PROSPECTUS
September ^ 23, 1998
INVESCO INTERNATIONAL BLUE CHIP FUND
INVESCO INTERNATIONAL BLUE CHIP FUND (the "Fund") seeks to achieve a high
total return through capital appreciation and current income. The Fund intends
to accomplish its objective by investing substantially all of its assets in
securities of foreign companies identified by applying both a quantitative
analysis and an individual company analysis. Such securities may take the form
of American Depository Receipts, but may also consist of common or preferred
stocks of foreign issuers which are registered with the SEC and traded on a U.S.
stock exchange, as well as foreign securities traded on overseas exchanges. The
Fund's investments may consist in part of securities which may be deemed to be
speculative. (See "Investment Objective And Policies.")
The Fund is a series of INVESCO International Funds, Inc. (the "Company"),
a ^ diversified, managed, no-load mutual fund consisting of five separate ^
portfolios of investments. This Prospectus relates to shares of the INVESCO
International Blue Chip Fund. Separate Prospectuses are available upon request
from INVESCO Distributors, Inc. ("IDI") for the Company's other funds, INVESCO
European Fund, INVESCO Pacific Basin Fund, INVESCO Emerging Markets Fund, and
INVESCO International Growth Fund. Additional funds may be offered in the
future.
This Prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated September ^ 23, 1998, has been filed with the Securities
and Exchange Commission, and is incorporated by reference into this Prospectus.
To ^ request a free copy, write to INVESCO Distributors, Inc., P.O. Box 173706,
Denver, Colorado 80217-3706; call 1-800-525-8085; or visit our web site at:
http://www.invesco.com.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ^ NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES OF THE FUND ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
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TABLE OF CONTENTS
Page
ANNUAL FUND EXPENSES.........................................................6
PERFORMANCE DATA.............................................................9
INVESTMENT OBJECTIVE AND POLICIES...........................................10
RISK FACTORS................................................................12
THE FUND AND ITS MANAGEMENT...............................................^ 16
HOW SHARES CAN BE PURCHASED...............................................^ 19
SERVICES PROVIDED BY THE FUND.............................................^ 23
HOW TO REDEEM SHARES......................................................^ 26
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS..................................^ 28
ADDITIONAL INFORMATION....................................................^ 30
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ANNUAL FUND EXPENSES
The Fund is ^ no-load; there are no fees to purchase, exchange or redeem
shares* (see "Shareholder Transaction Expenses"). The Fund is authorized to pay
a Rule 12b-1 distribution fee of up to one quarter of one percent of the Fund's
average net assets each year. ^(See "How Shares Can Be Purchased - Distribution
Expenses.") Lower expenses benefit Fund shareholders by increasing the Fund's
total return.
Annual operating expenses are calculated as a percentage of the Fund's
average annual net assets. If necessary in order to keep expenses competitive,
INVESCO Funds Group, Inc. ("INVESCO") and INVESCO Global Asset Management (N.A.)
("IGAM") as adviser and sub-adviser, respectively, (collectively, "Fund
Management") will voluntarily reimburse the Fund for certain expenses in excess
of 2.00% (excluding excess amounts that have been offset by the expense offset
arrangements described below) of the Fund's average net assets.
Shareholder Transaction Expenses
Sales load "charge" on purchases None
Sales load "charge" on reinvested dividends None
Redemption fees None*
Exchange fees None*
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.75%
12b-1 Fees 0.25%
Other Expenses (after voluntary expense limitation)(1) 1.00%
Transfer Agency Fee(2) 0.55%
General Services, Administrative 0.45%
Services, Registration, Postage(3)
Total Fund Operating Expenses 2.00%
(after voluntary expense limitation)(1)
* The Fund has no present intention of imposing redemption fees during the
fiscal year ending October 31, 1998. If the Fund determines it is in the best
interest of shareholders to impose redemption fees, the Fund would be able to
assess and collect a 1% fee that would be retained by the Fund to offset
transaction costs and other expenses associated with short-term redemptions and
exchanges, which would be imposed only on shares held less than 3 months.
(1) Based on estimated expenses for the current fiscal year, which may be
more or less than actual expenses. Actual expenses are not provided because the
Fund did not begin a public offering of its shares until September 30, 1998. If
necessary, certain Fund expenses will be absorbed voluntarily for at least the
first fiscal year of the Fund's operations in order to ensure that expenses for
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the Fund will not exceed 2.00% of the Fund's average net assets pursuant to an
agreement among the Company, ^ INVESCO, and IGAM. If such voluntary expense
limit were not in effect, the Fund's "Other Expenses" and "Total Fund Operating
Expenses" for the fiscal year ending October 31, 1998 would be estimated to be
1.18% and 2.18%, respectively of the Fund's average net assets.
(2) Consists of the transfer agency fee described under "Additional
Information - Transfer and Dividend Disbursing Agent."
(3) Includes, but is not limited to, fees and expenses of directors,
custodian bank, legal counsel and independent accountants, securities pricing
services, costs of administrative services furnished under an Administrative
Services Agreement, costs of registration of Fund shares under applicable laws,
and costs of printing and distributing reports to shareholders.
Example
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming (1) a 5% annual return and (2) redemption at the end
of each time period.
1 Year 3 Years
-------------------
$20 $63
The purpose of the foregoing table and Example is to assist investors in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. Such expenses are paid from the Fund's assets. (See
"The Fund ^ And Its Management.") This Fund charges no sales load, redemption
fee or exchange fee. The Example should not be considered a representation of
past or future expenses, and actual expenses may be greater or less than those
shown. The assumed 5% annual return is hypothetical and should not be considered
a representation of past or future annual returns, which may be greater or less
than the assumed amount.
^ Because the Fund pays a distribution fee, investors who own Fund shares
for a long period of time may pay more than the economic equivalent of the
maximum front-end sales charge permitted for mutual funds by the National
Association of Securities Dealers, Inc.
Historical Investment Results of Sub-Adviser
The table below shows performance results relating to certain assets
similarly managed by the ^ sub-adviser in the INVESCO Retirement Trust -
International Equity Fund ("IRT"). These results are not those of the Fund. The
investment objective of the IRT is substantially similar to that of the Fund and
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it is managed by the same personnel who are using substantially similar
investment strategies and policies as those of the Fund. It cannot be determined
that future holdings of the Fund would be substantially identical to those in
the IRT.
The IRT is not subject to certain limitations, diversification
requirements and other restrictions that are imposed by the Investment Company
Act of 1940, as amended (the "Act") and the Internal Revenue Code on investment
companies such as the Fund. If these restrictions had been applicable to the
IRT, such restrictions might have adversely affected the performance reflected
below.
The performance presented is not intended to predict or suggest that such
returns will be experienced by the Fund or by an investor investing in the Fund.
An investor should not rely on the following performance information to be an
indication of future performance of the Fund. Different methods of determining
performance from those described in the footnotes below, including standard
methods required by the Securities and Exchange Commission and used by mutual
funds, will result in different performance figures.
Yearly Total Return
-------------------
Year ^
Ended IRT ^ MSCI-EAFE
- ----- --- -----------
1994 (2.70)% ^ 8.06%
1995 17.18% ^ 11.55%
1996 22.51% ^ 6.36%
1997 15.95% ^ 2.06%
^ 1998* (2.21)% 2.78%
Cumulative
Total Return** 59.20% 34.49%
*Numbers are representative of the period January 1, 1998 through August 31,
1998.
**Cumulative Total Return is as of August 31, 1998.
Average annualized total return performance for the IRT Fund for the period
ended August 31, 1998 and the period January 3, 1994 (commencement of
operations) to August 31, 1998 (life of the IRT Fund) was 1.92% and 10.48%,
respectively.
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Notes to Historical Investment Results of Sub-Adviser
(1) IRT
The ^ IRT commenced operations on January 1, 1994. The IRT is not a
registered investment company and is exempt from registration under the
1940 Act.
(2) Fees
Fees for the IRT are contractual with each client and vary among clients.
Performance is net of expenses including investment management fees and
transaction costs. Fund expenses are higher than the average expenses
borne by the IRT. If the Fund's fee expenses were applied to the IRT,
performance results would have been lower.
(3)^ MSCI-EAFE
The Morgan Stanley Capital Index - Europe/Australia/Far East was chosen
for comparison purposes because it contains companies which are eligible
for investment by the Fund and the IRT. The MSCI-EAFE Index is a widely
recognized weighted index of international stock market performance. The
index does not have expenses. If the Fund's fee expenses were applied to
the index, performance results would have been lower.
PERFORMANCE DATA
From time to time, the Fund may advertise its total return performance.
These figures are based upon historical investment results and are not intended
to indicate future performance. The "total return" of the Fund refers to the
annual rate of return of an investment in the Fund. Total return is computed by
calculating the percentage change in value of an investment of $1,000, assuming
reinvestment of all income dividends and capital gain distributions, to the end
of a specified period. Periods of one year, five years and ten years and/or life
of Fund are generally used. Cumulative total return reflects actual performance
over a stated period of time. Average annual total return is a hypothetical rate
of return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period. Any given
report of total return performance should not be considered as representative of
future performance. The Fund charges no sales load, which would affect the total
return computation.
In conjunction with performance reports and/or analyses of shareholder
service for the Fund, comparative data between the Fund's performance for a
given period and the performance of recognized stock indices and indices of
investment results for the same period, and/or assessments of the quality of
shareholder service, may be provided to shareholders. Such indices include
indices provided by Dow Jones & Company, Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("S&P"), Lipper Analytical Services,
Inc., Lehman Brothers, National Association of Securities Dealers Automated
Quotations, Frank Russell Company, Value Line Investment Survey, the American
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Stock Exchange, Morgan Stanley Capital International, Wilshire Associates,
the Financial Times-Stock Exchange, the New York Stock Exchange, the Nikkei
Stock Average and the Deutcher Aktienindex, all of which are unmanaged market
indicators. In addition, rankings, ratings and comparisons of investment
performance and/or assessments of the quality of shareholder service appearing
in publications such as Money, Forbes, Kiplinger's Personal Finance, Morningstar
and similar sources which utilize information compiled (i) internally; (ii) by
Lipper Analytical Services, Inc.; or (iii) by other recognized analytical
services, may be used in advertising. The Lipper Analytical Services, Inc.
mutual fund ranking and comparisons, which may be used by the Fund in
performance reports, will be drawn from the "International Funds" Lipper mutual
fund groupings, in addition to the broad-based Lipper general fund groupings.
^
INVESTMENT OBJECTIVE AND POLICIES
This Prospectus relates to INVESCO International Blue Chip Fund, one of the
Company's five separate portfolios of investments. Each portfolio is represented
by a different class of the Company's common stock. Separate prospectuses are
available for INVESCO European Fund, INVESCO Pacific Basin Fund, INVESCO
Emerging Markets Fund, and INVESCO International Growth Fund.
The Fund seeks to achieve a high total return through capital appreciation
and current income. This investment objective is fundamental and may not be
changed without the approval of a majority of the Fund's shareholders. Funds
having an investment objective of seeking a high total return may be limited in
their ability to obtain their objective by the limitations on the types of
securities in which they may invest. Therefore, no assurance can be given that
the Fund will be able to achieve its investment objective.
The Fund intends to accomplish its objective by investing substantially
all (and in no event less than 65%) of its assets in securities of blue chip
foreign companies identified by applying both a quantitative analysis and an
individual company analysis. A blue chip company is a large company with a solid
record of stable earnings and/or dividend growth and a reputation for
high-quality management. Such securities may take the form of American
Depository Receipts ("ADRs"), but may also consist of common or preferred stocks
of foreign issuers which are registered with the SEC and traded on a U.S. stock
exchange, as well as foreign securities traded on overseas exchanges. The Fund
primarily invests in medium and large market capitalization securities traded in
the primary international securities markets but may, on occasion, have limited
exposure to smaller, emerging stock markets. Whether the Fund invests in the
primary markets or the smaller markets, it attempts to select securities that
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have a higher than average probability of extending their established
performance records into the future. The term "foreign securities" refers to
securities of issuers, wherever organized, which in the judgment of ^ Fund
Management ^ have their principal business activities outside of the United
States or securities registered in foreign countries and traded on overseas
exchanges. The determination of whether an issuer's principal activities are
outside of the United States will be based on the location of the issuer's
assets, personnel, sales and earnings, and specifically will require a
determination that more than 50% of the issuer's assets are located, or more
than 50% of the issuer's gross income is earned, outside of the United States.
The Fund has not established any minimum investment standards, with
respect to the Fund's equity investments in foreign securities, such as an
issuer's asset level, earnings history, type of industry, or dividend payment
history. Therefore, investors in this Fund should consider that investments may
consist in part of securities which may be deemed to be speculative. When
market, business or economic conditions indicate, the Fund may assume a
defensive position by temporarily investing up to 100% of its assets in domestic
securities consisting of obligations issued or guaranteed by the United States
or any instrumentality thereof, domestic bank certificates of deposit,
commercial paper rated A-2 or higher by S&P or P-2 or higher by Moody's
Investors Services, Inc. ("Moody's"), and repurchase agreements with banks and
securities dealers, seeking to protect its assets until conditions stabilize.
It is presently anticipated that the Fund may invest in companies based in
(or governments of or within) various areas of the world. The economies of the
various countries may vary widely and may be subject to sudden changes that
could have a positive or negative impact on the Fund. Of course, the Fund may
invest in such other areas and countries as Fund Management may determine from
time to time. The securities in which the Fund invests typically will be traded
on the primary international securities markets but the Fund may, on occasion,
have limited exposure to smaller, emerging stock markets.
When the Fund invests in foreign securities, such securities are usually
denominated in foreign currency and the Fund may temporarily hold funds in
foreign currencies. Thus, the Fund's share value will be affected by changes in
currency exchange rates. Because the Fund's assets may be invested in foreign
securities and because substantially all revenues will be received in foreign
currencies, the dollar equivalent of the Fund's net assets and distributions
would be adversely affected by a reduction in the value of one or more foreign
currencies relative to the United States dollar. The Fund will pay dividends in
dollars and in such event will incur currency conversion costs. As one way of
managing exchange rate risk, the Fund may enter into forward foreign currency
exchange contracts (i.e., purchasing or selling foreign currencies at a future
date).
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For additional information concerning the investment objectives and
operation of the INVESCO International Blue Chip Fund, see "Investment
Objectives And Policies" in the Statement of Additional Information.
RISK FACTORS
Investors should consider the special factors associated with the policies
discussed below in determining the appropriateness of an investment in the Fund.
Year 2000 Computer Issue. Due to the fact that many computer systems in
use today cannot recognize the Year 2000, but will, unless corrected, revert to
1900 or 1980 or cease to function at that time, the markets for securities in
which the Fund invests may be detrimentally affected by computer failures
affecting portfolio investments or trading of securities beginning January 1,
2000. Improperly functioning trading systems may result in settlement problems
and liquidity issues. In addition, corporate and governmental data processing
errors may result in production issues for individual companies and overall
economic uncertainties. Earnings of individual issuers may be affected by
remediation costs, which may be substantial. The Fund's investments may be
adversely affected.
Foreign Securities. The Fund may invest in foreign securities and may do
so without limitation on the percentage of assets which may be so invested.
Investments in securities of foreign companies and in foreign markets involve
certain additional risks not associated with investments in domestic companies
and markets. For U.S. investors, the returns on foreign equity and corporate
debt securities are influenced not only by the returns on the foreign
investments themselves but also by currency fluctuations. That is, when the U.S.
dollar generally rises against a foreign currency, returns for a U.S. investor
on foreign securities denominated in that foreign currency may decrease. By
contrast, in a period when the U.S. dollar generally declines, those returns may
increase.
Other aspects of international investing to consider include:
-less publicly available information than is generally available about U.S.
issuers;
-differences in accounting, auditing and financial reporting standards;
-generally higher commission rates on foreign portfolio transactions and
longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility;
-less government regulation of stock exchanges, brokers and listed
companies abroad than in the United States; and
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-investment income in certain ^ foreign securities may be subject to
foreign withholding taxes, which may reduce dividend income or capital gains
payable to shareholders.
There is also the possibility of expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations; political
instability; potential restrictions on the flow of international capital; and
the possibility the Fund may experience difficulties in pursuing legal remedies
and collecting judgments.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
The Netherlands, Portugal and Spain are presently members of the European
Economic and Monetary Union (the "EMU"). EMU intends to establish a common
European currency for EMU countries which will be known as the "euro." Each
participating country presently plans to adopt the euro as its currency on
January 1, 1999. The old national currencies will be sub-currencies of the euro
until July 1, 2002, at which time the old currencies will disappear entirely.
Other European countries may adopt the euro in the future.
The planned introduction of the euro presents some uncertainties and
possible risks, including whether the payment and operational systems of banks
and other financial institutions will be ready by January 1, 1999; whether
exchange rates for existing currencies and the euro will be adequately
established; and whether suitable clearing and settlement systems for the euro
will be in operation. These and other factors may cause market disruptions
before or after January 1, 1999 and could adversely affect the value of
securities held by the Fund.
After January 1, 1999, the introduction of the euro is expected to impact
European capital markets in ways that it is impossible to quantify at this time.
For example, investors may begin to view EMU countries as a single market, and
that may impact future investment decisions for the Fund. As the euro is
implemented, there may be changes in the relative strength and value of the U.S.
dollar and other major currencies, as well as possible adverse tax consequences.
The euro transition by EMU countries - present and future - may impact the
fiscal and monetary policies of those participating countries. There may be
increased levels of price competition among business firms within EMU countries
and between businesses in EMU and non-EMU countries. The outcome of these
uncertainties could have unpredictable effects on trade and commerce and result
in increased volatility for all financial markets.
ADRs represent shares of a foreign corporation held by a U.S. bank that
entitle the holder to all dividends and capital gains, net of certain fees paid
to the bank. ADRs are denominated in U.S. dollars and trade in the U.S.
securities markets. ADRs are subject to some of the same risks as direct
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investments in foreign securities, including the risk that material
information about the issuer may not be disclosed in the United States and the
risk that currency fluctuations may adversely affect the value of an ADR.
Illiquid and Rule 144A Securities. The Fund may invest up to 15% of its
net assets, measured at the time of purchase, in investments that are illiquid
because they are subject to restrictions on their resale ("restricted
securities") or because, based upon the nature of the market for such
investments, they are not readily marketable. Investments in illiquid securities
are subject to the risk that the Fund may not be able to sell such securities at
the time or price desired. In addition, in order to resell a restricted
security, the Fund might have to bear the expense and incur the delays
associated with registration of the security.
The Fund may purchase certain securities that are not registered for sale
to the general public, but that can be resold to institutional investors ("Rule
144A Securities") without regard to the foregoing 15% limitation, if a liquid
trading market exists. The Company's board of directors has delegated to Fund
Management the authority to determine the liquidity of Rule 144A Securities
pursuant to guidelines approved by the board. In the event that a Rule 144A
Security held by the Fund is subsequently determined to be illiquid, the
security will be sold as soon as that can be done in an orderly fashion
consistent with the best interests of the Fund's shareholders. For more
information concerning Rule 144A Securities, see "Investment Policies and
Restrictions" in the Statement of Additional Information.
Repurchase Agreements. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price and on an agreed-upon date. The Fund could incur costs or
delays in seeking to sell the instrument if the prior owner defaults on its
repurchase obligation. To reduce that risk, securities that are the subject of a
repurchase agreement will be maintained with the Fund's custodian in an amount
at least equal to the repurchase price under the agreement (including accrued
interest). These agreements are entered into only with member banks of the
Federal Reserve System, registered broker-dealers, and registered U.S.
government securities dealers that are deemed creditworthy under standards
established by the Fund's board of directors.
