes to the table on the cover page of this Prospectus,
INVESCO or an affiliate (not the Fund) from its own assets has agreed to pay a
commission to the Underwriters in the amount of $ per Share ( % of the
public offering price per Share) or an aggregate amount of $ ($ assuming
full exercise of the over-allotment option) for all Shares covered by this
Prospectus. Such payment will be the legal obligation of INVESCO (or an
affiliate) and will be made out of its own assets and will not in any way
represent an obligation of the Fund or its Shareholders. The Representatives
have advised the Fund that the Underwriters
50
<PAGE>
may pay up to $ per Share from such payment received from INVESCO to
certain dealers who sell the Shares and that the Underwriters and such dealers
may allow a concession of up to $ per Share to certain other dealers who
sell Shares. In addition, the Fund has agreed to pay the Underwriters $250,000
in partial reimbursement of their expenses.
Prior to this offering, there has been no public market for the Shares or
any other securities of the Fund. The Fund intends to apply to list its Shares
on the New York Stock Exchange under the symbol "GFN." In order to meet the
requirements for listing the Shares on the New York Stock Exchange, the
Underwriters have undertaken to sell lots of 100 or more Shares to a minimum
of 2,000 beneficial holders. The minimum investment requirement is 100 Shares
($1,500).
The Fund and INVESCO have each agreed to indemnify the several Underwriters
for or to contribute to the losses arising out of certain liabilities,
including liabilities under the Securities Act.
The Fund has agreed not to offer or sell any additional shares of beneficial
interest of the Fund, other than as contemplated by this Prospectus, for a
period of 180 days after the date of the Underwriting Agreement without the
prior written consent of the Underwriters.
Under the terms of and subject to the conditions of the Underwriting
Agreement, the Underwriters are committed to purchase and pay for all Shares
offered hereby if any are purchased. The Underwriting Agreement provides that
it may be terminated at or prior to the closing date for the purchase of the
Shares if, in the judgment of the Representatives, payment for the delivery of
the Shares is rendered impracticable or inadvisable because (i) trading in the
equity securities of the Fund is suspended by the Securities and Exchange
Commission, by an exchange that lists the Shares, or by the National
Association of Securities Dealers Automated Quotation National Market System,
(ii) additional material governmental restrictions, not in force on the date
of the Underwriting Agreement, have been imposed upon trading in securities
generally or trading in securities generally has been suspended on any U.S.
securities exchange, or a general banking moratorium has been established by
Federal or New York authorities, or (iii) any outbreak or material escalation
of hostilities or other calamity or crisis occurs, the effect of which is such
as to make it impracticable to market any or all of the Shares. The
Underwriting Agreement also may be terminated if any of the conditions
specified in the Underwriting Agreement have not been fulfilled when and as
required by such agreement.
The Fund anticipates that the Representatives and certain other Underwriters
may from time to time act as brokers or dealers in connection with the
execution of its portfolio transactions after they have ceased to be
Underwriters and, subject to certain restrictions, may act as such brokers
while they are Underwriters. See "Management of the Fund."
Until the distribution of Shares is completed, rules of the Securities and
Exchange Commission may limit the ability of the Underwriters and certain
selling group members to bid for and purchase the Shares. As an exception to
these rules, the Underwriters are permitted to engage in certain transactions
that stabilize the price of the Shares. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Shares. If the Underwriters create a short position in the Shares in
connection with the offering, i.e., if they sell more Shares than are set
forth on the cover page of this Prospectus, then the Underwriters may reduce
that short position by purchasing Shares in the open market. The Underwriters
may also elect to reduce any short position by exercising all or a part of the
over-allotment option described above. In general, purchases of a security for
the purpose of stabilization or to reduce a short position could cause the
price of the security to be higher than it might be in the absence of such
purchases. In addition, PaineWebber Incorporated, on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with
the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the offering) for the account of the other Underwriters, the
selling concession with respect to Shares that are distributed in the offering
but subsequently purchased for the account of the Underwriters in the open
market. Neither the Fund nor any of the Underwriters make any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Shares. In addition,
neither the Fund nor any of the Underwriters
51
<PAGE>
makes any representation that the Underwriters will engage in such
transactions or that such transactions once commenced, will not be
discontinued without notice.
SHAREHOLDER SERVICING AGENT, CUSTODIAN AND
TRANSFER AND DIVIDEND DISBURSING AGENT
PaineWebber Incorporated will provide shareholder services to the Fund
pursuant to a Shareholder Servicing Agreement with INVESCO. INVESCO will pay a
monthly fee on an annual basis equal to 0.10% of the average daily Managed
Assets of the Fund (as defined herein under "Management of the Fund") for such
services.
Pursuant to the Shareholder Servicing Agreement between PaineWebber
Incorporated (the "Shareholder Servicing Agent") and INVESCO, the Shareholder
Servicing Agent will (i) undertake to make public information pertaining to
the Fund on an ongoing basis and to communicate to investors and prospective
investors the Fund's features and benefits (including periodic seminars or
conference calls, responses to questions from current or prospective
shareholders and specific shareholder contact where appropriate); (ii) make
available to investors and prospective investors market price, net asset
value, yield and other information regarding the Fund, if reasonably
obtainable, for the purpose of maintaining the visibility of the Fund in the
investor community; (iii) at the request of INVESCO, provide certain economic
research and statistical information and reports, if reasonably obtainable, on
behalf of the Fund, and consult with representatives and Trustees of the Fund
in connection therewith, which information and reports shall include: (a)
statistical and financial market information with respect to the Fund's market
performance and (b) comparative information regarding the Fund and other
closed-end management investment companies with respect to (1) the net asset
value of their respective shares, (2) the respective market performance of the
Fund and such other companies and (3) other relevant performance indicators;
and (iv) at the request of INVESCO, provide information to and consult with
the Board of the Fund with respect to applicable strategies designed to
address market value discounts, which may include share repurchase, tender
offers, modifications to dividend policies or capital structure, repositioning
or restructuring of the Fund, conversion of the Fund to an open-end investment
company, liquidation or merger; provided, however, that under the terms of the
Shareholder Servicing Agreement, the Shareholder Servicing Agent is not
obligated to render any opinions, valuations or recommendations of any kind or
to perform any such similar services. For these services, INVESCO will pay the
Shareholder Servicing Agent a fee equal on an annual basis to 0.10% of the
Fund's average weekly Managed Assets (as defined above under "Management of
the Fund--Management and Administration Agreement"), payable in arrears at the
end of each calendar month. Under the terms of the Shareholder Servicing
Agreement, the Shareholder Servicing Agent is relieved from liability to
INVESCO or to the Fund for any act or omission in the course of its
performance under the Shareholder Servicing Agreement, in the absence of gross
negligence or willful misconduct by the Shareholder Servicing Agent. INVESCO
has agreed to indemnify the Shareholder Servicing Agent or contribute to
losses arising out of certain liabilities under the Shareholder Servicing
Agreement. The Shareholder Servicing Agreement will continue for an initial
term of two years and thereafter for successive one-year periods unless
terminated by either party upon 60 days written notice.
State Street will act as the Fund's Custodian. The Custodian may employ sub-
custodians outside the U.S. approved by the Board in accordance with
regulations under the Investment Company Act. State Street will also act as
the Fund's Transfer and Dividend Disbursing Agent.
DESCRIPTION OF SHARES
The Fund is a newly organized unincorporated business trust under the laws
of the Commonwealth of Massachusetts created pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated July 9, 1998. The Fund is
authorized to issue an unlimited number of shares of beneficial interest, par
value $.001 per share. Each Share has one vote and, when issued and paid for
in accordance with the terms of the offering, will
52
<PAGE>
be fully paid and non-assessable. Fund Shares are of one class and have equal
rights as to dividends and in liquidation. The Fund may reclassify Shares as
preferred shares, with such rights and designations as the Board shall
determine. Shares have no preemptive, subscription or conversion rights and
are freely transferable. The Fund will send annual and semi-annual financial
statements to all its Shareholders.
Under Massachusetts law, Shareholders could, in certain circumstances, be
held personally liable for the obligations of a Massachusetts business trust.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Fund or a Trustee. The Trust Agreement provides for indemnification from the
Fund's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a Shareholder
incurring financial loss on account of Shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which management believes is remote. Upon payment
of any liability incurred by the Fund, the Shareholder paying such liability
will be entitled to reimbursement from the general assets of the Fund. The
Fund intends to conduct its operations in such a way so as to avoid, as far as
possible, ultimate liability of the Shareholders for liabilities of the Fund.
The Fund has no present intention of offering additional Shares, except as
described herein and under the Automatic Dividend Reinvestment Plan, as it may
be amended from time to time. See "Automatic Dividend Reinvestment Plan."