Securities Lending. The Fund also may lend its securities to qualified
brokers, dealers, banks or other financial institutions. This practice permits
the Fund to earn income which, in turn, can be invested in additional securities
to pursue the Fund's investment objective. Loans of securities by the Fund will
be collateralized by cash, letters of credit, or securities issued or guaranteed
by the U.S. government or its agencies equal to at least 100% of the current
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market value of the loaned securities, determined on a daily basis. Lending
securities involves certain risks, the most significant of which is the risk
that a borrower may fail to return a portfolio security. The Fund monitors the
creditworthiness of borrowers in order to minimize such risks. The Fund will not
lend any security if, as a result of such loan, the aggregate value of
securities then on loan would exceed 10% of the Fund's total assets (taken at
market value). ^
Options, Futures and Other Financial Instruments. The Fund may use various
types of financial instruments, some of which are derivatives, to attempt to
manage the risk of its investments or, in certain circumstances, for investment
(e.g., as a substitute for investing in securities). These financial instruments
include options, futures contracts, forward contracts, swaps, caps, floors and
collars (collectively, "Financial Instruments"). For descriptions and other
information on these Financial Instruments and strategies and their risk
considerations, see the Statement of Additional Information ("SAI"). Financial
Instruments may be used in an attempt to manage the Fund's foreign currency
exposure as well as other risks of the Fund's investments that can cause
fluctuations in its net asset value. The Fund may use Financial Instruments to
increase or decrease its exposure to changing securities prices, interest rates,
currency exchange rates or other factors. The policies in this section do not
apply to other types of instruments sometimes referred to as derivatives, such
as indexed securities, mortgage-backed and other asset-backed securities, and
stripped interest and principal of debt.
The Fund's ability to use Financial Instruments may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not use any
of these Financial Instruments, and there can be no assurance that any strategy
using a Financial Instrument will fully achieve its objective.
Subject to the further limitations stated in the SAI, generally, the Fund
is authorized to use any type of Financial Instrument. However, as a
non-fundamental policy, the Fund will only use a particular Financial Instrument
(other than those related to foreign currency) if the Fund is authorized to take
a position in the type of asset to which the return on, or value of, the
Financial Instrument is primarily related. Therefore, for example, if the Fund
is authorized to invest in a particular type of security (such as an equity
security), it could take a position in an option on an index relating to equity
securities. As a non-fundamental policy, because it invests in foreign
securities , the Fund may use foreign currency Financial Instruments. In
addition, the Fund presently has a non-fundamental policy to utilize only
exchange-traded Financial Instruments, other than forward currency contracts.
This policy would not, however, prevent the Fund from investing in a security,
such as an indexed security, with an imbedded component, such as a cap or a
floor.
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^
Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover for the Fund. Although the Fund does not trade for short-term profits,
securities may be sold without regard to the time they have been held in the
Fund when, in the opinion of Fund Management, investment considerations warrant
such action. As a result, ^ while it is anticipated that the portfolio turnover
rate ^ of the Fund generally will not exceed 200%, under certain market
conditions the Fund's portfolio turnover rate may exceed 200%. Increased
portfolio turnover would cause the Fund to incur greater brokerage costs than
would otherwise be the case and may result in capital gains that are taxable
when distributed to shareholders. The Fund's portfolio turnover rate and the
Company's brokerage allocation policies are discussed in the Statement of
Additional Information.
Investment Restrictions. The Fund is subject to a variety of restrictions
regarding their investments that are identified in the Statement of Additional
Information. Certain of the Fund's investment restrictions are fundamental and
may not be altered without the approval of the Fund's shareholders. For example,
with respect to 75% of its total assets, the Fund may not purchase the
securities of any one issuer (other than cash items and government securities)
if the purchase would cause the Fund to have more than 5% of its total assets
invested in the issuer or to have more than 10% of the outstanding voting
securities of the issuer. Other fundamental restrictions prohibit the Fund from
lending more than 33 1/3% of its total assets to other parties and from
borrowing money, except that the Fund may borrow for temporary or emergency
purposes in an aggregate amount not exceeding 33 1/3% of its total assets.
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as ^ a diversified, open-end^ management investment company.
The Company's board of directors has responsibility for overall
supervision of the Fund and reviews the services provided by Fund Management.
INVESCO ^, 7800 E. Union Avenue, Denver, Colorado, serves as the Company's
investment adviser pursuant to an investment advisory agreement with the
Company. Under this agreement, ^ INVESCO is primarily responsible for providing
the Fund with portfolio management and various administrative services and
supervising the Fund's daily business affairs. These services are subject to
review by the Company's board of directors.
Pursuant to an agreement with ^ INVESCO, IGAM serves as the sub-adviser to
the Fund. In that capacity, IGAM has the primary responsibility, under the
supervision of ^ INVESCO, for providing portfolio management services to the
Fund. IGAM also acts as sub-adviser to the I.R.T. International Equity Fund,
I.R.T. International Bond Fund, I.R.T. Lifestyle Aggressive Fund, I.R.T.
Lifestyle Conservative Fund and I.R.T. Lifestyle Moderate Fund.
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Pursuant to an agreement with the Company, IDI is the Fund's distributor.
IDI, established in 1997, is a registered broker-dealer that acts as distributor
for all retail funds advised by ^ INVESCO.
^ INVESCO, IGAM and IDI are indirect wholly-owned subsidiaries of AMVESCAP
PLC. AMVESCAP PLC is a publicly-traded holding company that, through its
subsidiaries, engages in the business of investment management on an
international basis. INVESCO PLC changed its name to AMVESCO PLC on March 3,
1997 and to AMVESCAP PLC on May 8, 1997, as part of a merger between a direct
subsidiary of INVESCO PLC and A I M Management Group Inc., that created one of
the largest independent investment management businesses in the world. ^ INVESCO
and IGAM ^ continued to operate under their existing names. AMVESCAP PLC had
approximately ^ $261 billion in assets under management as of ^ June 30, 1998.
INVESCO was established in 1932 and, as of ^ July 31, 1998, managed 14 mutual
funds, consisting of ^ 49 separate portfolios, with combined assets of
approximately ^ $19.6 billion on behalf of ^ 884,099 shareholders.
The Fund is managed by IGAM's International Equity Team, which is headed
by Lindsay Davidson.
W.Lindsay Davidson is lead portfolio manager of the Fund. He has been with
INVESCO Capital Management in Atlanta as an international equity portfolio
manager since 1993. Mr. Davidson joined INVESCO in 1984 as a Director managing
UK pension plan portfolios, after beginning his career in 1974 as an investment
manager for Norwich England. Mr. Davidson was educated at Waid Academy in
Scotland and received an ^ M.A. in Economics from Edinburgh University in 1974.
Erik B. Granade, a Certified Financial Analyst and Chartered Investment
Counselor, is co-manager of the Fund. Mr. Granade joined INVESCO Capital
Management in 1996 as an international portfolio manager. Mr. Granade began his
investment career in 1986 and prior to joining INVESCO was a partner and
international equity portfolio manager with Cashman, Farrell & Associates. Mr.
Granade earned his ^ B.A. in Economics from Trinity College.
Michele T. Garren, a Certified Financial Analyst, is co-manager of the
Fund. Ms. Garren joined INVESCO Capital Management in 1997 as an international
equity specialist. Ms. Garren began her investment career in 1987 and prior to
joining INVESCO was a vice president and senior portfolio manager with AIG
Global Investment Corporation in New York. Ms. ^ Garran earned her M.B.A. in
Finance from New York University and her ^ B.B.A. in Finance from Southern
Methodist University.
Fund Management permits investment and other personnel to purchase and
sell securities for their own accounts, subject to compliance policies governing
personal investing. These policies require Fund Management's personnel to
<PAGE>
conduct their personal investment activities in a manner that Fund
Management believes is not detrimental to the Fund or Fund Management's other
advisory clients. See the Statement of Additional Information for more detailed
information.
The Fund pays INVESCO ^ a monthly advisory fee which is based upon a
percentage of the average net assets of the Fund, determined daily. The maximum
advisory fee payable under the agreement is computed at an annual rate of 0.75%
of the Fund's average net assets.
Out of the advisory fees which it receives from the Fund, ^ INVESCO pays
IGAM, as sub-adviser to the Fund, a monthly fee, which is computed at an annual
rate of 0.30% of the Fund's average net assets.
Under a distribution agreement, IDI provides services relating to the
distribution and sale of the Fund's shares. IDI, established in 1997, is a
registered broker-dealer that acts as distributor for all retail funds advised
by INVESCO.
The Company also has entered into an Administrative Services Agreement
dated February 28, 1997 (the "Administrative Agreement"), with ^ INVESCO.
Pursuant to the Administrative Agreement, ^ INVESCO performs certain
administrative, recordkeeping and internal accounting services, including,
without limitation, maintaining general ledger and capital stock accounts,
preparing a daily trial balance, calculating net asset value daily, providing
selected general ledger reports, and providing sub-accounting and recordkeeping
services for shareholder accounts in the Fund maintained by certain retirement
and employee benefit plans for the benefit of participants of such plans. For
such services, the Fund pays ^ INVESCO a fee consisting of a base fee of $10,000
per year plus an additional incremental fee computed at an annual rate of 0.015%
per annum of the average net assets of the Fund. ^ INVESCO also is paid a fee by
the Company for providing transfer agent services. See "Additional Information."
The management and custodial services provided to the Fund by its adviser
and the Fund's custodian, and the services provided to shareholders by IDI and
IFG, depend on the continued functioning of their computer systems. Many
computer systems in use today cannot recognize the ^ INVESCO and the Year 2000,
but will revert to 1900 or 1980 or will cease to function due to the manner in
which dates were encoded and are calculated. That failure could have a negative
impact on the handling of the Fund's securities trades, its share pricing and
its account services. The Fund and its service providers have been actively
working on necessary changes to their computer systems to deal with the ^ Year
2000 issue and expect that their systems will be adapted before that date, but
there can be no assurance that they will be successful. Furthermore, services
<PAGE>
may be impaired at that time as a result of the interaction of their
systems with others' noncomplying computer systems. INVESCO plans to test as
many such interactions as practicable prior to December 31, 1999 and to develop
contingency plans for reasonably anticipated failures.
If necessary, certain Fund expenses will be absorbed by ^ INVESCO and IGAM
voluntarily for at least the first fiscal year of the Fund's operations in order
to ensure that the Fund's total expenses do not exceed 2.00%. This commitment
may be changed following consultation with the Company's board of directors. As
of this date, ^ INVESCO held all of the outstanding shares of the Fund and
should be regarded as the control person of the Fund.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of
such ^ brokers' and dealers' financial responsibility coupled with their ability
to effect transactions at the best available prices. As discussed under "How
Shares Can Be Purchased - Distribution Expenses," the Company may market shares
of the Fund through intermediary brokers or dealers that have entered into
Dealer Agreements with ^ INVESCO or IDI as the ^ Fund's distributor. The Fund
may place orders for portfolio transactions with qualified ^ brokers and dealers
which recommend the Fund to clients, or sell shares of the Fund to clients, or
act as agent in the purchase of Fund shares for clients, if Fund Management
believes that the quality of execution of the transaction and level of
commission are comparable to those available from other qualified brokerage
firms.
^
HOW SHARES CAN BE PURCHASED
The Fund's shares are sold on a continuous basis by IDI, as the Fund's
distributor, at the net asset value per share next calculated after receipt of a
purchase order in good form. No sales charge is imposed upon the sale of shares
of the Fund. To purchase shares of the Fund, send a check made payable to
INVESCO Funds Group, Inc., together with a completed application form, to:
INVESCO FUNDS GROUP, INC.
Post Office Box 173706
Denver, Colorado 80217-3706
Purchase orders must specify the fund in which the investment is to be
made.
The minimum initial purchase must be at least $1,000, with subsequent
investments of not less than $50, except that: (1) those shareholders
establishing an EasiVest or direct payroll purchase account, as described below
in the section entitled "Services Provided By The Fund," may open an account
without making any initial investment if they agree to make minimum monthly
purchases of $50; (2) Fund Management may permit a lesser amount to be invested
in the Fund under a federal income tax-deferred retirement plan (other than an
<PAGE>
Individual Retirement Account ("IRA"), or under a group investment plan
qualifying as a sophisticated investor; (3) those shareholders investing in an
IRA, or through omnibus accounts where individual shareholder recordkeeping and
sub-accounting are not required, may make initial minimum purchases of $250; and
(4) Fund Management reserves the right to increase, reduce or waive the minimum
purchase requirements in its sole discretion where it determines such action is
in the best interests of the Fund.
The purchase of Fund shares can be expedited by placing bank wire,
overnight courier or telephone orders. Overnight courier orders must meet the
above minimum investment requirements. In no case can a bank wire order or a
telephone order be in an amount less than $1,000. For further information, the
purchaser may call the Company's office by using the telephone number on the
cover of this Prospectus. Orders sent by overnight courier, including Express
Mail, should be sent to the street address, not Post Office Box, of INVESCO
Funds Group, Inc., 7800 E. Union Avenue, Denver, Colorado 80237.
Orders to purchase Fund shares can be placed by telephone. Shares of the
Fund will be issued at the net asset value next determined after receipt of
telephone instructions. Generally, payments for telephone orders must be
received by the Fund within three business days or the transaction may be ^
canceled. In the event of such ^ cancelation, the purchaser will be held
responsible for any loss resulting from a decline in the value of the shares. In
order to avoid such losses, purchasers should send payments for telephone
purchases by overnight courier or bank wire. ^ INVESCO has agreed to indemnify
the Fund for any losses resulting from the cancellation of telephone purchases.
If your check does not clear, or if a telephone purchase must be ^
canceled due to nonpayment, you will be responsible for any related loss the
Fund or ^ INVESCO incurs. If you are already a shareholder in the INVESCO funds,
the Company, on behalf of the Fund, has the option to redeem shares from any
identically registered account in the Company or any other INVESCO fund as
reimbursement for any loss incurred. You also may be prohibited or restricted
from making future purchases in any of the INVESCO funds.
Persons who invest in the Fund through a securities broker may be charged
a commission or transaction fee by the broker for the handling of the
transaction, if the broker so elects. Any investor may deal directly with the
Fund in any transaction. In that event, there is no such charge. ^ IDI or
INVESCO may from time to time make payments from its revenues to securities
dealers and other financial institutions that provide distribution-related
and/or administrative services for the Fund.
<PAGE>
The Fund reserves the right in its sole discretion to reject any order for
purchase of its shares (including purchases by exchange) when, in the judgment
of Fund Management, such rejection is in the best interest of the Fund.
Net asset value per share is computed once each day that the New York Stock
Exchange is open as of the close of regular trading on that Exchange (generally
4:00 p.m., New York time) and also may be computed on other days under certain
circumstances. Net asset value per share for the Fund is calculated by dividing
the market value of all of the Fund's securities plus the value of its other
assets (including dividends and interest accrued but not collected), less all
liabilities (including accrued expenses), by the number of outstanding shares of
the Fund. If market quotations are not readily available, a security will be
valued at fair value as determined in good faith by the board of directors. Debt
securities with remaining maturities of 60 days or less at the time of purchase
will be valued at amortized cost, absent unusual circumstances, so long as the
Company's board of directors believes that such value represents fair value.
Distribution Expenses. The Fund is authorized under a Plan and Agreement of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Plan") to use its assets to finance certain activities relating to the
distribution of its shares to investors. Under the Plan, monthly payments may be
made by the Fund to IDI to permit ^ IDI, at ^ its discretion, to engage in
certain activities and provide certain services approved by the board of
directors of the Company in connection with the distribution of the Fund's
shares to investors. These activities and services may include the payment of
compensation (including incentive, compensation and/or continuing compensation
based on the amount of customer assets maintained in the Fund) to securities
dealers and other financial institutions and organizations, which may include ^
INVESCO- and IDI-affiliated companies, to obtain various distribution-related
and/or administrative services for the Fund^. Such services may include, among
other things, processing new shareholder account applications, preparing and
transmitting to the Fund's transfer agent computer processable tapes of all
transactions by customers, and serving as the primary source of information to
customers in answering questions concerning the Fund and their transactions with
the Fund.
In addition, other permissible activities and services include advertising,
preparation, printing and distribution of sales literature, printing and
distribution of prospectuses to prospective investors, and such other services
and promotional activities for the Fund as may from time to time be agreed upon
by the Company and the board of directors, including public relations efforts
and marketing programs to communicate with investors and prospective investors.
These services and activities may be conducted by the staff of ^ INVESCO, IDI or
^ their affiliates or by third parties.
<PAGE>
Under the Plan, the Fund's payments to IDI are limited to an amount
computed at an annual rate of 0.25% of the Fund's average net assets. IDI is not
entitled to payment for overhead expenses under the Plan, but may be paid for
all or a portion of the compensation paid for salaries and other employee
benefits for the personnel of ^ INVESCO or IDI whose primary responsibilities
involve marketing shares of the INVESCO Mutual Funds, including the Fund.
Payment amounts ^ by the Fund under the Plan, for any month, may be made to
compensate IDI for permissible activities engaged in and services provided by
IDI during the rolling 12-month period in which that month falls, although this
period is expanded to 24 months for obligations incurred during the first 24
months of the Fund's operations. ^ Therefore any obligations incurred by IDI in
excess of these limitations will not be paid by the Fund under the Plan, and
will be borne by IDI. In addition, IDI and its affiliates may from time to time
make additional payments from their revenues to securities dealers, financial
advisers and other financial institutions that provide distribution-related
and/or administrative services for the Fund. No further payments will be made by
the Fund under the Plan in the event of ^ the Plan's termination. Payments made
by the Fund may not be used to finance directly the distribution of shares of
any other Fund of the Company or other mutual funds advised by INVESCO and
distributed by IDI. However, payments received by IDI which are not used to
finance the distribution of shares of the Fund become part of IDI's revenues and
may be used by IDI for activities that promote distribution of any of the mutual
funds advised by INVESCO. Subject to review by the Company's directors, payments
made by the Fund under the Plan for compensation of marketing personnel, as
noted above, are based on an allocation formula designed to ensure that all such
payments are appropriate. IDI will bear any distribution-and service-related
expenses in excess of the amounts which are compensated pursuant to the Plan.
The Plan also authorizes any financing of distribution which may result from
IDI's use of its own resources, providing that such fees are legitimate and not
excessive. For more information see "How Shares Can be Purchased" in the
Statement of Additional Information.
SERVICES PROVIDED BY THE FUND
Shareholder Accounts. ^ INVESCO maintains a share account that reflects
the current holdings of each shareholder. Share certificates will be issued only
upon specific request. Because certificates must be carefully safeguarded and
must be surrendered in order to exchange or redeem Fund shares, most
shareholders do not request share certificates in order to facilitate such
transactions. Each shareholder is sent a detailed confirmation for each
transaction in shares of the Fund. Shareholders whose only transactions are
through the EasiVest, direct payroll purchase, automatic monthly exchange or
periodic withdrawal programs, or are reinvestments of dividends or capital gains
in the same or another fund, will receive confirmations of those transactions on
their quarterly statements. These programs are discussed below. For information
regarding a shareholder's account and transactions, the shareholder may call the
Fund's office by using the telephone number on the cover of this Prospectus.