Other offerings of its Shares, if made, will require approval of the Fund's
Board. Any additional offering will not be sold at a price per Share below the
then current net asset value (exclusive of underwriting discounts and
commissions) except in connection with an offering to existing Shareholders or
with the consent of a majority of the Fund's outstanding Shares or otherwise
as permitted by applicable law.
The Fund intends to apply to list its Shares on the New York Stock Exchange
under the symbol "GFN."
ANTI-TAKEOVER PROVISIONS IN THE TRUST AGREEMENT
The Fund's Trust Agreement includes provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the
Fund or to change the composition of its Board, and could have the effect of
depriving Shareholders of an opportunity to sell their Shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund. These provisions may have the effect of
discouraging attempts to acquire control of the Fund, which attempts could
have the effect of increasing the expenses of the Fund and interfering with
the normal operation of the Fund. The Board is divided into three classes,
with the terms of one class expiring at each annual meeting of Shareholders.
At each annual meeting, one class of Trustees is elected to a three-year term.
This provision could delay for up to two years the replacement of a majority
of the Board. A Trustee may be removed from office only for cause by a written
instrument signed by at least two-thirds of the remaining Trustees or by a
vote of the holders of at least two-thirds of the Shares.
In addition, the Declaration of Trust requires the favorable vote of the
holders of at least 80% of the outstanding Shares of each class of the Fund,
voting as a class, then entitled to vote to approve, adopt or authorize
certain transactions with 5%-or-greater holders of a class of Shares and their
associates, unless the Board shall by resolution have approved a memorandum of
understanding with such holders, in which case normal voting requirements
would be in effect. For purposes of these provisions, a 5%-or-greater holder
of a class of Shares (a "Principal Shareholder") refers to any person who,
whether directly or indirectly and whether alone or together with its
affiliates and associates, beneficially owns 5% or more of the outstanding
shares of any class of beneficial interest of the Fund. The transactions
subject to these special approval requirements are: (i) the merger or
consolidation of the Fund or any subsidiary of the Fund with or into any
Principal Shareholder; (ii) the issuance of any securities of the Fund to any
Principal Shareholder for cash (except pursuant to the Automatic Dividend
Reinvestment Plan); (iii) the sale, lease or exchange of all or any
substantial part of the assets of the Fund to any Principal Shareholder
(except assets having an aggregate fair market value of less than $1,000,000,
aggregating for the purpose of such computation all assets sold, leased or
exchanged in any series of similar transactions
53
<PAGE>
within a twelve-month period); (iv) the sale, lease or exchange to the Fund or
any subsidiary thereof, in exchange for securities of the Fund, of any assets
of any Principal Shareholder (except assets having an aggregate fair market
value of less than $1,000,000, aggregating for the purposes of such
computation all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period); (v) the liquidation or dissolution
of the Fund; or (vi) a change in the nature of the business of the Fund so
that it would cease to be an investment company registered under the
Investment Company Act.
The Board has determined that provisions with respect to the Board and the
80% voting requirements described above (and the requirements relating to
conversion to an open-end fund described below), which voting requirements are
greater than the minimum requirements under Massachusetts law or the
Investment Company Act, are in the best interest of Shareholders generally.
Reference should be made to the Declaration of Trust on file with the
Securities and Exchange Commission for the full text of these provisions.
CLOSED-END FUND STRUCTURE
Closed-end funds differ from open-end management investment companies
(commonly referred to as mutual funds) in that closed-end funds generally list
their shares for trading on a securities exchange and do not redeem their
shares at the option of the shareholder. By comparison, mutual funds issue
securities redeemable at net asset value at the option of the shareholder and
typically engage in a continuous offering of their shares. Mutual funds are
subject to continuous asset in-flows and out-flows that can complicate
portfolio management, whereas closed-end funds generally can stay more fully
invested in securities consistent with the closed-end fund's investment
objective and policies. In addition, in comparison to open-end funds, closed-
end funds have greater flexibility in the employment of financial leverage and
in the ability to make certain types of investments, such as investments in
illiquid securities. However, shares of closed-end funds frequently trade at a
discount from their net asset value.
In recognition of the possibility that the Shares might trade at a discount
to net asset value and that any such discount may not be in the interest of
Shareholders, the Fund's Board, in consultation with INVESCO, from time to
time may review the possibility of implementing a "managed distribution"
policy, which would entail quarterly payments of dividends in an amount equal
to a pre-established percentage of the Fund's net asset value. As described
below, the Board might also consider open market repurchases or tender offers
for Shares at net asset value. There can be no assurance that the Board will
decide to undertake any of these actions or that, if undertaken, such actions
would result in the Shares trading at a price equal to or close to net asset
value per Share. As described below, the Board might also consider the
conversion of the Fund to an open-end mutual fund. The Board believes,
however, that the closed-end structure is desirable, given the Fund's
investment objective and policies. Investors should assume, therefore, that it
is unlikely that the Board would vote to convert the Fund to an open-end
investment company.