<PAGE>
Reinvestment of Distributions. Dividends and other distributions are
automatically reinvested in additional shares of the Fund at the net asset value
per share in effect on the ex-dividend or ex-distribution date. A shareholder
may, however, elect to reinvest dividends and other distributions in certain of
the other no-load mutual funds advised by ^ INVESCO and distributed by IDI, or
to receive payment of all dividends and other distributions in excess of ten
dollars by check by giving written notice to ^ INVESCO at least two weeks prior
to the record date on which the change is to take effect. Further information
concerning these options can be obtained by contacting ^ INVESCO.
Periodic Withdrawal Plan. A Periodic Withdrawal Plan is available to
shareholders who own or purchase shares of any mutual funds advised by ^ INVESCO
having a total value of $10,000 or more; provided, however, that at the time the
Plan is established, the shareholder owns shares having a value of at least
$5,000 in the fund from which the withdrawals will be made. Under the Periodic
Withdrawal Plan, ^ INVESCO, as agent, will make specified monthly or quarterly
payments of any amount selected (minimum payment of $100) to the party
designated by the shareholder. Notice of all changes concerning the Periodic
Withdrawal Plan must be received by ^ INVESCO at least two weeks prior to the
next scheduled check. Further information regarding the Periodic Withdrawal Plan
and its requirements and tax consequences can be obtained by contacting ^
INVESCO.
Exchange Policy. Shares of this Fund may be exchanged for shares of any
other fund of the Company, as well as for shares of any of the following other
no-load mutual funds, which are also advised by ^ INVESCO and distributed by
IDI, on the basis of their respective net asset values at the time of the
exchange: ^ INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds,
Inc., INVESCO ^ Equity Funds, Inc. (formerly, INVESCO Capital Appreciation
Funds, Inc.), INVESCO Flexible Funds, Inc. (formerly, INVESCO Multiple Asset
Funds, Inc.), INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO
Industrial Income ^ Fund, Inc., INVESCO Money Market Funds, Inc., INVESCO
Specialty Funds, Inc., INVESCO Strategic Portfolios, Inc., INVESCO Tax-Free
Income Funds, Inc. and INVESCO Value Trust.
An exchange involves the redemption of shares in the Fund and investment
of the redemption proceeds in shares of another fund of the Company or in shares
of one of the INVESCO funds listed above. Exchanges will be made at the net
asset value per share next determined after receipt of an exchange request in
proper order. Any gain or loss realized on such an exchange is recognizable for
federal income tax purposes by the shareholder. Exchange requests may be made
either by telephone or by written request to ^ INVESCO using the telephone
<PAGE>
number or address on the back of this Prospectus. Exchanges made by
telephone must be in an amount of at least $250 if the exchange is being made
into an existing account of one of the INVESCO funds. All exchanges that
establish a new account must meet the Fund's applicable minimum initial
investment requirements. Written exchange requests into an existing account have
no minimum requirements other than the Fund's applicable minimum subsequent
investment requirements.
The option to exchange Fund shares by telephone is available to
shareholders automatically unless expressly declined. By signing the New Account
Application or a Telephone Transaction Authorization Form or otherwise utilizing
the telephone exchange option, the investor has agreed that the Fund will not be
liable for following instructions communicated by telephone that it reasonably
believes to be genuine. The Fund employs procedures designed to confirm that
exchange instructions are genuine, which it believes are reasonable. These may
include recording telephone instructions and providing written confirmations of
exchange transactions. As a result of this policy, the investor may bear the
risk of any loss due to unauthorized or fraudulent instructions; provided,
however, that if the Fund fails to follow these or other reasonable procedures,
the Fund may be liable.
In order to prevent abuse of this policy to the disadvantage of other
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange option of any shareholder who requests more than four
exchanges in a year, or at any time the Fund determines the actions of the
shareholder is detrimental to Fund performance and shareholders. The Fund will
determine whether to do so based on a consideration of both the number of
exchanges any particular shareholder, or group of shareholders, has requested
and the time period over which those exchange requests have been made, together
with the level of expense to the Fund which will result from effecting
additional exchange requests. The Fund is intended to be a long-term investment
vehicle and is not designed to provide investors the means of speculation on
short-term market movements. The exchange policy also may be modified or
terminated at any time. Except for those limited instances where redemptions of
the exchanged security are suspended under Section 22(e) of the 1940 Act, or
where sales of the fund into which the shareholder is exchanging are temporarily
stopped, notice of all such modifications or terminations of the exchange policy
will be given at least 60 days prior to the date of termination or the effective
date of the modification.
Before making an exchange, the shareholder should review the prospectuses
of the funds involved and consider their differences^. Shareholders interested
in exercising the exchange option may contact ^ INVESCO for information
concerning their particular exchanges.
Automatic Monthly Exchange. Shareholders who have accounts in any one or
more of the mutual funds distributed by IDI may arrange for a fixed dollar
amount of their fund shares to be automatically exchanged for shares of any
other INVESCO mutual fund listed under "Exchange Policy" on a monthly basis. The
<PAGE>
minimum monthly exchange in this program is $50.00. This automatic exchange
program can be changed by the shareholder at any time by notifying ^ INVESCO at
least two weeks prior to the date the change is to be made. Further information
regarding this service can be obtained by contacting ^ INVESCO.
EasiVest. For shareholders who want to maintain a schedule of monthly
investments, EasiVest uses various methods to draw a preauthorized amount from
the shareholder's bank account to purchase Fund shares. This automatic
investment program can be changed by the shareholder at any time by notifying ^
INVESCO at least two weeks prior to the date the change is to be made. Further
information regarding this service can be obtained by contacting ^ INVESCO.
Direct Payroll Purchase. Shareholders may elect to have their employers
make automatic purchases of Fund shares for them by deducting a specified amount
from their regular paychecks. This automatic investment program can be modified
or terminated at any time by the shareholder, by notifying the employer. Further
information regarding this service can be obtained by contacting ^ INVESCO.
Tax-Deferred Retirement Plans. Shares of the Fund may be purchased for
self-employed individual retirement plans, various IRAs, simplified employee
pension plans and corporate retirement plans. In addition, shares can be used to
fund tax-qualified plans established under Section 403(b) of the Internal
Revenue Code by educational institutions, including public school systems and
private schools, and certain kinds of non-profit organizations, which provide
deferred compensation arrangements for their employees.
Prototype forms for the establishment of these various plans including,
where applicable, disclosure statements required by the Internal Revenue
Service, are available from ^ INVESCO. Institutional Trust Company ^ d.b.a.
INVESCO Trust Company^ ("ITC"), an affiliate of INVESCO, is qualified to serve
as trustee or custodian under these plans and provides the required services at
competitive rates. Retirement plans (other than IRAs) receive monthly statements
reflecting all transactions in their Fund accounts. IRAs receive the
confirmations and quarterly statements described under "Shareholder Accounts."
For complete information, including prototype forms and service charges, call
INVESCO at the telephone number listed on the cover of this prospectus or send a
written request to: Retirement Services, INVESCO Funds Group, Inc., Post Office
Box 173706, Denver, Colorado 80217-3706.
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed at any time at their net asset value
next determined after a request in proper form is received at the Fund's office.
(See "How Shares Can Be Purchased.") Net asset value per share of the Fund at
the time of the redemption may be more or less than the price originally paid to
purchase shares, depending primarily upon the Fund's investment performance.
<PAGE>
If the shares to be redeemed are represented by stock certificates, a
written request for redemption signed by the registered shareholder(s) must be
forwarded with the certificates to INVESCO Funds Group, Inc., Post Office Box
173706, Denver, Colorado 80217-3706. Redemption requests sent by overnight
courier, including Express Mail, should be sent to the street address, not ^
post office box, of INVESCO ^, at 7800 E. Union Avenue, Denver, Colorado 80237.
If no certificates have been issued, a written redemption request signed by each
registered owner of the account may be submitted to ^ INVESCO at the post office
box address noted above. If shares are held in the name of a corporation,
additional documentation may be necessary. Call or write for specific
information. If payment for the redeemed shares is to be made to someone other
than the registered owner(s) of the account, the signature(s) must be guaranteed
by a financial institution which qualifies as an eligible guarantor institution.
Redemption procedures with respect to accounts registered in the names of
broker-dealers may differ from those applicable to other shareholders.
BE CAREFUL TO SPECIFY THE ACCOUNT FROM WHICH THE REDEMPTION IS TO BE MADE.
SHAREHOLDERS HAVE A SEPARATE ACCOUNT FOR EACH FUND IN WHICH THEY INVEST.
Payment of redemption proceeds will be mailed within seven days following
receipt of the required documents. However, payment may be postponed under
unusual circumstances, such as when normal trading is not taking place on the
New York Stock Exchange or an emergency as defined by the Securities and
Exchange Commission exists. If the shares to be redeemed were purchased by check
and that check has not yet cleared, payment will be made promptly upon clearance
of the purchase check (which will take up to 15 days).
If a shareholder participates in EasiVest, the Fund's automatic monthly
investment program, and redeems all of the shares in his/her Fund account, ^
INVESCO will terminate any further EasiVest purchases unless otherwise
instructed by the shareholder.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to effect the involuntary redemption of all
shares in such account, in which case the account would be liquidated and the
proceeds forwarded to the shareholder. Prior to any such redemption, a
shareholder will be notified and given 60 days to increase the value of the
account to $250 or more.
Fund shareholders (other than shareholders holding Fund shares in accounts
of IRA plans) may request expedited redemption of shares having a minimum value
of $250 (or redemption of all shares if their value is less than $250) held in
accounts maintained in their name by telephoning redemption instructions to ^
INVESCO, using the telephone number on the ^ back of this Prospectus. The
<PAGE>
redemption proceeds, at the shareholder's option, either will be mailed to
the address listed for the shareholder's Fund account, or wired (minimum of
$1,000) or mailed to the bank which the shareholder has designated to receive
the proceeds of telephone redemptions. The Fund charges no fee for effecting
such telephone redemptions. Unless Fund Management permits a larger redemption
request to be placed by telephone, a shareholder may not place a redemption
request by telephone in excess of $25,000. These telephone redemption privileges
may be modified or terminated in the future at the discretion of Fund
Management.
For ^ ITC-sponsored federal income tax-sheltered retirement plans, the
term "shareholders" is defined to mean plan trustees that file a written request
to be able to redeem Fund shares by telephone. Unless Fund Management permits a
larger redemption request to be placed by telephone, a shareholder may not place
a redemption request by telephone in excess of $25,000. The redemption proceeds,
at the shareholder's option, either will be mailed to the address listed for the
shareholder on its Fund account, or wired (minimum $1,000) or mailed to the bank
which the shareholder has designated to receive the proceeds of telephone
redemptions. The Fund charges no fee for effecting such telephone redemptions.
These telephone redemption privileges may be modified or terminated in the
future at the discretion of Fund Management. Shareholders should understand
that, while the Fund will attempt to process all telephone redemption requests
on an expedited basis, there may be times, particularly in periods of severe
economic or market disruption, when (a) they may encounter difficulty in placing
a telephone redemption request, and (b) processing telephone redemptions will
require up to seven days following receipt of the redemption request, or
additional time because of the unusual circumstances set forth above.
^ Redeeming Fund shares by telephone is available to shareholders
automatically unless expressly declined. By signing a new account Application or
a Telephone Transaction Authorization Form or otherwise utilizing telephone
redemption privileges, the shareholder has agreed that the Fund will not be
liable for following instructions communicated by telephone that it reasonably
believes to be genuine. The Fund employs procedures designed to confirm that
telephone instructions are genuine, which it believes are reasonable. These may
include recording telephone instructions and providing written confirmation of
transactions initiated by telephone. As a result of this policy, the investor
may bear the risk of any loss due to unauthorized or fraudulent instructions;
provided, however, that if the Fund fails to follow these or other reasonable
procedures, the Fund may be liable.
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders all of its net
investment income, net capital gains and net gains from foreign currency
transactions, if any. Distribution of ^ all net investment income to
shareholders allows the Fund to maintain its tax status as a regulated
investment company. ^ The Fund does not expect to pay any federal income or
excise taxes because of its tax status as a regulated investment company.
<PAGE>
Shareholders^ must include all dividends and other distributions as
taxable income for federal, state and local income tax purposes, unless they are
exempt from income taxes. Dividends and other distributions are taxable whether
they are received in cash or automatically reinvested in shares of the Fund or
another fund in the INVESCO group.
Net realized capital gains of the Fund are classified as short-term and
long-term gains depending upon how long the Fund held the security that gave
rise to the gains. Short-term capital gains are included in income from
dividends and interest as ordinary income and are taxed at the taxpayer's
marginal tax rate. Long-term gains realized between May 7, 1997 and July 28,
1997 on the sale of securities held more than ^ 12 months are taxable at a
maximum rate of ^ 20%. Long-term gains realized between July 29, 1997 and
December 31, 1997 on the sale of securities held for more than one year but not
for more than 18 months are taxable at a maximum rate of ^ 28%. Long-term gains
realized between July 29, 1997 and December 31, 1997 on the sale of securities
held for more than 18 months are taxable at a maximum rate of 20%. Beginning
January 1, 1998, the IRS Restructuring and Reform Act of 1998, signed into law
July 24, 1998, lowers the holding period for long-term capital gains entitled to
the 20% capital gains tax rate from 18 months to 12 months. Accordingly, all
long-term gains realized after December 31, 1997 on the sale of securities held
more than 12 months will be taxable at a maximum rate of 20%. Note that the rate
of capital gains tax is dependent on the shareholder's marginal tax rate and may
be lower than the above rates. At the end of each year, information regarding
the tax status of dividends and other distributions is provided to shareholders.
Shareholders should consult their tax adviser as to the effect of distributions
by the Fund.
Shareholders also may realize capital gains or losses when they sell their
Fund shares at more or less than the price originally paid. Capital gains on
shares held for more than one year will be long-term capital gains, in which
event they will be subject to federal income tax at the rates indicated above.
The Fund may be subject to the withholding of foreign taxes on dividends
or interest it receives on foreign securities. Foreign taxes withheld will be
treated as an expense of the Fund.
Individual and other non-corporate shareholders may be subject to backup
withholding of 31% on dividends, capital ^ gain distributions, and other
distributions and redemption proceeds. ^ A shareholder can avoid backup
withholding on a Fund account by ensuring that ^ INVESCO has a correct,
certified tax identification number unless you are subject to backup withholding
for other reasons.
<PAGE>
We encourage you to consult a tax adviser with respect to these matters.
For further information see "Dividends, Other Distributions And Taxes" in the
Statement of Additional Information.
Dividends and Other Distributions. The Fund earns ordinary or net
investment income in the form of interest and dividends on its investments.
Dividends paid by the Fund will be based solely on the net investment income
earned by it. The Fund's policy is to distribute all of this income, less
expenses, to shareholders on an annual basis, at the discretion of the Company's
board of directors. Dividends are automatically reinvested in additional shares
of the Fund, unless otherwise requested, at the net asset value on the
ex-dividend date.
In addition, the Fund realizes capital gains and losses when it sells
securities or derivatives for more or less than it paid. If total gains on sales
exceed total losses (including losses carried forward from previous years), the
Fund has a net realized capital gain. Net realized capital gains, if any,
together with gains^ realized on foreign currency transactions, if any, are
distributed to shareholders at least annually, usually in December. Capital gain
distributions are automatically reinvested in additional shares of the Fund,
unless otherwise requested, at the net asset value on the ex-dividend date.
Dividends and other distributions are paid to shareholders who hold shares
on the record date of the distribution, regardless of how long the shares have
been held. The Fund's share price will then drop by the amount of the
distribution on the ex-dividend or ex-distribution date. If a shareholder
purchases shares immediately prior to the distribution, the shareholder will, in
effect, have "bought" the distribution by paying full purchase price, a portion
of which is then returned in the form of a taxable distribution.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Company's funds have equal voting rights.
When shareholders are entitled to vote upon a matter, each shareholder is
entitled to one vote for each share owned and a corresponding fractional vote
for each fractional share owned. Voting with respect to certain matters, such as
ratification of independent accountants and the election of directors, will be
by all funds of the Company voting together. In other cases, such as voting upon
the investment advisory contract for an individual fund, voting is on a
fund-by-fund basis. To the extent permitted by law, when not all funds are
affected by a matter to be voted upon, only the shareholders of the fund or
funds affected by the matter will be entitled to vote. The Company is not
generally required and does not expect to hold regular annual meetings of
<PAGE>
shareholders. However, the board of directors will call special meetings of
shareholders for the purpose, among other reasons, of voting upon the question
of removal of a director or directors when requested to do so in writing by the
holders of 10% or more of the outstanding shares of the Company or as may be
required by applicable law or the Company's Articles of Incorporation. The
Company will assist shareholders in communicating with other shareholders as
required by the 1940 Act. Directors may be removed by action of the holders of a
majority of the outstanding shares of the Company.
Master/Feeder Option. The Company may in the future seek to achieve the
Fund's investment objective by investing all of the Fund's assets in another
investment company or partnership having the same investment objective and
substantially the same investment policies and restrictions as those applicable
to the Fund. It is expected that any such investment company would be managed by
^ INVESCO in substantially the same manner as the existing Fund. If permitted by
applicable laws and policies then in effect, any such investment may be made in
the sole discretion of the Company's board of directors without further approval
of the shareholders of the Fund. However, Fund shareholders will be given at
least 30 days prior notice of any such investment. Such investment would be made
only if the Company's board of directors determines it to be in the best
interests of the Fund and its shareholders. In making that determination, the
board will consider, among other things, the benefits to shareholders and/or the
opportunity to reduce costs and achieve operational efficiencies. No assurance
can be given that costs will be materially reduced if this option is
implemented.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone number or mailing address set forth on the cover
page of this Prospectus.
Transfer and Dividend Disbursing Agent. INVESCO ^, 7800 E. Union Ave.,
Denver, Colorado 80237, also acts as registrar, transfer agent and dividend
disbursing agent for the Fund pursuant to a Transfer Agency Agreement which
provides that the Fund will pay an annual fee of $20.00 per shareholder account
or, where applicable, per participant in an omnibus account. The transfer agency
fee is not charged to each shareholder's or participant's account but is an
expense of the Fund to be paid from the Fund's assets. Registered
broker-dealers, third party administrators of tax-qualified retirement plans and
other entities, including affiliates of ^ INVESCO, may provide sub-transfer
agency or recordkeeping services to the Fund which reduce or eliminate the need
for identical services to be provided on behalf of the Fund by ^ INVESCO. In
such cases, ^ INVESCO may pay the third party an annual sub-transfer agency or ^
recordkeeping fee out of the transfer agency fee which is paid to ^ INVESCO by
the Fund.
<PAGE>
^ INVESCO INTERNATIONAL BLUE CHIP FUND
A no-load mutual fund
seeking to achieve a high
total return through
long-term capital
appreciation and current income.
PROSPECTUS
September 23, 1998
INVESCO FUNDS
INVESCO Distributors, Inc.(sm)
Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
1-800-525-8085
PAL(R): 1-800-424-8085
http://www.invesco.com
In Denver, visit one of our
convenient Investor Centers:
Cherry Creek,
155-B Fillmore Street;
Denver Tech Center,
7800 East Union Avenue,
Lobby Level
In addition, all documents You should know
filed by the Company with what INVESCO knows (TM)
the Securities and Exchange
Commission can be located
on a web site maintained INVESCO FUNDS
by the Commission at
http://www.sec.gov.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September ^ 23, 1998
INVESCO INTERNATIONAL FUNDS, INC.