Shares of closed-end management investment companies often trade at a
discount to their net asset values, and the Fund's Shares may likewise trade
at a discount to their net asset value, although it is possible that they may
trade at a premium above net asset value. The market price of the Fund's
Shares will be determined by such factors as relative demand for and supply of
such Shares in the market, the Fund's net asset value, general market and
economic conditions and other factors beyond the control of the Fund. See
"Determination of Net Asset Value." Although the Fund's Shareholders will not
have the right to redeem their Shares, the Fund may take action to repurchase
Shares in the open market or make tender offers for its Shares at their net
asset value. This may have the effect of reducing any market discount from net
asset value.
There is no assurance that if action is undertaken to repurchase or tender
for Shares, such action will result in the Shares' trading at a price which
approximates their net asset value. Although Share repurchases and tenders
could have a favorable effect on the market price of the Fund's Shares, it
should be recognized that the acquisition of Shares by the Fund will decrease
the total assets of the Fund and, therefore, have the effect of
54
<PAGE>
increasing the Fund's expense ratio. Any Share repurchases or tender offers
will be made in accordance with requirements of the Securities Exchange Act of
1934, as amended, and the Investment Company Act.
The Fund may be converted to an open-end investment company at any time by
an amendment to the Trust Agreement. The Trust Agreement provides that such an
amendment would require the approval of two-thirds of the Fund's outstanding
shares (including any preferred shares) entitled to vote on the matter, voting
as a single class (or a majority of such shares if the amendment previously
was approved, adopted or authorized by at least two-thirds of the total number
of Trustees) and, assuming the Fund has issued preferred shares, by the
affirmative vote of a majority of the outstanding preferred shares, voting as
a separate class. Such a vote also would satisfy a separate requirement in the
Investment Company Act that the change be approved by the shareholders. If
approved in the foregoing manner, conversion of the Fund could not occur until
at least 90 days after the shareholders' meeting at which such conversion was
approved and could take significantly longer and would also require at least
30 days' prior notice to all shareholders.
Conversion of the Fund to an open-end investment company would require the
redemption of any outstanding preferred shares and any indebtedness not
constituting bank loans, which could eliminate or alter the leveraged capital
structure of the Fund with respect to the Shares. Following any such
conversion, it is also possible that certain of the Fund's investment policies
and strategies would have to be modified to assure sufficient portfolio
liquidity. In particular, the Fund would be required to maintain its portfolio
such that not more than 15% of its assets would be invested in illiquid
securities, or other illiquid assets, or securities which are restricted as to
resale (excluding, for purposes of this limitation, Rule 144A and other
securities deemed liquid by INVESCO pursuant to guidelines established by the
Board). Such requirement could cause the Fund to dispose of portfolio
securities or other assets at a time when it is not advantageous to do so, and
could adversely affect the ability of the Fund to meet its investment
objectives. In the event of conversion, the Shares would cease to be listed on
the New York Stock Exchange or other national securities exchange or market
system. Shareholders of an open-end investment company may require the company
to redeem their shares at any time (except in certain circumstances as
authorized by or under the Investment Company Act) at their net asset value,
less such redemption charge, if any, as might be in effect at the time of a
redemption. The Fund expects to pay all such redemption requests in cash, but
intends to reserve the right to pay redemption requests in a combination of
cash or securities. If a payment in securities were made, investors may incur
brokerage costs in converting such securities to cash. If the Fund were
converted to an open-end fund, it is likely that new common shares would be
sold at net asset value plus a sales load.
In its review of the Fund's investment objective and of the proposed
investment policies and practices of the Fund in its pursuit of its investment
objective, the Board has determined that the closed-end structure of the Fund
is desirable and appropriate. Investors should assume, therefore, that it is
unlikely that the Board would vote to amend the Trust Agreement in order to
convert the Fund to an open-end investment company.
LEGAL OPINIONS
Certain legal matters in connection with the Shares offered hereby will be
passed upon for the Fund by Kirkpatrick & Lockhart LLP and for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois) and its
affiliated entities.