INVESCO Emerging Markets Fund
INVESCO European Fund
INVESCO International Blue Chip Fund
INVESCO International Growth Fund
INVESCO Pacific Basin Fund
Address: Mailing Address:
7800 E. Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
- --------------------------------------------------------------------------------
INVESCO INTERNATIONAL FUNDS, INC. (the "Company") is ^ a no-load open-end
management investment company organized in series form consisting of five funds:
the INVESCO Emerging Markets Fund (the "Emerging Markets Fund"), the INVESCO
European Fund (the "European Fund"), the INVESCO ^ International Blue Chip Fund
(the " ^ International Blue Chip Fund"), the INVESCO International Growth Fund
(the "International Growth Fund") ^ and the INVESCO Pacific Basin Fund (the
"Pacific Basin Fund") (the "Funds"). The European, Pacific Basin and Emerging
Markets Funds seek to provide investors with capital appreciation. The
International Growth ^ and International Blue Chip Funds seek to achieve a
high total return on investment ^ through capital appreciation and current
income. Each of the Funds invests primarily in equity securities. Investors may
purchase shares of any or all Funds. The following Funds are available:
The EMERGING MARKETS FUND seeks to achieve its investment objective by
investing primarily in equity securities of emerging country issuers.
The EUROPEAN FUND seeks to achieve its investment objective by investing
primarily in equity securities of companies domiciled in specific European
countries.
<PAGE>
The INTERNATIONAL BLUE CHIP ^ FUND seeks to achieve its investment
objective by investing ^ substantially all of its assets in securities of
foreign companies identified by applying both a quantitative analysis and an
individual company analysis. Such securities may take the form of American
Depository Receipts, but may also consist of common or preferred stocks of
foreign issuers which are registered with the SEC and traded on a U.S. stock
exchange, as well as foreign securities traded on overseas exchanges.
The INTERNATIONAL GROWTH FUND seeks to achieve its investment objective by
investing substantially all of its assets in foreign securities. This Fund
invests principally in equity securities. The term "foreign securities" refers
to securities of issuers, wherever organized, which in the judgment of
management have their principal business activities outside of the United
States. In determining whether an issuer's principal activities are outside of
the United States, consideration is given to such factors as the location of the
issuer's assets, personnel, sales and earnings.
^ The PACIFIC BASIN FUND seeks to achieve its investment objective by
investing ^ primarily in equity securities of ^ companies domiciled in specific
Far Eastern or Western Pacific countries.
Additional funds may be offered in the future.
Separate Prospectuses for the European and Pacific Basin Funds and the
International Growth Fund, each dated March 1, 1998, the Emerging Markets Fund
dated March 1, 1998 as supplemented March 23, 1998, and the International Blue
Chip Fund, dated September ^ 23, 1998, which provide the basic information you
should know before investing in a Fund, may be obtained without charge from
INVESCO Distributors, Inc., Post Office Box 173706, Denver, Colorado 80217-3706.
This Statement of Additional Information is not a prospectus but contains
information in addition to and more detailed than that set forth in each
Prospectus. It is intended to provide you additional information regarding the
activities and operations of the Funds and should be read in conjunction with
the Prospectuses.
Investment Adviser: INVESCO FUNDS GROUP, INC.
Distributor: INVESCO DISTRIBUTORS, INC.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT POLICIES AND RESTRICTIONS........................................35
THE FUNDS AND THEIR MANAGEMENT..............................................70
HOW SHARES CAN BE PURCHASED.................................................86
HOW SHARES ARE VALUED.......................................................90
FUND PERFORMANCE............................................................91
SERVICES PROVIDED BY THE FUNDS..............................................93
TAX-DEFERRED RETIREMENT PLANS...............................................94
HOW TO REDEEM SHARES........................................................94
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES....................................95
INVESTMENT PRACTICES........................................................98
ADDITIONAL INFORMATION.....................................................101
APPENDIX A.................................................................106
APPENDIX B.................................................................111
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The investment objectives and policies of the Funds are discussed in their
respective Prospectuses under the heading "Investment Objective ^ And Policies"
and "Investment Policies^ And Risks." Further information about the Funds'
respective investment policies and restrictions is set forth below.
^ Equity Securities. As described in the Prospectuses, equity securities
which may be purchased by the Funds consist of common, preferred and convertible
preferred stocks, and securities having equity characteristics such as rights,
warrants and convertible debt securities. Common stocks and preferred stocks
represent equity ownership interests in a corporation and participate in the
corporation's earnings through dividends which may be declared by the
corporation. Unlike common stocks, preferred stocks are entitled to stated
dividends payable from the corporation's earnings, which in some cases may be
"cumulative" if prior stated dividends have not been paid. Dividends payable on
preferred stock have priority over distributions to holders of common stock, and
preferred stocks generally have preferences on the distribution of assets in the
event of the corporation's liquidation. Preferred stocks may be "participating,"
which means that they may be entitled to dividends in excess of the stated
dividend in certain cases. The rights of common and preferred stocks are
generally subordinate to rights associated with a corporation's debt securities.
Rights and warrants are securities which entitle the holder to purchase the
securities of a company (generally, its common stock) at a specified price
during a specified time period. Because of this feature, the values of rights
and warrants are affected by factors similar to those which determine the prices
of common stocks and exhibit similar behavior (although often more volatile
behavior). Rights and warrants may be purchased directly or acquired in
connection with a corporate reorganization or exchange offer.
Convertible securities which may be purchased by the Funds include
convertible debt obligations and convertible preferred stock. A convertible
security entitles the holder to exchange it for a fixed number of shares of
common stock (or other equity security), usually at a fixed price within a
specified period of time. Until conversion, the holder receives the interest
paid on a convertible bond or the dividend preference of a preferred stock.
Convertible securities have an "investment value" which is the theoretical
value determined by the yield they provide in comparison with similar securities
without the conversion feature. Investment value changes are based upon
prevailing interest rates and other factors. They also have a "conversion value"
which is ^ their worth in market value if the ^ securities were exchanged for ^
their underlying equity ^ securities. Conversion value fluctuates directly with
the price of the underlying ^ securities. If conversion value is substantially
below investment value, the price of the convertible security is governed
<PAGE>
principally by its investment value. If the conversion value is near or
above investment value, the price of the convertible security generally will
rise above investment value and may represent a premium over conversion value
due to the combination of the convertible security's right to interest (or
dividend preference) and the possibility of capital appreciation from the
conversion feature. A convertible security's price, when price is influenced
primarily by its conversion value, generally will yield less than a senior
non-convertible security of comparable investment value. Convertible securities
may be purchased at varying price levels above their investment values or
conversion values. However, there is no assurance that any premium above
investment value or conversion value will be recovered because prices change
and, as a result, the ability to achieve capital appreciation through conversion
may be eliminated.
Foreign Securities. Each Fund invests primarily in foreign securities.
Investments in non-U.S. securities involve certain risks not associated with
investment in U.S. companies. Non-U.S. companies generally are not subject to
uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies, and there may be less publicly available
information about a foreign company. Although the volume of trading in foreign
securities markets is growing, securities of many non-U.S. companies may be less
liquid and more volatile than securities of comparable U.S. companies.
Transaction costs on foreign securities exchanges are generally higher than in
the United States and there is generally less government supervision and
regulation of exchanges, brokers and issuers in foreign countries than there is
in the United States. Investment in non-U.S. securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
confiscatory taxation, and imposition of withholding taxes on dividends or
interest payments. Securities denominated in non-U.S. currencies, whether issued
by a non-U.S. or a U.S. issuer, may be affected favorably or unfavorably by
changes in currency rates and exchange control regulations, and costs will be
incurred in connection with conversions from one currency to another. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets. These forces are, in turn, affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors. Generally, the foreign
currency exchange transactions of the Funds will be conducted on a spot basis
(i.e., cash basis) at the spot rate for purchasing or selling currency
prevailing in the foreign currency exchange market.
Forward Foreign Currency Contracts. The Funds may enter into forward
currency contracts to purchase or sell foreign currencies (i.e., non-U.S.
currencies) as a hedge against possible variations in foreign exchange rates.
For additional information regarding forward foreign currency contracts and the
INVESCO International Blue Chip Fund, see the section titled "INVESCO
<PAGE>
International Blue Chip Fund" in this document. A forward foreign currency
exchange contract ("forward contract") is an agreement between the contracting
parties to exchange an amount of currency at some future time at an agreed- upon
rate. The rate can be higher or lower than the spot rate between the currencies
that are the subject of the contract. A forward contract generally has no
deposit requirement, and such transactions do not involve commissions. By
entering into a forward contract for the purchase or sale of the amount of
foreign currency invested in a foreign security transaction, a Fund can hedge
against possible variations in the value of the dollar versus the subject
currency either between the date the foreign security is purchased or sold and
the date on which payment is made or received or during the time the Fund holds
the foreign security. Hedging against a decline in the value of a currency in
the foregoing manner does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore, such hedging transactions preclude the opportunity for gain if the
value of the hedged currency should rise. The Funds will not speculate in
forward currency contracts. The Funds will not attempt to hedge all of their
non-U.S. portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by their investment adviser and sub-adviser
(collectively, "Fund Management"). The Funds will not enter into forward
contracts for a term of more than one year. Forward contracts may, from time to
time, be considered illiquid, in which case they would be subject to a Fund's
limitations on investing in illiquid securities, discussed in the Prospectuses.
Restricted/144A Securities. As discussed in the Funds' Prospectuses, each
Fund may invest in restricted securities, including restricted securities that
can be resold to institutional investors pursuant to Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities").
In recent years, a large institutional market has developed for certain
Rule 144A Securities. Institutional investors generally will not seek to sell
these instruments to the general public but instead will often depend on an
efficient institutional market in which Rule 144A Securities can readily be
resold or on an issuer's ability to honor a demand for repayment. Therefore, the
fact that there are contractual or legal restrictions on resale to the general
public or certain institutions is not dispositive of the liquidity of such
investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
<PAGE>
investment in order to satisfy share redemption orders. An insufficient
number of qualified institutional buyers interested in purchasing Rule
144A-eligible securities held by a Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be unable to
dispose of such securities promptly or at reasonable prices.
Securities Lending. ^ As discussed in the section of the Funds' Prospectus
entitled "Investment Policies And Risks," each of the Funds may lend their
portfolio securities to qualified brokers, dealers and other financial
institutions, provided that such loans are callable at any time by the Funds and
are at all times secured by collateral consisting of cash, letters of credit or
securities issued or guaranteed by the U.S. government or its agencies, or any
combination thereof, equal to at least the market value, determined daily, of
the loaned securities. The advantage of such loans is that a Fund continues to
own the loaned securities, while at the same time receiving interest from the
borrower of the securities. Loans will be made only to firms deemed by Fund
Management to be creditworthy under procedures established by the board of
directors and when the amount of interest to be received justifies the inherent
risks. A loan may be terminated by the borrower on one business day's notice or
by a Fund at any time. If at any time the borrower fails to maintain the
required amount of collateral (at least 100% of the market value of the borrowed
securities, plus accrued interest and dividends), a Fund will require the
deposit of additional collateral not later than the business day following the
day on which a collateral deficiency occurs or the collateral appears
inadequate. If the deficiency is not remedied by the end of that period, the
Fund will use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss on the security during the loan period would inure to
the Fund.
U.S. Government Obligations.^ These securities consist of treasury bills,
treasury notes, and treasury bonds, which differ only in their interest rates,
maturities, and dates of issuance. Treasury bills have a maturity of one year or
less. Treasury notes generally have a maturity of one to ten years, and treasury
bonds generally have maturities of more than ten years. U.S. government
obligations also include securities issued or guaranteed by agencies or
instrumentalities of the U.S. government.
Some obligations of U.S. government agencies, which are established under
the authority of an act of Congress, such as Government National Mortgage
Association (GNMA) participation certificates, are supported by the full faith
and credit of the United States Treasury. GNMA ^ certificates are
mortgage-backed securities representing part ownership of a pool of mortgage
loans. These loans -- issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations -- are either insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. A "pool" or
group of such mortgages is assembled and, after being approved by GNMA, is
offered to investors through securities dealers. Once approved by GNMA, the
<PAGE>
timely payment of interest and principal on each mortgage is guaranteed by GNMA
and backed by the full faith and credit of the U.S. government. The market value
of GNMA ^ certificates is not guaranteed. GNMA ^ certificates differ from bonds
in that principal is paid back monthly by the borrower over the term of the loan
rather than returned in a lump sum at maturity. GNMA ^ certificates are called
"pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the ^ certificate.
Upon receipt, principal payments will be used by a Fund to purchase additional
securities under its investment objective and investment policies.
Other U.S. government obligations, such as securities of the Federal Home
Loan Banks, are supported by the right of the issuer to borrow from the Treasury
to repay its obligations. Still others, such as bonds issued by Fannie Mae
(formerly, the Federal National Mortgage Association), a federally chartered
private corporation, are supported only by the credit of the instrumentality.
Obligations of Domestic Banks.^ These obligations consist of certificates
of deposit ("CDs") and bankers' acceptances issued by domestic banks (including
their foreign branches) having total assets in excess of $5 billion, which meet
the Funds' minimum rating requirements. CDs are issued against deposits in a
commercial bank for a specified period and rate and are normally negotiable.
Eurodollar CDs are certificates issued by a foreign branch (usually London) of a
U.S. domestic bank, and, as such, the credit is deemed to be that of the
domestic bank.
Bankers' acceptances are short-term credit instruments evidencing the
promise of the bank (by virtue of the bank's "acceptance") to pay at maturity a
draft which has been drawn on it by a customer (the "drawer"). These instruments
are used to finance the import, export, transfer, or storage of goods and
reflect the obligation of both the bank and the drawer to pay the face amount.
Debt Securities.^ The Funds' investments in debt securities generally are
subject to both credit risk and market risk. Credit risk relates to the ability
of the issuer to meet interest or principal payments, or both, as they come due.
The ratings given a security by Moody's, S&P and other ratings services provide
a generally useful guide as to such credit risk. The lower the rating given a
security by such rating service, the greater the credit risk such rating service
perceives to exist with respect to such security. Increasing the amount of a
Fund's assets invested in unrated or lower grade securities, while intended to
increase the yield produced by those assets, also will increase the credit risk
to which those assets are subject.
Market risk relates to the fact that the market values of the debt
securities in which the Funds invest generally will be affected by changes in
the level of interest rates. An increase in interest rates will tend to reduce
the market values of debt securities, whereas a decline in interest rates will
tend to increase their values. Medium and lower rated securities (Baa, BBB or
<PAGE>
the equivalent and lower) and non-rated securities of comparable quality
tend to be subject to wider fluctuations in yields and market values than higher
rated securities and may have speculative characteristics. Although Fund
Management limits a Fund's investments in debt securities to securities it
believes are not highly speculative, both kinds of risk are increased by
investing in debt securities rated below the top three grades by S&P or Moody's
or equivalent ratings of other ratings services or, if unrated, securities
determined by Fund Management to be of equivalent quality. Of course, relying in
part on ratings assigned by credit agencies in making investments will not
protect a Fund from the risk that the securities in which it invests will
decline in value, since credit ratings represent evaluations of the safety of
principal, dividend and interest payments on preferred stocks and debt
securities, not the market value of such securities, and such ratings may not be
changed on a timely basis to reflect subsequent events. A Fund is not required
to sell immediately debt securities that go into default, but may continue to
hold such securities until such time as Fund Management determines it is in the
best interests of the Fund to sell such securities. Because investment in medium
and lower rated securities involves both greater credit risk and market risk,
achievement of a Fund's investment objectives may be more dependent on Fund
Management's own credit analysis than is the case for funds investing in higher
quality securities. In addition, the share price and yield of the Funds may be
expected to fluctuate more than in the case of funds investing in higher
quality, shorter term securities. Moreover, a significant economic downturn or
major increase in interest rates may result in issuers of lower rated securities
experiencing increased financial stress, which would adversely affect their
ability to service their principal, dividend and interest obligations, meet
projected business goals, and obtain additional financing. Expenses incurred to
recover an investment in a defaulted security may adversely affect a Fund's net
asset value. Finally, while Fund Management attempts to limit purchases of
medium and lower rated securities to securities having a secondary market, the
secondary market for such securities may be less liquid than the market for
higher quality securities. The reduced liquidity of the secondary market for
such securities may adversely affect the market price of, and ability of a Fund
to value, particular securities at certain times, thereby making it difficult to
make specific valuation determinations.
The Funds expect that most emerging country debt securities in which they
invest will not be rated by U.S. rating services. Although bonds in the lowest
investment grade debt category (those rated BBB by S&P, Baa by Moody's or the
equivalent) are regarded as having adequate capability to pay principal and
interest, they have speculative characteristics. Adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case for higher rated bonds. Lower
<PAGE>
rated bonds by Moody's (categories Ba, B, Caa) are of poorer quality and
also have speculative characteristics. Bonds rated Caa may be in default or
there may be present elements of danger with respect to principal or interest.
Lower rated bonds by S&P (categories BB, B, CCC) include those that are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with their terms; BB
indicates the lowest degree of speculation and CCC a high degree of speculation.
While such bonds likely will have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds having equivalent ratings from other ratings services will
have characteristics similar to those of the corresponding S&P and Moody's
ratings. For a specific description of S&P and Moody's corporate bond rating
categories, please refer to Appendix B to the Statement of Additional
Information.
Sovereign Debt.^ In certain emerging countries, the central government and
its agencies are the largest debtors to local and foreign banks and others.
Sovereign debt involves the risk that the government, as a result of political
considerations or cash flow difficulties, may fail to make scheduled payments of
interest or principal and may require holders to participate in rescheduling of
payments or even to make additional loans. If an emerging country government
defaults on its sovereign debt, there is likely to be no legal proceeding under
which the debt may be ordered repaid, in whole or in part. The ability or
willingness of a foreign sovereign debtor to make payments of principal and
interest in a timely manner may be influenced by, among other factors, its cash
flow, the magnitude of its foreign reserves, the availability of foreign
exchange on the payment date, the debt service burden to the economy as a whole,
the debtor's then current relationship with the International Monetary Fund and
its then current political constraints. Some of the emerging countries issuing
such instruments have experienced high rates of inflation in recent years and
have extensive internal debt. Among other effects, high inflation and internal
debt service requirements may adversely affect the cost and availability of
future domestic sovereign borrowing to finance governmental programs, and may
have other adverse social, political and economic consequences, including
effects on the willingness of such countries to service their sovereign debt. An
emerging country government's willingness and ability to make timely payments on
its sovereign debt also are likely to be heavily affected by the country's
balance of trade and its access to trade and other international credits. If a
country's exports are concentrated in a few commodities, such country would be
more significantly exposed to a decline in the international prices of one or
more of such commodities. A rise in protectionism on the part of its trading
partners, or unwillingness by such partners to make payment for goods in hard
currency, could also adversely affect the country's ability to export its
products and repay its debts. Sovereign debtors may also be dependent on
expected receipts from such agencies and others abroad to reduce principal and
<PAGE>
interest arrearages on their debt. However, failure by the sovereign debtor
or other entity to implement economic reforms negotiated with multilateral
agencies or others, to achieve specified levels of economic performance, or to
make other debt payments when due, may cause third parties to terminate their
commitments to provide funds to the sovereign debtor, which may further impair
such debtor's willingness or ability to service its debts.
The Funds may invest in debt securities issued under the "Brady Plan" in
connection with restructurings in emerging country debt markets or earlier
loans. These securities, often referred to as "Brady Bonds," are, in some cases,
denominated in U.S. dollars and collateralized as to principal by U.S. Treasury
zero coupon bonds having the same maturity. At least one year's interest
payments, on a rolling basis, are collateralized by cash or other investments.
Brady Bonds are actively traded on an over-the-counter basis in the secondary
market for emerging country debt securities. "Brady Bonds" are lower rated bonds
and highly volatile.