EXPERTS
The statement of assets and liabilities of the Fund included in this
Prospectus has been so included in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, and on their authority as
experts in auditing and accounting.
55
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees
of the INVESCO Global Financial Services Fund
In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of the
INVESCO Global Financial Services Fund (the "Fund") at August , 1998, in
conformity with generally accepted accounting principles. This financial
statement is the responsibility of the Fund's management; our responsibility
is to express an opinion on this financial statement based on our audit. We
conducted our audit of this financial statement in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Denver, Colorado
August , 1998
F-1
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
AUGUST , 1998
<TABLE>
<S> <C>
Assets:
Cash..................................................................... $
Deferred organization expenses (Note 3)..................................
---
Total Assets...........................................................
---
Liabilities:
Organization expenses payable and total liabilities......................
---
Capital:
[Commitments and contingencies (Notes 2 and 3).............................
Net Assets, equivalent to shares of beneficial interest issued and
outstanding, par value $0.01, unlimited authorized shares.................
---
Net asset value per share..................................................
===
</TABLE>
NOTE 1. ORGANIZATION:
The INVESCO Global Financial Services Fund (the "Fund") was organized as a
Massachusetts business trust on July , 1998, and is registered as a non-
diversified, closed-end management investment company under the Investment
Company Act of 1940. The Fund has had no operations other than the sale to
INVESCO Funds Group, Inc. (the "Investment Adviser") of shares of
beneficial interest for $ on August , 1998.
NOTE 2. ADVISORY AND ADMINISTRATION AGREEMENTS
The Fund has entered into an Advisory and Administration Agreement with the
Investment Adviser. The Fund will pay the Investment Adviser a monthly fee at
an annual rate of 1.50 percent of the Fund's average weekly value of Managed
Assets.
NOTE 3. DEFERRED ORGANIZATION COSTS:
The Investment Advisor has advanced certain organization and start-up costs
of the Fund and is to be reimbursed by the Fund. On April 3, 1998, Statement
of Position 98-5 was issued. This Statement of Position requires that
unamortized organization costs on the Fund's statement of assets and
liabilities be written off, effective for fiscal years beginning after
December 15, 1998. In accordance with Statement of Position 98-5, these
organization and start-up costs will be immediately expensed.
F-2
<PAGE>
APPENDIX A
RATINGS OF CORPORATE BONDS
DESCRIPTION OF CORPORATE BOND RATINGS OF STANDARD & POOR'S RATINGS GROUP:
AAA--Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
BB--Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. 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 presently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC--Bonds rated CCC have a current identifiable vulnerability to default
and are dependent upon favorable business, financial and economic conditions
to meet timely payments 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.
CC--The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C--The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D--Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
A-1
<PAGE>
DESCRIPTION OF BOND RATINGS OF MOODY'S INVESTORS SERVICE, INC.
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge." 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 which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are 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 risks appear somewhat larger than in Aaa
securities.
A--Bonds which are 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 which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are 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, therefore, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are 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.
CA--Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative standing
within the major rating categories, except in the Aaa category and in the
categories below B. The modifier 1 indicates a ranking for the security in the
higher end of a rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates a ranking in the lower end of a rating category.
A-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO
WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Fee Table................................................................ 11
The Fund................................................................. 12
The Adviser.............................................................. 12
Use of Proceeds.......................................................... 15
Investment Objective and Policies........................................ 15
Other Investment Practices............................................... 24
Risk Factors and Special Considerations.................................. 31
Investment Restrictions.................................................. 37
Management of the Fund................................................... 38
Trustees and Officers of the Fund........................................ 41
Brokerage and Portfolio Transactions..................................... 42
Determination of Net Asset Value......................................... 43
Dividends and Other Distributions........................................ 44
Taxes.................................................................... 45
Automatic Dividend Reinvestment Plan..................................... 48
Underwriting............................................................. 50
Shareholder Servicing Agent, Custodian and Transfer and Dividend
Disbursing Agent........................................................ 52
Description of Shares.................................................... 52
Legal Opinions........................................................... 55
Experts.................................................................. 55
Independent Auditors Report.............................................. F-1
Statement of Assets and Liabilities...................................... F-2
Appendix A............................................................... A-1
</TABLE>
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UNTIL , 19 , ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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SHARES
INVESCO GLOBAL
FINANCIAL
SERVICES FUND
--------------
PROSPECTUS
--------------
PAINEWEBBER INCORPORATED
A.G. EDWARDS & SONS, INC.
SALOMON SMITH BARNEY
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AUGUST , 1998
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