Repurchase Agreements.^ The Funds may engage in repurchase agreements with
^ respect to instruments eligible for investment by the Fund with member banks
of the Federal Reserve System, registered broker-dealers, and registered U.S.
government securities dealers ^ which are believed to be creditworthy under
standards established by the Company's board of directors. A repurchase
agreement is a transaction in which a Fund purchases a security and
simultaneously commits to sell the security to the seller at an agreed upon
price and date (usually not more than seven days) after the date of purchase.
The resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or maturity of the purchased
security. A Fund's risk is limited to the ability of the seller to pay the
agreed upon amount on the delivery date. In the event the seller should default,
the underlying security constitutes collateral for the seller's obligations to
pay. This collateral will be held by the Fund's custodian. The Fund may
experience delays and incur costs in realizing on the collateral if the other
party to the agreement becomes insolvent. To the extent that the proceeds from a
sale of the collateral upon a default in the obligation to repurchase are less
than the repurchase price, a Fund would suffer a loss. Although the Funds have
not adopted any limit on the amount of its total assets that may be invested in
repurchase agreements, it is the intention of Fund Management that the market
value of a fund's securities subject to repurchase agreements not exceed 20% of
the total assets of the Fund.
Commercial Paper.^ These obligations are short-term promissory notes issued
by domestic corporations to meet current working capital requirements. Such
paper may be unsecured or backed by a bank letter of credit. Commercial paper
issued with a letter of credit is, in effect, "two party paper," with the issuer
directly responsible for payment, plus a bank's guarantee that if the note is
not paid at maturity by the issuer, the bank will pay the principal and interest
to the buyer. Commercial paper is sold either as interest-bearing or on a
discounted basis, with maturities not exceeding 270 days.
<PAGE>
INVESCO Emerging Markets Fund
Futures Contracts and Options on Futures Contracts
As described in the Emerging Markets Fund's Prospectus, this Fund may
enter into futures contracts, and purchase and sell ("write") options to buy or
sell futures contracts.
To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a Commodity
Futures Trading Commission (the "CFTC") -regulated exchange, in each case that
is not for bona fide hedging purposes (as defined by the CFTC), the aggregate
initial margin and premiums required to establish these positions (excluding the
amount by which options are "in-the-money" at the time of purchase) may not
exceed 5% of the liquidation value of the Fund's portfolio, after taking into
account unrealized profits and unrealized losses on any contracts the Fund has
entered into. This policy does not limit to 5% the percentage of the Fund's
assets that are at risk in futures contracts, options on futures contracts and
currency options.
Unlike when the Emerging Markets Fund purchases or sells a security, no
price is paid or received by the Fund upon the purchase or sale of a futures
contract. Instead, the Fund will be required to deposit in a segregated asset
account with the broker an amount of cash or qualifying securities (currently
U.S. Treasury bills), currently in a minimum amount of $15,000. This is called
"initial margin." Such initial margin is in the nature of a performance bond or
good faith deposit on the contract. However, since losses on open contracts are
required to be reflected in cash in the form of variation margin payments, the
Fund may be required to make additional payments during the term of the
contracts to its broker. Such payments would be required, for example, where,
during the term of an interest rate futures contract purchased by the Fund,
there was a general increase in interest rates, thereby making the Fund's
portfolio securities less valuable. In all instances involving the purchase of
financial futures contracts by the Fund, an amount of cash together with such
other securities as permitted by applicable regulatory authorities to be
utilized for such purpose, at least equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's custodian
to collateralize the position. At any time prior to the expiration of a futures
contract, the Fund may elect to close its position by taking an opposite
position which will operate to terminate the Fund's position in the futures
contract.
Where futures are purchased to hedge against a possible increase in the
price of a security before the Fund is able in an orderly fashion to invest in
the security, it is possible that the market may decline instead. If the Fund,
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as a result, concluded not to make the planned investment at that time
because of concern as to possible further market decline or for other reasons,
the Fund would realize a loss on the futures contract that is not offset by a
reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the futures contract and the
portion of the portfolio being hedged, the price of futures may not correlate
perfectly with movements in the portfolio prices due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the underlying
securities and the value of the futures contract. Moreover, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market and may therefore cause increased participation by
speculators in the futures market. Such increased participation may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and because of the imperfect correlation between movements in the
value of the underlying securities and movements in the prices of futures
contracts, the value of futures contracts as a hedging device may be reduced.
In addition, if the Emerging Markets Fund has insufficient available cash,
it may at times have to sell securities to meet variation margin requirements.
Such sales may have to be effected at a time when it may be disadvantageous to
do so.
Options on Futures Contracts.^ The Emerging Markets Fund may buy and write
options on futures contracts for hedging purposes. Options on futures contracts
are included among the types of instruments sometimes known as derivatives. The
purchase of a call option on a futures contract is similar in some respects to
the purchase of a call option on an individual security. Depending on the
pricing of the option compared to either the price of the futures contract upon
which it is based or the price of the underlying instrument, ownership of the
option may or may not be less risky than ownership of the futures contract or
the underlying instrument. As with the purchase of futures contracts, when the
Fund is not fully invested it may buy a call option on a futures contract to
hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, the
Emerging Markets Fund will retain the full amount of the option premium which
provides a partial hedge against any decline that may have occurred in the
Fund's portfolio holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the security or foreign
<PAGE>
currency which is deliverable under, or of the index comprising, the
futures contract. If the futures price at expiration of the option is higher
than the exercise price, the Fund will retain the full amount of the option
premium which provides a partial hedge against any increase in the price of
securities which the Fund is considering buying. If a call or put option the
Fund has written is exercised, the Fund will incur a loss which will be reduced
by the amount of the premium it received. Depending on the degree of correlation
between change in the value of its portfolio securities and changes in the value
of the futures positions, the Fund's losses from existing options on futures may
to some extent be reduced or increased by changes in the value of portfolio
securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Emerging Markets Fund may buy a put option on a futures contract to
hedge the Fund's portfolio against the risk of falling prices.
The amount of risk the Emerging Markets Fund assumes when it buys an
option on a futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above, the
purchase of an option also entails the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
options bought.
For a more complete discussion of the risks involved in futures and
options on futures and other securities, refer to Appendix A ("Description of
Futures, Options and Forward Contracts").
Swaps and Swap-Related Products.^ Interest rate swaps involve the exchange
by the Emerging Markets Fund with another party of their respective commitments
to pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments. The exchange commitments can involve payments to be made in
the same currency or in different currencies. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from the
party selling the interest rate floor.
The Emerging Markets Fund may enter into interest rate swaps, caps and
floors, which are included among the types of instruments sometimes known as
derivatives, on either an asset-based or liability-based basis, depending upon
whether it is hedging its assets or its liabilities, and usually will enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
<PAGE>
out, with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any, of the Fund's
obligations over its entitlement with respect to each interest rate swap will be
calculated on a daily basis, and an amount of cash or high-grade liquid assets
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Fund's custodian. If the Fund enters
into an interest rate swap on other than a net basis, the Fund would maintain a
segregated account in the full amount accrued on a daily basis of the Fund's
obligations with respect to the swap. The Fund will not enter into any interest
rate swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in one of the three
highest rating categories of at least one nationally recognized statistical
rating organization at the time of entering into such transaction. Fund
Management will monitor the creditworthiness of all counterparties on an ongoing
basis. If there is a default by the other party to such a transaction, the Fund
would have contractual remedies pursuant to the agreements related to the
transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the extent the
Emerging Markets Fund sells (i.e., writes) caps and floors, it will maintain in
a segregated account cash or high-grade liquid assets having an aggregate net
asset value at least equal to the full amount, accrued on a daily basis, of the
Fund's obligations with respect to any caps or floors.
These transactions may in some instances involve the delivery of
securities or other underlying assets by a Fund or its counterparty to
collateralize obligations under the swap. The documentation currently used in
those markets attempts to limit the risk of loss with respect to interest rate
swaps to the net amount of the payments that a party is contractually obligated
to make. If the other party to an interest rate swap that is not collateralized
defaults, the Fund would anticipate losing the net amount of the payments that
the Fund contractually is entitled to receive over the payments that the Fund is
contractually obligated to make. The Fund may buy and sell (i.e., write) caps
and floors without limitation, subject to the segregated account requirement
described above as well as the Fund's other investment restrictions set forth
below.
INVESCO International Blue Chip Fund
General. As discussed in the Prospectus for the INVESCO International Blue
Chip Fund, Fund Management may use various types of financial instruments, some
of which are derivatives, to attempt to manage the risk of the Fund's
investments or, in certain circumstances, for investment (e.g., as a substitute
<PAGE>
for investing in securities). These financial instruments include options,
futures contracts (sometimes referred to as "futures"), forward contracts,
swaps, caps, floors and collars (collectively, "Financial Instruments"). The
policies in this section do not apply to other types of instruments sometimes
referred to as derivatives, such as indexed securities, mortgage-backed and
other asset-backed securities, and stripped interest and principal of debt.
Generally, the Fund is authorized to use any type of Financial Instrument.
However, as a non-fundamental policy, the Fund will only use a particular
Financial Instrument (other than those related to foreign currency) if the Fund
is authorized to take a position in the type of asset to which the return on, or
value of, the Financial Instrument is primarily related. Therefore, for example,
if the Fund is authorized to invest in a particular type of security (such as an
equity security), it could take a position in an option on an index relating to
equity securities. As a non-fundamental policy the Fund may use foreign currency
Financial Instruments. In addition, the Fund presently has a non-fundamental
policy to utilize only exchange-traded Financial Instruments, other than forward
currency contracts. This policy would not, however, prevent the Fund from
investing in a security, such as an indexed security, with an imbedded
component, such as a cap or a floor.
Hedging strategies can be broadly categorized as "short" hedges and "long"
or "anticipatory" hedges. A short hedge involves the use of a Financial
Instrument in order to partially or fully offset potential variations in the
value of one or more investments held in the Fund's portfolio. A long or
anticipatory hedge involves the use of a Financial Instrument in order to
partially or fully offset potential increases in the acquisition cost of one or
more investments that the Fund intends to acquire. In an anticipatory hedge
transaction, the Fund does not already own a corresponding security. Rather, it
relates to a security or type of security that the Fund intends to acquire. If
the Fund does not eliminate the hedge by purchasing the security as anticipated,
the effect on the Fund's portfolio is the same as if a long position were
entered into. Financial Instruments may also be used, in certain circumstances,
for investment (e.g., as a substitute for investing in securities).
Financial Instruments on individual securities generally are used to
attempt to hedge against price movements in one or more particular securities
positions that the Fund already owns or intends to acquire. Financial
Instruments on indexes, in contrast, generally are used to attempt to hedge all
or a portion of a portfolio against price movements of the securities within a
market sector in which the Fund has invested or expects to invest.
The use of Financial Instruments is subject to applicable regulations of
the Securities and Exchange Commission ("SEC"), the several exchanges upon which
they are traded, and the Commodity Futures Trading Commission ("CFTC"). In
addition, the Fund's ability to use Financial Instruments will be limited by tax
considerations. See "Dividends, Other Distributions and Taxes."
<PAGE>
In addition to the instruments and strategies described below, Fund
Management may use other similar or related techniques to the extent that they
are consistent with the Fund's investment objective and permitted by the Fund's
investment limitations and applicable regulatory authorities. The Fund's
Prospectus or Statement of Additional Information ("SAI") will be supplemented
to the extent that new products or techniques become employed involving
materially different risks than those described below or in the Prospectus.
Special Risks. Financial Instruments and their use involve special
considerations and risks, certain of which are described below.
(1) If Fund Management employs a Financial Instrument that correlates
imperfectly with the Fund's investments, a loss could result,
regardless of whether or not the intent was to manage risk.
Financial Instruments may increase the volatility of the Fund. In
addition, these techniques could result in a loss if there is not a
liquid market to close out a position that the Fund has entered.
(2) There might be imperfect correlation between price movements of a
Financial Instrument and price movements of the investments being
hedged. For example, if the value of a Financial Instrument used in
a short hedge increased by less than the decline in value of the
hedged investment, the hedge would not be fully successful. This
might be caused by certain kinds of trading activity that distorts
the normal price relationship between the security being hedged and
the Financial Instrument. Similarly, the effectiveness of hedges
using Financial Instruments on indexes will depend on the degree of
correlation between price movements in the index and price movements
in the securities being hedged.
The Fund presently has a non-fundamental policy to utilize only
exchange-traded Financial Instruments, other than forward currency
contracts. Because there are a limited number of types of
exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Fund's current
or anticipated investments exactly. The Fund is authorized to use
options and futures contracts related to securities with issuers,
maturities or other characteristics different from the securities in
which it typically invests. This involves a risk that the options or
futures position will not track the performance of the Fund's
portfolio investments.
<PAGE>
The direction of options and futures price movements can also
diverge from the direction of the movements of the prices of their
underlying instruments, even if the underlying instruments match the
Fund's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The Fund may take
positions in options and futures contracts with a greater or lesser
face value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this
may not be successful in all cases.
(3) If successful, the above-discussed hedging strategies can reduce
risk of loss by wholly or partially offsetting the negative effect
of unfavorable price movements of portfolio securities. However,
such strategies can also reduce opportunity for gain by offsetting
the positive effect of favorable price movements. For example, if
the Fund entered into a short hedge because Fund Management
projected a decline in the price of a security in the Fund's
portfolio, and the price of that security increased instead, the
gain from that increase would likely be wholly or partially offset
by a decline in the value of the short position in the Financial
Instrument. Moreover, if the price of the Financial Instrument
declined by more than the increase in the price of the security, the
Fund could suffer a loss.
(4) The Fund's ability to close out a position in an exchange-traded
Financial Instrument prior to expiration or maturity depends on the
degree of liquidity of the market.
(5) As described below, the Fund is required to maintain assets as
"cover," maintain segregated accounts or make margin payments when
it takes positions in Financial Instruments involving obligations to
third parties (i.e., Financial Instruments other than purchased
options). If the Fund were unable to close out its positions in such
Financial Instruments, it might be required to continue to maintain
such assets or segregated accounts or make such payments until the
position expired. These requirements might impair the Fund's ability
to sell a portfolio security or make an investment at a time when
it would otherwise be favorable to do so, or require that the Fund
sell a portfolio security at a disadvantageous time.
<PAGE>
Cover. Positions in Financial Instruments, other than purchased options,
expose the Fund to an obligation to another party. The Fund will not enter into
any such transactions unless it owns either (1) an offsetting ("covered")
position in securities, currencies or other options, futures contracts or
forward contracts, or (2) cash and liquid assets with a value, marked-to-market
daily, sufficient to cover its potential obligations to the extent not covered
as provided in (1) above. The Fund will comply with SEC guidelines regarding
cover for these instruments and will, if the guidelines so require, set aside
cash or liquid assets in a segregated account with its custodian in the
prescribed amount as determined daily.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Financial Instrument is open unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Fund's assets to cover or in segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Options. The Fund may engage in certain strategies involving options to
attempt to manage the risk of its investments or, in certain circumstances, for
investment (e.g., as a substitute for investing in securities). A call option
gives the purchaser the right to buy, and obligates the writer to sell, the
underlying investment at the agreed-upon exercise price during the option
period. A put option gives the purchaser the right to sell, and obligates the
writer to buy, the underlying investment at the agreed-upon exercise price
during the option period. Purchasers of options pay an amount, known as a
premium, to the option writer in exchange for the right under the option
contract. See "Options on Indexes" below with regard to cash settlement of
option contracts on index values.
The purchase of call options can serve as a hedge against a price rise of
the underlier and the purchase of put options can serve as a hedge against a
price decline of the underlier. Writing call options can serve as a limited
short hedge because declines in the value of the hedged investment would be
offset to the extent of the premium received for writing the option. However, if
the security or currency appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised and the
Fund will be obligated to sell the security or currency at less than its market
value.
Writing put options can serve as a limited long or anticipatory hedge
because increases in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
<PAGE>
or currency depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the Fund
will be obligated to purchase the security or currency at more than its market
value.
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the price volatility of the underlying investment and
general market and interest rate conditions. Options that expire unexercised
have no value.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
Risks of Options on Securities. Options embody the possibility of large
amounts of exposure, which will result in the Fund's net asset value being more
sensitive to changes in the value of the related investment.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. If the Fund is not able to
enter into an offsetting closing transaction on an option it has written, it
will be required to maintain the securities subject to the call or the liquid
assets underlying the put until a closing purchase transaction can be entered
into or the option expires. However, there can be no assurance that such a
market will exist at any particular time.
If the Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by the Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
Options on Indexes. Puts and calls on indexes are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and changes in value depend on changes in the index in question. When the Fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, upon exercise of the call, the purchaser will receive from the
Fund an amount of cash equal to the positive difference between the closing
<PAGE>
price of the index and the exercise price of the call times a specified
multiple ("multiplier"), which determines the total dollar value for each point
of such difference. When the Fund buys a call on an index, it pays a premium and
has the same rights as to such call as are indicated above. When the Fund buys a
put on an index, it pays a premium and has the right, prior to the expiration
date, to require the seller of the put to deliver to the Fund an amount of cash
equal to the positive difference between the exercise price of the put and the
closing price of the index times the multiplier. When the Fund writes a put on
an index, it receives a premium and the purchaser of the put has the right,
prior to the expiration date, to require the Fund to deliver to it an amount of
cash equal to the positive difference between the exercise price of the put and
the closing level of the index times the multiplier.
The risks of purchasing and selling options on indexes may be greater than
options on securities. Because index options are settled in cash, when the Fund
writes a call on an index it cannot fulfill its potential settlement obligations
by delivering the underlying securities. The Fund can offset some of the risk of
writing a call index option by holding a diversified portfolio of securities
similar to those on which the underlying index is based. However, the Fund
cannot, as a practical matter, acquire and hold a portfolio containing exactly
the same securities as underlie the index and, as a result, bears a risk that
the value of the securities held will vary from the value of the index.
Even if the Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level. As with other kinds of options, the Fund as the
call writer will not learn that the Fund has been assigned until the next
business day. The time lag between exercise and notice of assignment poses no
risk for the writer of a covered call on a specific underlying security, such as
common stock, because in that case the writer's obligation is to deliver the
underlying security, not to pay its value as of a moment in the past. In
contrast, the writer of an index call will be required to pay cash in an amount
based on the difference between the closing index value on the exercise date and
the exercise price. By the time it learns that it has been assigned, the index
may have declined. This "timing risk" is an inherent limitation on the ability
of index call writers to cover their risk exposure.
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund nevertheless will be
<PAGE>
required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the assigned
writer.
Futures Contracts and Options on Futures Contracts. When the Fund
purchases or sells a futures contract, it incurs an obligation respectively to
take or make delivery of a specified amount of the obligation underlying the
contract at a specified time and price. When the Fund writes an option on a
futures contract, it becomes obligated to assume a position in the futures
contract at a specified exercise price at any time during the term of the
option. If the Fund writes a call, on exercise it assumes a short futures
position. If it writes a put, on exercise it assumes a long futures position.
The purchase of futures or call options on futures can serve as a long or
an anticipatory hedge, and the sale of futures or the purchase of put options on
futures can serve as a short hedge. Writing call options on futures contracts
can serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indexes. Similarly, writing put options on
futures contracts can serve as a limited long or anticipatory hedge.
In addition, futures strategies can be used to manage the duration and
associated interest rate risk of the Fund's fixed-income portfolio. If Fund
Management wishes to shorten the duration of the Fund's fixed-income portfolio,
the Fund may sell an appropriate debt futures contract or a call option thereon,
or purchase a put option on that futures contract. If Fund Management wishes to
lengthen the duration of the Fund's fixed-income portfolio, the Fund may buy an
appropriate debt futures contract or a call option thereon, or sell a put option
thereon.
At the inception of a futures contract, the Fund is required to deposit
"initial margin" in an amount generally equal to 10% or less of the contract
value. Initial margin must also be deposited when writing a call or put option
on a futures contract, in accordance with applicable exchange rules. Subsequent
"variation margin" payments are made to and from the futures broker daily as the
value of the futures or written option position varies, a process known as
"marking-to-market." Unlike margin in securities transactions, initial margin on
futures contracts and written options on futures contracts does not represent a
borrowing on margin, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Fund may be required to
increase the level of initial margin payments. If the Fund has insufficient cash
to meet daily variation margin requirements, it might need to sell securities in
order to do so at a time when such sales are disadvantageous.
<PAGE>
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures used
by the Fund may be closed only on an exchange or board of trade that provides a
market. However, there can be no assurance that a liquid market will exist for a
particular contract at a particular time. In such event, it may not be possible
to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or an option on a futures
contract can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily price
limits do not limit potential losses because prices could move to the daily
limit for several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or an option on a
futures contract position due to the absence of a liquid market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to continue to
maintain the position being hedged by the futures contract or option or to
continue to maintain cash or securities in a segregated account.
To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case that is not for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
Risks of Futures Contracts and Options Thereon. The ordinary spreads at a
given time between prices in the cash and futures markets (including the options
on futures markets), due to differences in the natures of those markets, are
subject to the following factors. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions, which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures
<PAGE>
market depends on participants entering into offsetting transactions rather
than making or taking delivery. To the extent participants decide to make or
take delivery, liquidity in the futures market could be reduced, thus producing
distortion. Due to the possibility of distortion, a hedge may not be successful.
Additionally, Fund Management may be incorrect in its expectations as to the
extent of various interest rate, currency exchange rate or stock market
movements or the time span within which the movements take place.
Index Futures. The risk of imperfect correlation between movements in the
price of index futures and movements in the price of the securities that are the
subject of a hedge increases as the composition of the Fund's portfolio diverges
from the index. The price of the index futures may move proportionately more
than or less than the price of the securities being hedged. If the price of the
index futures moves proportionately less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective. However, if
the price of the securities being hedged has moved in an unfavorable direction,
the Fund would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by movement of the price of the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge.
Where index futures are purchased in an anticipatory hedge, it is possible
that the market may decline instead. If the Fund then decides not to invest in
the securities at that time because of concern as to possible further market
decline or for other reasons, it will realize a loss on the futures contract
that is not offset by a reduction in the price of the securities it had
anticipated purchasing.
Foreign Currency Hedging Strategies--Special Considerations. The Fund may
use options and futures contracts on foreign currencies, as mentioned
previously, and forward currency contracts, as described below, to attempt to
hedge against movements in the values of the foreign currencies in which the
Fund's securities are denominated or, in certain circumstances, for investment
(e.g., as a substitute for investing in securities denominated in foreign
currency). Currency hedges can protect against price movements in a security
that the Fund owns or intends to acquire that are attributable to changes in the
value of the currency in which it is denominated.
The Fund might seek to hedge against changes in the value of a particular
currency when no Financial Instruments on that currency are available or such
Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, the Fund may seek to hedge against price movements
in that currency by entering into transactions using Financial Instruments on
<PAGE>
another currency or a basket of currencies, the value of which Fund Management
believes will have a high degree of positive correlation to the value of the
currency being hedged. The risk that movements in the price of the Financial
Instrument will not correlate perfectly with movements in the price of the
currency subject to the hedging transaction may be increased when this strategy
is used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts and Foreign Currency Deposits. The 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. Forward currency contracts are
negotiated directly between currency traders (usually large commercial banks)
and their customers.
Such transactions may serve as long or anticipatory hedges; for example,
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
<PAGE>
acquire. Forward currency contracts may also serve as short hedges; for
example, 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 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 against U.S. dollars.
This type of hedge may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities are
denominated.
The 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 Fund Management anticipates
that there will be a positive 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.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that 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 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.
<PAGE>
The precise matching of forward currency contract amounts and the value of
the securities, dividends or interest payments involved generally will not be
possible because the value of such securities, dividends or interest payments,
measured in the foreign currency, will change after the forward currency
contract has been established. Thus, 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.
Forward currency contracts may substantially change the Fund's investment
exposure to changes in currency exchange rates and could result in losses to the
Fund if currencies do not perform as Fund Management anticipates. There is no
assurance that Fund Management's use of forward currency contracts will be
advantageous to the Fund or that it will hedge at an appropriate time.
The Fund may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.
Combined Positions. The Fund may purchase and write options in combination
with each other, or in combination with futures or forward currency contracts,
to manage the risk and return characteristics of its overall position. For
example, the Fund may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs.
Turnover. The Fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or puts
written by the Fund, and the sale or purchase of futures contracts, may cause it
to sell or purchase related investments, thus increasing its turnover rate. Once
the Fund has received an exercise notice on an option it has written, it cannot
effect a closing transaction in order to terminate its obligation under the
option and must deliver or receive the underlying securities at the exercise
price. The exercise of puts purchased by the Fund may also cause the sale of
related investments, also increasing turnover; although such exercise is within
the Fund's control, holding a protective put might cause it to sell the related
<PAGE>
investments for reasons that would not exist in the absence of the put. The
Fund will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than those
that would apply to direct purchases or sales.
Swaps, Caps, Floors and Collars. The Fund is authorized to enter into
swaps, caps, floors and collars. However, these instruments are not
exchange-traded and the Fund presently has a non-fundamental policy to utilize
only exchange-traded Financial Instruments.
Swaps involve the exchange by one party with another party of their
respective commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of a cap or a floor
entitles the purchaser, to the extent that a specified index exceeds in the case
of a cap, or falls below in the case of a floor, a predetermined value, to
receive payments on a notional principal amount from the party selling such
instrument. A collar combines elements of buying a cap and selling a floor.
Illiquid Investments.^ Illiquid investments are investments that cannot be
sold or disposed of in the ordinary course of business within seven days at
approximately the prices at which they are valued by the Fund. Investments
currently considered to be illiquid include: (1) repurchase agreements not
terminable within seven days; (2) securities for which market quotations are not
readily available; (3) bank deposits, unless they are payable on demand or
within seven days after demand; (4) non-government stripped fixed-rate
mortgage-backed securities; (5) direct debt instruments; and (6) restricted
securities not determined to be liquid pursuant to guidelines established by the
Company's board of directors. If through a change in values, net assets, or
other circumstances, the Fund were in a position where more than 15% of its net
assets were invested in illiquid securities, it would seek to take appropriate
steps to protect liquidity.
Investment Restrictions. As described in the section of each Fund's
prospectus entitled "Investment Objective ^ And Policies," ^ each Fund operates
under certain investment restrictions. For purposes of the following
restrictions, all percentage limitations apply immediately after a purchase or
initial investment. Any subsequent change in a particular percentage resulting
from fluctuations in value does not require elimination of any security from the
Fund.
INVESCO Pacific Basin and European Funds
The following restrictions are fundamental and may not be changed with
respect to the INVESCO Pacific Basin and European Funds without the prior
approval of the holders of a majority of the outstanding voting securities of
that Fund, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). The INVESCO Pacific Basin and European Funds, and the Company on
behalf of such Funds, unless otherwise indicated, may not:
<PAGE>
(1) issue senior securities as defined in the 1940 Act (except insofar
as the Company may be deemed to have issued a senior security by
reason of entering into a repurchase agreement, or borrowing money,
in accordance with the restrictions described below, and in
accordance with the position of the staff of the Securities and
Exchange Commission set forth in Investment Company Act Release No.
10666);
(2) mortgage, pledge or hypothecate portfolio securities or borrow
money, except borrowings from banks for temporary or emergency
purposes (but not for investment) are permitted in an amount not
exceeding 10% of total net assets. A Fund will not purchase
additional securities while any borrowings on behalf of that Fund
exist;
(3) buy or sell commodities, commodity contracts, oil, gas or other
mineral interests or exploration programs (however, the Fund may
purchase securities of companies which invest in the foregoing and
may enter into forward contracts for the purchase or sale of foreign
currencies);
(4) purchase the securities of any company if as a result of such
purchase more than 10% of total assets would be invested in
securities which are subject to legal or contractual restrictions on
resale ("restricted securities") and in securities for which there
are no readily available market quotations; or enter into a
repurchase agreement maturing in more than seven days if as a
result, such repurchase agreements, together with restricted
securities and securities for which there are not readily available
market quotations, would constitute more than 10% of total assets;
(5) sell short or buy on margin;
(6) buy or sell real estate or interests therein (however, securities
issued by companies which invest in real estate or interests therein
may be purchased and sold);
(7) invest in the securities of any other investment company except for
a purchase or acquisition in accordance with a plan of
reorganization, merger or consolidation, and except that not more
than 10% of the INVESCO Pacific Basin Fund's and the INVESCO
European Fund's total assets may be invested in shares of closed-end
investment companies within the limits of Section 12(d)(1) of the
1940 Act;
<PAGE>
(8) invest in any company for the purpose of exercising
control or management;
(9) engage in the underwriting of any securities, except insofar as the
Company may be deemed an "underwriter" under the 1933 Act in
disposing of a portfolio security;
(10) make loans to any person, except through the purchase of debt
securities in accordance with the investment policies of the Funds,
or the lending of portfolio securities to broker-dealers or other
institutional investors, or the entering into of repurchase
agreements with member banks of the Federal Reserve System,
registered broker-dealers and registered government securities
dealers. The aggregate value of all portfolio securities loaned may
not exceed 33-1/3% of a Fund's total net assets (taken at current
value). No more than 10% of a Fund's total assets may be invested in
repurchase agreements maturing in more than seven days;
(11) purchase securities of any company in which any officer or director
of the Company or its investment adviser owns more than 1/2 of 1% of
the outstanding securities of such company and in which the officers
and directors of the Company and its investment adviser, as a group,
own more than 5% of such securities;
(12) purchase securities (except obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities) if the purchase
would cause a Fund at the time to have more than 5% of the value of
its total assets invested in the securities of any one issuer or to
own more than 10% of the outstanding voting securities of any one
issuer;
(13) invest more than 5% of its total assets in an issuer having a
record, together with predecessors, of less than three years'
continuous operation.
In addition to the above restrictions, a fundamental policy of the INVESCO
Pacific Basin Fund and the INVESCO European Fund is not to invest more than 25%
of their respective total assets (taken at market value at the time of each
investment) in the securities of issuers in any one industry.
In applying restriction (1) above, the INVESCO Pacific Basin and European
Funds will enter into repurchase agreements only if such agreements are in
accordance with all applicable positions of the staff of the Securities and
Exchange Commission, including Investment Company Act Release No. 10666.
<PAGE>
INVESCO International Growth Fund
The following restrictions are fundamental and may not be changed with
respect to the INVESCO International Growth Fund without the prior approval of
the holders of a majority of the outstanding voting securities of the Fund, as
defined in the 1940 Act. The INVESCO International Growth Fund and the Company
on behalf of such Fund, unless otherwise indicated, may not:
(1) other than investments by the Fund in obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities, invest in the securities of issuers conducting
their principal business activities in the same industry
(investments in obligations issued by a foreign government,
including the agencies or instrumentalities of a foreign government,
are considered to be investments in a single industry), if
immediately after such investment the value of the Fund's
investments in such industry would exceed 25% of the value of the
Fund's total assets;
(2) invest in the securities of any one issuer, other than the U.S.
government, if immediately after such investment more than 5% of the
value of the Fund's total assets, taken at market value, would be
invested in such issuer or more than 10% of such issuer's
outstanding voting securities would be owned by the Fund;
(3) underwrite securities of other issuers, except insofar as it may
technically be deemed an "underwriter" under the 1933 Act, as
amended, in connection with the disposition of the Fund's portfolio
securities;
(4) invest in companies for the purpose of exercising control
or management;
(5) issue any class of senior securities or borrow money, except
borrowings from banks for temporary or emergency purposes not in
excess of 5% of the value of the Fund's total assets at the time the
borrowing is made;
(6) mortgage, pledge, hypothecate or in any manner transfer as security
for indebtedness any securities owned or held except to an extent
not greater than 5% of the value of the Fund's total assets;
(7) sell short or buy on margin, ^ except for the Fund's purchase or
sale of options or futures, or writing, purchasing or selling put or
call options;
(8) purchase or sell real estate or interests in real estate. The Fund
may invest in securities secured by real estate or interests therein
or issued by companies, including real estate investment trusts,
which invest in real estate or interests therein;
<PAGE>
(9) purchase or sell commodities or commodity contracts. This
restriction shall not prevent the Fund from purchasing or selling
options on individual securities, security indexes and currencies or
financial futures or options on financial futures, or undertaking
forward foreign currency contracts.
(10) make loans to other persons, provided that the Fund may purchase
debt obligations consistent with its investment objectives and
policies and may lend limited amounts (not to exceed 10% of its
total assets) of its portfolio securities to broker-dealers or other
institutional investors;
(11) purchase securities of other investment companies except (i) in
connection with a merger, consolidation, acquisition or
reorganization, or (ii) by purchase in the open market of securities
of other investment companies involving only customary brokers'
commissions and only if immediately thereafter (i) no more than 3%
of the voting securities of any one investment company are owned by
the Fund, (ii) no more than 5% of the value of the total assets of
the Fund would be invested in any one investment company, and (iii)
no more than 10% of the value of the total assets of the Fund would
be invested in the securities of such investment companies. The
Company may invest from time to time a portion of the Fund's cash in
investment companies to which the Adviser serves as investment
adviser; provided that no management or distribution fee will be
charged by the Adviser with respect to any such assets so invested
and provided further that at no time will more than 3% of the Fund's
assets be so invested. Should the Fund purchase securities of other
investment companies, shareholders may incur additional management
and distribution fees;
(12) invest in securities for which there are legal or contractual
restrictions on resale, except that the Fund may invest no more than
2% of the value of the Fund's total assets in such securities, or
invest in securities for which there is no readily available market,
except that the Fund may invest no more than 5% of the value of the
Fund's total assets in such securities.
In applying restriction (12) above, the INVESCO International Growth Fund
also includes illiquid securities (those which cannot be sold in the ordinary
course of business within seven days at approximately the valuation given to
them by the Fund) among the securities subject to the 5% of total assets limit.
<PAGE>
INVESCO International Blue Chip Fund
The following restrictions are fundamental and may not be changed with
respect to the INVESCO International Blue Chip Fund without the prior approval
of a majority of the outstanding voting securities of the Fund, as defined in
the 1940 Act. The INVESCO International Blue Chip Fund and the Company on behalf
of such Fund, unless otherwise indicated, may not:
(1) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's
total assets would be invested in the securities of companies whose
principal business activities are in the same industry;
(2) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. Government or any of its agencies or instrumentalities,
or securities of other investment companies) if, as a result, (i)
more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (ii) the Fund would hold more than 10%
of the outstanding voting securities of that issuer;
(3) underwrite securities of other issuers, except insofar as it may be
deemed to be an underwriter under the Securities Act of 1933, as
amended, in connection with the disposition of the Fund's portfolio
securities;
(4) borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investing) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings);
(5) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(6) lend any security or make any loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to the purchase of debt securities or to
repurchase agreements;
(7) purchase or sell physical commodities; however, this policy shall
not prevent the Fund from purchasing and selling foreign currency,
futures contracts, options, forward contracts, swaps, caps, floors,
collars and other financial instruments;
(8) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the Fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
real estate business);
<PAGE>
(9) The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of
a single open-end management investment company managed by INVESCO
Funds Group, Inc. or an affiliate or successor thereof with
substantially the same fundamental investment objective, policies
and limitations as the Fund.
The Fund may, notwithstanding any other investment policy or limitation
(whether or not fundamental), invest all of its assets in the securities of a
single, open-end management investment company with substantially the same
fundamental investment objectives, policies and limitations as the Fund.
In addition, INVESCO International Blue Chip Fund has the following
non-fundamental policies, which may be changed without shareholder approval:
(a) The Fund may not sell securities short (unless it owns or
has the right to obtain securities equivalent in kind and
amount to the securities sold short) or purchase
securities on margin, except that (a) this policy does
not prevent the Fund from entering into short positions
in foreign currency, futures contracts, options, forward
contracts, swaps, caps, floors, collars and other
financial instruments, (b) the Fund may obtain such
short-term credits as are necessary for the clearance of
transactions, and (c) the Fund may make margin payments
in connection with futures contracts, options, forward
contracts, swaps, caps, floors, collars and other
financial instruments;
(b) The Fund may borrow money only from a bank or by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
will be treated as borrowings for purposes of fundamental limitation
(4)). The Fund will not purchase any security while borrowings
representing more than 5% of its total assets are outstanding;
(c) The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject
to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
INVESCO Emerging Markets Fund
The following restrictions are fundamental and may not be changed with
respect the INVESCO Emerging Markets Fund without the prior approval of the
holders of a majority of the outstanding voting securities of the Fund, as
defined in 1940 Act. The Emerging Markets Fund, and the Company on behalf of
such Fund, unless otherwise indicated, may not:
<PAGE>
(1) With respect to seventy-five percent (75%) of the Fund's total
assets, purchase the securities of any one issuer (except cash items
and "government securities" as defined under the 1940 Act), if the
purchase would cause the Fund to have more than 5% of the value of
its total assets invested in the securities of such issuer or to own
more than 10% of the outstanding voting securities of such issuer;
(2) Borrow money or issue senior securities (as defined in the 1940
Act), except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) and may enter
into reverse repurchase agreements in an aggregate amount not
exceeding 33-1/3% of the value of its total assets (including the
amount borrowed) less liabilities (other than borrowings). Any
borrowings that come to exceed 33-1/3% of the value of the Fund's
total assets by reason of a decline in total assets will be reduced
within three business days to the extent necessary to comply with
the 33-1/3% limitation. This restriction shall not prohibit deposits
of assets to margin or guarantee positions in futures, options,
swaps or forward contracts, or the segregation of assets in
connection with such contracts.
(3) Invest directly in real estate or interests in real estate; however,
the Fund may own debt or equity securities issued by companies
engaged in those businesses.
(4) Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this
shall not prevent the Fund from purchasing or selling options,
futures, swaps and forward contracts or from investing in securities
or other instruments backed by physical commodities).
(5) Lend any security or make any other loan if, as a result, more than
10% of its total assets would be lent to other parties (but this
limitation does not apply to purchases of commercial paper, debt
securities or to repurchase agreements.)
(6) Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund.
<PAGE>
(7) Invest more than 25% of the value of its total assets in any
particular industry (other than government securities).
As a fundamental policy in addition to the above, the Emerging Markets
Fund may, notwithstanding any other investment policy or limitation (whether or
not fundamental), invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and limitations as the Fund.
Furthermore, the Company's board of directors has adopted additional
investment restrictions for the Emerging Markets Fund. These restrictions are
operating policies of the Fund and may be changed by the board of directors
without shareholder approval. The additional investment restrictions adopted by
the board of directors to date with respect to the Emerging Markets Fund include
the following:
(a) The Fund will not (i) enter into any futures contracts or
options on futures contracts if immediately thereafter the aggregate
margin deposits on all outstanding futures contracts positions held by
the Fund and premiums paid on outstanding options on futures
contracts, after taking into account unrealized profits and losses,
would exceed 5% of the market value of the total assets of the Fund,
or (ii) enter into any futures contracts if the aggregate net amount
of the Fund's commitments under outstanding futures contracts
positions of the Fund would exceed the market value of the total
assets of the Fund.
(b) The Fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short without the payment of
any additional consideration therefor, and provided that transactions
in options, swaps and forward futures contracts are not deemed to
constitute selling securities short.
(c) The Fund does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments and other deposits in connection with transactions in
options, futures, swaps and forward contracts shall not be deemed to
constitute purchasing securities on margin.
(d) The Fund does not currently intend to (i) purchase securities
of closed-end investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (ii)
purchase or retain securities issued by other open-end investment
companies other than money market funds or funds which are the only
<PAGE>
practical means, or one of the few practical means, of investing
in a particular emerging country. Limitations (i) and (ii) do not
apply to securities received as dividends, through offers of exchange,
or as a result of a reorganization, consolidation, or merger.
(e) The Fund may not mortgage or pledge any securities owned or
held by the Fund in amounts that exceed, in the aggregate, 10% of the
Fund's net assets, provided that this limitation does not apply to
reverse repurchase agreements or in the case of assets deposited to
margin or guarantee positions in futures, options, swaps or forward
contracts or placed in a segregated account in connection with such
contracts.
(f) The Fund does not currently intend to purchase any security
or enter into a repurchase agreement if, as a result, more than 15% of
its net assets would be invested in repurchase agreements not
entitling the holder to payment of principal and interest within seven
days and in securities that are illiquid by virtue of legal or
contractual restrictions on resale or the absence of a readily
available market. The board of directors, or the Fund's investment
adviser acting pursuant to authority delegated by the board of
directors, may determine that a readily available market exists for
securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, or any successor to such rule, and therefore
that such securities are not subject to the foregoing limitation.
With respect to investment restriction (4) applicable to the Pacific Basin
and European Funds, restriction (12) applicable to the International Growth Fund
^, restriction (f) applicable to the Emerging Markets Fund and restriction (c)
applicable to the INVESCO International Blue Chip Fund, the board of directors
has delegated to Fund Management the authority to determine that a liquid market
exists for securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, or any successor to such rule, and that such securities
are not subject to the Funds' limitations on investing in illiquid securities,
securities that are not readily marketable or securities which do not have
readily available market quotations. Under guidelines established by the board
of directors, Fund Management will consider the following factors, among others,
in making this determination: (1) the unregistered nature of a Rule 144A
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security; and (5) the nature of the security and the nature of marketplace
trades (e.g., the time needed to dispose of the security, the method of
<PAGE>
soliciting offers and the mechanics of transfer). However, Rule 144A
Securities are still subject to the Funds' respective limitations on investments
in restricted securities (securities for which there are legal or contractual
restrictions on resale), unless they are readily marketable outside the United
States, in which case they are not deemed to be restricted.
In applying the industry concentration investment restrictions applicable
to the Funds, the Company uses an industry classification system for
international securities based on information obtained from Bloomberg L.P.,
Moody's International and a modified S&P industry code classification schema
which uses various sources to classify securities.
THE FUNDS AND THEIR MANAGEMENT
The Company. The Company was incorporated on April 2, 1993, under the laws
of Maryland. On July 1, 1993, the Company, through the European Fund and Pacific
Basin Fund, assumed all of the assets and liabilities of the European Portfolio
and Pacific Basin Portfolio, respectively, of Financial Strategic Portfolios,
Inc., which was incorporated under the laws of Maryland on August 10, 1983. In
addition, on July 1, 1993, the Company, through the International Growth Fund,
assumed all of the assets and liabilities of the Financial International Growth
Fund, a series of Financial Series Trust, a Massachusetts business trust
organized on July 15, 1987. All financial and other information about the Funds
for periods prior to July 1, 1993, relates to such former portfolios and series.
The Investment Adviser. INVESCO Funds Group, Inc., a Delaware corporation
^("INVESCO"), is employed as the Company's investment adviser. ^ INVESCO was
established in 1932 and also serves as an investment adviser to ^ INVESCO
Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO
Equity Funds (formerly, INVESCO Capital Appreciation Funds, Inc.), INVESCO
Flexible Funds, Inc. (formerly, INVESCO Multiple Asset Funds, Inc.), INVESCO
Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO Industrial Income Fund,
Inc., INVESCO Money Market Funds, Inc.^, INVESCO Specialty Funds, Inc., INVESCO
Strategic Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc., INVESCO Value
Trust, and INVESCO Variable Investment Funds, Inc.
The Investment Sub-Adviser. ^ INVESCO, as investment adviser, has
contracted with INVESCO Asset Management Limited ("IAML") to provide investment
advisory and research services on behalf of the INVESCO Pacific Basin Fund, the
INVESCO European Fund, the INVESCO International Growth Fund and the INVESCO
Emerging Markets Fund. ^ INVESCO, as investment adviser, has contracted with
INVESCO Global Asset Management (N.A.)("IGAM") to provide investment advisory
and research services on behalf of the ^ International Blue Chip Fund. IAML and
IGAM have the primary responsibility for providing portfolio investment
management services to the respective Funds.
The Distributor. Effective September 30, 1997 (upon inception with respect
to the Emerging Markets and International Blue Chip Funds), INVESCO
Distributors, Inc. ("IDI") became the Funds' distributor. IDI, established in
1997, is a registered broker-dealer that acts as distributor for all retail
funds advised by ^ INVESCO. Prior to September 30, 1997, ^ INVESCO served as the
Funds' distributor.
<PAGE>
^ INVESCO, IAML, IGAM and IDI are indirect, wholly-owned subsidiaries of
AMVESCAP PLC, a publicly-traded holding company that, through its subsidiaries,
engages in the business of investment management on an international basis.
INVESCO PLC changed its name to AMVESCO PLC on March 3, 1997, and to AMVESCAP
PLC on May 8, 1997 as part of a merger between a direct subsidiary of INVESCO
PLC and A I M Management Group Inc., that created one of the largest independent
investment management businesses in the world with approximately ^ $261 billion
in assets under management^ as of June 30, 1998. INVESCO was established in 1932
and as of April 30, 1998, managed 14 mutual funds, consisting of 49 separate
portfolios, on behalf of over 1,492,189 shareholders. AMVESCAP PLC's North
American subsidiaries include the following:
--INVESCO Retirement and Benefit Services, Inc. ("IRBS"), Atlanta, Georgia,
develops and provides domestic and international defined contribution retirement
plan services to plan sponsors, institutional retirement plan sponsors,
institutional plan providers and foreign governments.
--INVESCO Retirement Plan Services ("IRPS"), Atlanta, Georgia, a division
of IRBS, provides recordkeeping and investment selection services to defined
contribution plan sponsors of plans with between $2 and $200 million in assets.
Additionally, IRPS provides investment consulting services to institutions
seeking to provide INVESCO products and services in their retirement plan
products and services.
--INVESCO Capital Management, Inc. of Atlanta, Georgia manages
institutional investment portfolios, consisting primarily of discretionary
employee benefit plans for corporations and state and local governments, and
endowment funds. INVESCO Capital Management, Inc. is the sole shareholder of
INVESCO Services, Inc., a registered broker-dealer whose primary business is the
distribution of shares of ^ one registered investment ^ company.
--INVESCO Management & Research, Inc. of Boston, Massachusetts, primarily
manages pension and endowment accounts.
--INVESCO (NY), Inc., New York, is an investment adviser for separately
managed accounts, such as corporate and municipal pension plans, Taft-Hartley
Plans, insurance companies, charitable institutions and private individuals.
INVESCO NY also offers the opportunity for its clients to invest both directly
and indirectly through partnerships in primarily private investments or
privately negotiated transactions. INVESCO NY further serves as investment
adviser to several closed-end investment companies, and as sub-adviser with
respect to certain commingled employee benefit trusts. INVESCO NY specializes in
the fundamental research investment approach, with the help of quantitative
tools.
<PAGE>
--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 AMVESCAP PLC's
clients worldwide. Clients include corporate plans, public pension funds as well
as endowment and foundation accounts.
--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
insurance companies offering variable annuities and variable life insurance
products.
--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 PLC are located at 11 Devonshire
Square, London, EC2M4YR, England.
As indicated in the Funds' Prospectuses, ^ INVESCO, IGAM, and IAML permit
investment and other personnel to purchase and sell securities for their own
accounts in accordance with compliance policies governing personal investing by
directors, officers and employees of ^ INVESCO, IGAM, IAML and their North
American affiliates. These policies require officers, inside directors,
investment and other personnel of ^ INVESCO, IGAM, IAML and their North American
affiliates to pre-clear all transactions in securities not otherwise exempt
under the policies. Requests for trading authority will be denied if, among
other reasons, the proposed personal transaction would be contrary to the
provisions of the applicable policy or would be deemed to adversely affect any
transaction then known to be under consideration for or to have been effected on
behalf of any client account, including the Funds.
In addition to the pre-clearance requirement described above, the policies
subject officers, inside directors, investment and other personnel of ^ INVESCO,
IGAM, IAML and their North American affiliates to various trading restrictions
and reporting obligations. All reportable transactions are reviewed for
compliance with the policies. The provisions of these policies are administered
by and subject to exceptions authorized by ^ INVESCO, IGAM or IAML.
<PAGE>
Investment Advisory Agreement. ^ INVESCO serves as investment adviser to
the Funds pursuant to an investment advisory agreement dated February 28, 1997
(the "Agreement") with the Company which was approved on November 6, 1996, by a
vote cast in person by a majority of the directors of the Company, including a
majority of the directors who are not "interested persons" of the Company or ^
INVESCO at a meeting called for such purpose. The Agreement was approved by
shareholders of each Fund of the Company on January 31, 1997, for an initial
term expiring February 28, 1999. On May 13, 1998, this period was extended by
the Company's board of directors to May 15, 1999. The Agreement was approved by
^ INVESCO as sole shareholder of the Emerging Markets Fund with respect to that
Fund on January 30, 1998, for an initial term expiring on January 30, 2000. The
Agreement was approved by ^ INVESCO as sole shareholder of the International
Blue Chip Fund with respect to that Fund on September ^ 28, 1998, for an initial
term expiring on September ^ 28, 2000. Thereafter, the Agreement may be
continued from year to year as to each Fund as long as each such continuance is
specifically approved at least annually by the board of directors of the Company
or by a vote of the holders of a majority, as defined in the 1940 Act, of the
outstanding shares of the Fund. Any such continuance must also be approved by a
majority of the Company's directors who are not parties to the Agreement or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such continuance. The
Agreement may be terminated at any time without penalty by either party upon
sixty (60) days' written notice and terminates automatically in the event of an
assignment to the extent required by the 1940 Act and the rules thereunder.
The Agreement provides that ^ INVESCO shall manage the investment
portfolios of the Funds in conformity with each Fund's investment policies
(either directly or by delegation to a sub-adviser which may be a company
affiliated with ^ INVESCO). Further, ^ INVESCO shall perform all administrative,
internal accounting (including computation of net asset value), clerical,
statistical, secretarial and all other services necessary or incidental to the
administration of the affairs of the Funds excluding, however, those services
that are the subject of separate agreement between the Company and ^ INVESCO or
any affiliate thereof, including the distribution and sale of Fund shares and
provision of transfer agency, dividend disbursing agency and registrar services,
and services furnished under an Administrative Services Agreement with ^ INVESCO
discussed below. Services provided under the Agreement include but are not
limited to: supplying the Company with officers, clerical staff and other
employees, if any, who are necessary in connection with the Funds' operations;
<PAGE>
furnishing office space, facilities, equipment and supplies; providing
personnel and facilities required to respond to inquiries related to shareholder
accounts; conducting periodic compliance reviews of the Funds' operations;
preparation and review of required documents, reports and filings by ^ INVESCO's
in-house legal and accounting staff (including the prospectuses, statement of
additional information, proxy statements, shareholder reports, tax returns,
reports to the SEC and other corporate documents of the Funds), except insofar
as the assistance of independent accountants or attorneys is necessary or
desirable; supplying basic telephone service and other utilities; and preparing
and maintaining certain of the books and records required to be prepared and
maintained by the Funds under the 1940 Act. Expenses not assumed by ^ INVESCO
are borne by the Funds.
As full compensation for its advisory services to the Company, ^ INVESCO
receives a monthly fee. The fee is calculated daily at an annual rate of:
(a) Pacific Basin and European Funds: 0.75% on the first
$350 million of each Fund's average net assets; 0.65% on
the next $350 million of each Fund's average net assets;
and 0.55% on each Fund's average net assets in excess of
$700 million;
(b) International Growth Fund: 1.00% on the first $500
million of the Fund's average net assets; 0.75% on the
next $500 million of the Fund's average net assets; and
0.65% on the Fund's average net assets in excess of $1
billion.
(c) Emerging Markets Fund: 1.00% on the first $500 million of
the Fund's average net assets; 0.85% on the next $500
million of the Fund's average net assets; and 0.75% on
the Fund's average net assets in excess of $1 billion.
(d) International Blue Chip Fund: 0.75% on the Fund's average
net assets.
The advisory fee is calculated daily at the applicable annual rate and
paid monthly.
Sub-Advisory Agreement. With respect to the European, Pacific Basin and
International Growth Funds, IAML serves as sub-adviser to the Funds pursuant to
a sub-advisory agreement dated February 28, 1997 (the "Sub-Agreement") with ^
INVESCO which was approved on November 6, 1996, by a vote cast in person by a
majority of the directors of the Company, including a majority of the directors
who are not "interested persons" of the Company, ^ INVESCO or IAML, at a meeting
called for such purpose. The Sub-Agreement was approved on January 31, 1997, by
the shareholders of each of the Funds for an initial term expiring February 28,
1999. On May 13, 1998, this period was extended by the Company's board of
directors to May 15, 1999.
With respect to the Emerging Markets Fund, IAML serves as sub-adviser to
the Fund pursuant to a sub-advisory agreement dated January 30, 1998 (the
"Emerging Markets Sub-Agreement") with ^ INVESCO that was approved on May 13,
1998 by a vote cast in person by a majority of the directors of the Company,
<PAGE>
including a majority of the directors who are not "interested persons" of
the Company, ^ INVESCO or IAML, at a meeting called for such purpose. The
Emerging Markets Sub-Agreement was approved on January 30, 1998 by ^ INVESCO as
sole shareholder of the Fund for an initial term expiring on January 30, 2000.
With respect to the International Blue Chip Fund, IGAM serves as the
sub-adviser to the Fund pursuant to a sub-advisory agreement dated September ^
23, 1998 (the "International Blue Chip Sub-Agreement") with ^ INVESCO which was
approved on May 12, 1998 by a vote cast in person by a majority of the directors
of the Company, including a majority of the directors who are not "interested
persons" of the Company, ^ INVESCO or IGAM, at a meeting called for such
purpose. The International Blue Chip Sub-Agreement was approved by ^ INVESCO as
sole shareholder of the Fund on September ^ 28, 1998, for an initial term
expiring on September ^ 28, 2000.
Thereafter, the Sub-Agreement, Emerging Markets Sub-Agreement and
International Blue Chip Sub-Agreement (the "Sub-Agreements") may be continued
from year to year as to each Fund as long as each such continuance is
specifically approved by the board of directors of the Company, or by a vote of
the holders of a majority of the outstanding shares of the Fund, as defined in
the 1940 Act. Each such continuance also must be approved by a majority of the
directors who are not parties to the Sub-Agreements or interested persons (as
defined in the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such continuance. The Sub-Agreements may be
terminated at any time without penalty by either party or the Company upon sixty
(60) days' written notice and terminates automatically in the event of an
assignment to the extent required by the 1940 Act and the rules thereunder.
The Sub-Agreements provide that IGAM and IAML, as applicable, subject to
the supervision of ^ INVESCO, shall manage the investment portfolios of the
respective Funds in conformity with each such Fund's investment policies. These
management services would include: (a) managing the investment and reinvestment
of all the assets, now or hereafter acquired, of each Fund, and executing all
purchases and sales of portfolio securities; (b) maintaining a continuous
investment program for the Funds, consistent with (i) each Fund's investment
policies as set forth in the Company's Articles of Incorporation, Bylaws and
Registration Statement, as from time to time amended, under the 1940 Act, as
amended, and in any prospectus and/or statement of additional information of the
Company, as from time to time amended and in use under the 1933 Act and (ii) the
Company's status as a regulated investment company under the Internal Revenue
Code of 1986, as amended; (c) determining what securities are to be purchased or
sold for each Fund, unless otherwise directed by the directors of the Company or
<PAGE>
^ INVESCO, and executing transactions accordingly; (d) providing the Funds
the benefit of all of the investment analysis and research, the reviews of
current economic conditions and trends, and the consideration of long-range
investment policy now or hereafter generally available to investment advisory
customers of IGAM or IAML; (e) determining what portion of each applicable
Fund's assets should be invested in the various types of securities authorized
for purchase by such Fund; and (f) making recommendations as to the manner in
which voting rights, rights to consent to Company action and any other rights
pertaining to the portfolio securities of each applicable Fund shall be
exercised.
The Sub-Agreements provide that, as compensation for its services, IGAM
and IAML shall receive from ^ INVESCO, at the end of each month, a fee based
upon the average daily value of the applicable Fund's net assets. With respect
to the European and Pacific Basin Funds, the fee is calculated at the following
annual rates: prior to January 1, 1998, 0.45% on the first $350 million of each
Fund's average net assets; 0.40% on the next $350 million of each Fund's average
net assets; and 0.35% on each Fund's average net assets in excess of $700
million and effective January 1, 1998, 0.30% on the first $350 million; 0.26% on
the next $350 million and 0.22% on each Fund's net assets in excess of $700
million. With respect to the International Growth Fund, the fee is computed at
the following annual rates: prior to January 1, 1998, 0.25% on the first $500
million of the Fund's average net assets; 0.1875% on the next $500 million of
the Fund's average net assets; and 0.1625% on the Fund's average net assets in
excess of $1 billion and effective January 1, 1998, 0.40% on the first $500
million; 0.30% on the next $500 million and 0.26% on the Fund's average net
assets in excess of $1 billion. With respect to the Emerging Markets Fund, the
fee is computed at the annual rate of 0.40% on the first $500 million of the
Fund's average net assets; 0.34% on the next $500 million of the Fund's average
net assets; and 0.30% on the Fund's average net assets in excess of $1 billion.
With respect to the International Blue Chip Fund, the fee is computed at the
annual rate of .30% of the Fund's average net assets. The sub-advisory fees are
paid by INVESCO, NOT the Funds.
Administrative Services Agreement. ^ INVESCO, either directly or through
affiliated companies, also provides certain administrative, sub-accounting and
recordkeeping services to the Company pursuant to an Administrative Services
Agreement dated February 28, 1997 (the "Administrative Agreement"). The
Administrative Agreement was approved on November 6, 1996, by a vote cast in
person by all of the directors of the Company, including all of the directors
who are not "interested persons" of the Company or ^ INVESCO, at a meeting
called for such purpose. The Administrative Agreement is for an initial term of
one year. Thereafter, the Administrative Agreement may be continued from year to
year as long as each such continuance is specifically approved by the board of
directors of the Company, including a majority of the directors who are not
parties to the Administrative Agreement or interested persons (as defined in the
<PAGE>
1940 Act) of any such party, cast in person at a meeting called for the
purpose of voting on such continuance. The Administrative Agreement may be
terminated at any time without penalty by ^ INVESCO on sixty (60) days' written
notice, or by the Company upon thirty (30) days' written notice, and terminates
automatically in the event of an assignment unless the Company's board of
directors approves such assignment.
The Administrative Agreement provides that ^ INVESCO shall provide the
following services to the Funds: (A) such sub-accounting and recordkeeping
services and functions as are reasonably necessary for the operation of the
Fund; and (B) such sub-accounting, recordkeeping and administrative services and
functions, which may be provided by affiliates of ^ INVESCO, as are reasonably
necessary for the operation of Fund shareholder accounts maintained by certain
retirement plans and employee benefit plans for the benefit of participants of
such plans. As full compensation for services provided under the Administrative
Agreement, the Company pays a monthly fee to ^ INVESCO consisting of a base fee
of $10,000 per year per Fund, plus an additional incremental fee computed daily
and paid monthly at an annual rate of 0.015% per year of the average net assets
of each Fund.
Transfer Agency Agreement. ^ INVESCO also performs transfer agent,
dividend disbursing agent and registrar services for the Company pursuant to a
Transfer Agency Agreement dated February 28, 1997 which was approved by the
board of directors of the Company, including a majority of the Company's
directors who are not parties to the Transfer Agency Agreement or "interested
persons" of any such party, on November 6, 1996. The Transfer Agency Agreement
was for an initial term expiring February 28, 1998 and has been extended by the
board of directors until May 15, 1999. Thereafter, the Transfer Agency Agreement
may be continued from year to year as to each Fund as long as such continuance
is specifically approved at least annually by the board of directors of the
Company, or by a vote of the holders of a majority of the outstanding shares of
the Fund. Any such continuance also must be approved by a majority of the
Company's directors who are not parties to the Transfer Agency Agreement or
interested persons (as defined by the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such continuance. The
Transfer Agency Agreement may be terminated at any time without penalty by
either party upon sixty (60) days' written notice and terminates automatically
in the event of assignment.
The Transfer Agency Agreement provides that the Company shall pay to
INVESCO an annual fee of $20.00 per shareholder account or, where applicable,
per participant in an omnibus account. This fee is paid monthly at a rate of
1/12 of the annual fee and is based upon the actual number of shareholder
accounts, or, where applicable, per participant in an omnibus account.
For the fiscal years ended October 31, 1997, 1996 and 1995, the Funds paid
the following advisory fees, administrative services fees and transfer agency
fees:
<PAGE>
European Fund
Fiscal Year
Ended Advisory Administrative Transfer
October 31 Fee Services Fee Agency Fee
1997 $2,679,462 $63,965 $985,603
1996 1,793,380 45,868 839,761
1995 1,815,386 46,308 869,684
Pacific Basin Fund
Fiscal Year
Ended Advisory Administrative Transfer
October 31 Fee Services Fee Agency Fee
1997 $939,420 $28,788 $677,811
1996 1,396,490 37,930 870,770
1995 1,571,623 41,483 852,343
International Growth Fund
Fiscal Year
Ended Advisory Administrative Transfer
October 31 Fee Services Fee Agency Fee
1997 $987,897 $24,818 $377,527
1996 893,966 23,409 383,054
1995 963,765 24,541 361,657
Emerging Markets Fund
The Emerging Markets Fund paid ^ INVESCO no advisory, administrative or
transfer agency fees as of October 31, 1997 since the Fund did not commence a
public offering of its shares until February 12, 1998.
International Blue Chip Fund
The International Blue Chip Fund paid ^ INVESCO no advisory,
administrative or transfer agency fees as of October 31, 1997 since the Fund did
not commence a public offering of its shares until ^ October 28, 1998.
Officers and Directors of the Company. The overall direction and
supervision of the Company is the responsibility of the board of directors,
which has the primary duty of seeing that the general investment policies and
programs of each of the Funds are carried out and that the ^ Funds are properly
administered. The officers of the Company, all of whom are officers and
employees of, and are paid by, ^ INVESCO, are responsible for the day-to-day
administration of the Company and each of the Funds. The investment adviser for
the Company has the primary responsibility for making investment decisions on
behalf of each Fund. These investment decisions are reviewed by the investment
committee of ^ INVESCO.
<PAGE>
All of the officers and directors of the Company hold comparable positions
with INVESCO ^ Diversified Funds, Inc., INVESCO Emerging Opportunity Funds,
Inc., INVESCO Equity Funds, Inc. (formerly, INVESCO Capital Appreciation Funds,
Inc.), INVESCO Flexible Funds, Inc. (formerly, INVESCO Multiple Asset Funds,
Inc.), INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO Industrial
Income Fund, Inc., INVESCO Money Market Funds, Inc.^, INVESCO Specialty Funds,
Inc., INVESCO Strategic Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc.
and INVESCO Variable Investment Funds, Inc. All of the directors of the Company
also serve as trustees of INVESCO Value Trust^ and INVESCO Treasurer's Series
Trust Funds. All of the officers of the Company also hold comparable positions
with INVESCO Value Trust and INVESCO Treasurer's Series Trust Funds. Set forth
below is information with respect to each of the Company's officers and
directors. Unless otherwise indicated, the address of the directors and officers
is Post Office Box 173706, Denver, Colorado 80217-3706. Their affiliations
represent their principal occupations during the past five years.
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive Officer and
Director of AMVESCAP PLC, London, England, and of various subsidiaries thereof^.
Chairman of the Board of INVESCO ^ Global Health Sciences Fund. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. ^ Trustee of INVESCO Global
Health Sciences Fund. 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. ^ VICTOR L. ANDREWS,**@
Director. Professor Emeritus, Chairman Emeritus and Chairman of the CFO
Roundtable of the Department of Finance at Georgia State University, Atlanta,
Georgia; President, Andrews Financial Associates, Inc. (consulting firm); since
October 1984, Director of the Center for the Study of Regulated Industry of
Georgia State University; formerly, member of the faculties of the Harvard
Business School and the Sloan School of Management of MIT. Dr. Andrews is also a
director of the Southeastern Thrift and Bank Fund, Inc. and The Sheffield Funds,
Inc. Address: 34 Seawatch Drive, Savannah, Georgia. Born: June 23, 1930.
BOB R. BAKER,+** Director. President and Chief Executive Officer of AMC
Cancer Research Center, Denver, Colorado, since January 1989; until mid-December
1988, Vice Chairman of the Board of First Columbia Financial Corporation (a
financial institution), Englewood, Colorado. Formerly, Chairman of the Board and
Chief Executive Officer of First Columbia Financial Corporation. Address: 1775
Sherman Street, #1000, Denver, Colorado. Born: August 7, 1936.
LAWRENCE H. BUDNER,#@@ Director. Trust Consultant; prior to June 30, 1987,
Senior Vice President and Senior Trust Officer of InterFirst Bank, Dallas,
Texas. Address: 7608 Glen Albens Circle, Dallas, Texas. Born: July 25, 1930.
^
WENDY L. GRAMM, Ph.D.,**@ Director. Self-employed (since 1993); Professor
of Economics and Public Administration, University of Texas at Arlington.
Formerly, Chairman, Commodity Futures Trading Commission from 1988 to 1993,
administrator for Information and Regulatory Affairs at the Office of Management
and Budget from 1985 to 1988, Executive Director of the Presidential Task Force
on Regulatory Relief and Director of the Federal Trade Commission's Bureau of
Economics. Dr. Gramm is also a director of the Chicago Mercantile Exchange,
Enron Corporation, IBP, Inc., State Farm Insurance Company, State Farm Life
Insurance Company, Independent Women's Forum, International Republic Institute,
and the Republican Women's Federal Forum. Dr. Gramm is also a member of the
Board of Visitors, College of Business Administration, University of Iowa, and a
member of the Board of Visitors, Center for Study of Public Choice, George Mason
University. Address: 4201 Yuma Street, N.W., Washington, D.C. Born: January 10,
1945.
<PAGE>
^ KENNETH T. KING,#@@ Director. Formerly, Chairman of the Board of The
Capitol Life Insurance Company, Providence Washington Insurance Company, and
Director of numerous subsidiaries thereof in the U.S. Formerly, Chairman of the
Board of The Providence Capitol Companies in the United Kingdom and Guernsey.
Chairman of the Board of the Symbion Corporation (a high technology company)
until 1987. Address: 4080 North Circulo Manzanillo, Tucson, Arizona. Born:
November 16, 1925.
JOHN W. MCINTYRE,#@@ Director. 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 Corp. and
Citizens and Southern National Bank. ^ Trustee of INVESCO Global Health Sciences
Fund and Gables Residential Trust. Address: 7 Piedmont Center, Suite 100,
Atlanta, Georgia. Born: September 14, 1930.
LARRY SOLL, Ph.D.,**@ Director. 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 since its
incorporation in 1982. Director of ISI Pharmaceuticals, Inc. Trustee of INVESCO
Global Health Sciences Fund. Address: 345 Poorman Road, Boulder, Colorado. Born:
April 26, 1942.
MARK H. WILLIAMSON,+# President, CEO and Director. President, CEO and
Director of IDI; President, CEO and Director of INVESCO and President of INVESCO
Global Health Sciences Fund. Formerly, Chairman and CEO of NationsBanc Advisors,
Inc. (1995 to 1997) and Chairman of NationsBanc Investments, Inc. (1997 to
1998). Born: May 24, 1951.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995), General
Counsel ^(since 1989) and Secretary (since 1989) of INVESCO and INVESCO
Distributors, Inc. (since 1997); Vice President (May 1989 to April 1995) of
INVESCO; Senior Vice President (since 1995), General Counsel (since 1989) and
Secretary (1989 to 1998) of ITC. 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
^(since 1988). Senior Vice President and Treasurer of IDI (since 1997). Senior
Vice President and Treasurer of ITC (1988 to 1998). Born: October 1, 1946.
<PAGE>
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO ^(since 1995) and of ^ IDI (since 1997) and Trust Officer of ^ ITC (1995
to 1998) and formerly (August 1992 to July 1995) Vice President of INVESCO ^ and
Trust Officer of ^ ITC. Formerly, Vice President of 440 Financial Group from
June 1990 to August 1992 and Assistant Vice President of Putnam Companies from
November 1986 to June 1990. Born: August 21, 1956.
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO ^(since
1984) ^. Formerly, Trust Officer of ^ ITC. Born: September 14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO ^(since 1984)
and of ^ IDI (since 1997) ^. Formerly, Trust Officer of ^ ITC. Born: February 3,
1948.
*These directors are "interested persons" of the Company as defined in the
Investment Company Act of 1940.
#Member of the audit committee of the Company.
@Member of the Derivative Committee of the Company's board of directors.
@@Member of the Soft Dollar Brokerage Committee of the Company's board of
directors.
+Member of the executive committee of the Company. On occasion, the
executive committee acts upon the current and ordinary business of the Company
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
^
**Member of the management liaison committee of the Company.
As of June 10, 1998, officers and directors of the Company, as a group,
beneficially owned less than 1% of the Company's outstanding shares and 1% of
each Fund's outstanding shares.
Director Compensation
The following table sets forth, for the fiscal year ended October 31,
1997: the compensation paid by the Company to its eligible independent directors
for services rendered in their capacities as directors of the Company; the
benefits accrued as Company expenses with respect to the Defined Benefit
Deferred Compensation Plan discussed below; and the estimated annual benefits to
be received by these directors upon retirement as a result of their service to
the Company. In addition, the table sets forth the total compensation paid by
all of the mutual funds distributed by IDI and advised by INVESCO (including the
Company).
<PAGE>
^ INVESCO Treasurer's Series Trust and INVESCO Global Health Sciences Fund
(collectively, the "INVESCO Complex") to these directors for services rendered
in their capacities as directors or trustees during the year ended December 31,
1996. As of December 31, 1996, there were 49 funds in the INVESCO Complex. ^
Total
Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
Name of Person, tion From Company Upon Paid To
Position Company(1) Expenses(2) Retirement(3) Directors(1)
Fred ^ A. Deering, $ 4,650 $1,028 $1,001 $ 98,850
Vice Chairman of
the Board
Victor L. Andrews 4,627 972 1,159 84,350
Bob R. Baker 4,713 868 1,553 84,850
Lawrence H. Budner 4,528 972 1,159 80,350
Daniel D. ^ Chabris(4) 4,611 1,109 824 84,850
A. D. Frazier, ^ Jr.(5) 1,007 0 0 81,500
Wendy L. Gramm 1,019 0 0 0
Kenneth T. King 4,209 1,068 908 71,350
John W. McIntyre 4,423 0 0 90,350
Larry Soll 1,983 0 0 17,500
Total $35,770 $6,017 $6,604 $693,950
% of Net Assets ^ 0.0079%(6) 0.0013%(6) 0.0045%(7)
(1)The vice chairman of the board, the chairmen of the audit, management
liaison, derivatives, soft dollar brokerage and compensation committees, and the
members of the executive and valuation committees each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors.
(2)Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below and not compensation deferred at the election
of the directors.
<PAGE>
(3)These figures represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding INVESCO Global Health
Sciences Fund which does not participate in ^ this retirement plan) upon the
directors' retirement, calculated using the current method of allocating
director compensation among the funds in the INVESCO Complex. These estimated
benefits assume retirement at age 72 and that the basic retainer payable to the
directors will be adjusted periodically for inflation, for increases in the
number of funds in the INVESCO Complex and for other reasons during the period
in which retirement benefits are accrued on behalf of the respective directors.
This results in lower estimated benefits for directors who are closer to
retirement and higher estimated benefits for directors who are further from
retirement. With the exception of Messrs. Frazier and McIntyre and Drs. Gramm
and Soll, each of these directors has served as a director/trustee of one or
more of the funds in the INVESCO Complex for the minimum five-year period
required to be eligible to participate in the Defined Benefit Deferred
Compensation Plan.
(4)Mr. Chabris will retire as a director effective September 30, 1998.
(5)Effective ^ February 28, 1997, Mr. Frazier resigned as a director of the
Company.
^ (6)Total as a percentage of the Company's net assets as of October 31,
1997.
^ (7)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1996.
Messrs. Brady^ and Williamson, as "interested persons" of the Company, the
Funds and the other funds in the INVESCO Complex, receive compensation as
officers or employees of ^ INVESCO or its affiliated companies and do not
receive any director's fees or other compensation from the Company or other
funds in the INVESCO Complex for their services as directors.
The boards of directors/trustees of the mutual funds managed by ^ INVESCO
and INVESCO Treasurer's Series Trust have adopted a Defined Benefit Deferred
Compensation Plan for the non-interested directors and trustees of the funds.
Under this plan, each director or trustee who is not an interested person of the
funds (as defined in the 1940 Act) and who has served for at least five years (a
"qualified director") is entitled to receive, upon ^ termination of service as a
director (normally, at the retirement age of 72 ^ or the retirement age of 73 to
74, if the retirement date is extended by the boards for one or two years but
less than three years) continuation of payment for one year (the "first year
retirement benefit") of the annual basic retainer and annualized board meeting
fees payable by the funds to the qualified director at the time of his or her
retirement (the "basic retainer"). Commencing with any such director's second
year of retirement, and commencing with the first year of retirement of a
director whose retirement has been extended by the board for three years, a
qualified director shall receive quarterly payments at an annual rate equal to
<PAGE>
50% of the basic retainer and annualized board meeting fees. These payments
will continue for the remainder of the qualified director's life or ten years,
whichever is longer (the "reduced retainer payments"). If a qualified director
dies or becomes disabled after age 72 and before age 74 while still a director
of the funds, the first year retirement benefit and the reduced retainer
payments will be made to ^ him or her or to his or her beneficiary or estate. If
a qualified director becomes disabled or dies either prior to age 72 or during
his or her 74th year while still a director of the funds, the director will not
be entitled to receive the first year retirement benefit; however, the reduced
retainer payments will be made to his or her beneficiary or estate. The plan is
administered by a committee of three directors who are also participants in the
plan and one director who is not a plan participant. The cost of the plan will
be allocated among the INVESCO and Treasurer's Series Trust funds in a manner
determined to be fair and equitable by the committee. The Company ^ will begin
making payments to Mr. Chabris as of October 1, 1998. The Company has no stock
options or other pension or retirement plans for management or other personnel
and pays no salary or compensation to any of its officers.
The independent directors have contributed to a deferred compensation
plan, pursuant to which they have deferred receipt of a portion of the
compensation which they would otherwise have been paid as directors of the
INVESCO and Treasurer's Series Funds. The deferred amounts are being invested in
the shares of all of the INVESCO and Treasurer's Series Funds. Each independent
director is, therefore, an indirect owner of shares of each INVESCO and
Treasurer's Series Fund.
The Company has an audit committee that is comprised of five of the
directors who are not interested persons of the Company. The committee meets
periodically with the Company's independent accountants and officers to review
accounting principles used by the Funds, the adequacy of internal controls, the
responsibilities and fees of the independent accountants, and other matters.
The Company also has a management liaison committee which meets quarterly
with various management personnel of ^ INVESCO in order (a) to facilitate better
understanding of management and operations of the Company, and (b) to review
legal and operational matters which have been assigned to the committee by the
board of directors, in furtherance of the board of directors' overall duty of
supervision.
The Company also has a soft dollar brokerage committee. The committee
meets periodically to review soft dollar brokerage transactions by the Funds,
and to review policies and procedures of the Funds' adviser with respect to soft
dollar brokerage transactions. It reports on these matters to the Company's
board of directors.
<PAGE>
The Company also has a derivatives committee. The committee meets
periodically to review derivatives investments made by the Funds. It monitors
derivatives usage by the Funds and the procedures utilized by the Funds' adviser
to ensure that the use of such instruments follows the policies on such
instruments adopted by the Company's board of directors. It reports on these
matters to the Company's board of directors.
HOW SHARES CAN BE PURCHASED
The shares of each Fund are sold on a continuous basis at the net asset
value per share next calculated after receipt of a purchase order in good form.
The net asset value for each Fund is computed once each day that the New York
Stock Exchange is open as of the close of regular trading on that Exchange but
may also be computed at other times. See "How Shares Are Valued." IDI acts as
the Funds' distributor under a distribution agreement with the Company under
which it receives no compensation and bears all expenses, including the costs of
printing and distribution of prospectuses incident to direct sales and
distribution of each of the Fund's shares on a no-load basis.
^ The Company has authorized one or more brokers to accept purchase orders
on the Funds' behalf. Such brokers are authorized to designate other
intermediaries to accept purchase orders on the Funds' behalf. The Funds will be
deemed to have received a purchase order when an authorized broker, or, if
applicable, a broker's authorized designee, accepts the order. A purchase order
will be priced at a Fund's net asset value next calculated after the order has
been accepted by an authorized broker or the broker's authorized designee.
Distribution Plan. As discussed in the Prospectuses, the Company has
adopted a Plan and Agreement of Distribution (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. The Plan provides that each Fund may make monthly payments
to IDI of amounts computed at the following annual rates: with respect to the
European and International Growth Funds, no greater than 0.25% of new sales of
shares, exchanges into each Fund and reinvestments of dividends and other
distributions added after November 1, 1997; with respect to the Pacific Basin
Fund, no greater than 0.25% of the Fund's new sales of shares, exchanges into
the Fund and reinvestment of dividends and other distributions added after
December 1, 1997; with respect to the Emerging Markets Fund, no greater than
0.25% of the Fund's average net assets; with respect to the International Blue
Chip Fund, no greater than 0.25% of the Fund's average net assets, to permit
IDI, at its discretion, to engage in certain activities and provide ^ services
in connection with the distribution of each Fund's shares to investors. ^
Payment by a Fund under the Plan, for any month, may be made to compensate IDI
for permissible activities engaged in and services provided by IDI during the
rolling 12-month period in which that month falls, although this period is
extended to 24 months for obligations incurred during the first 24 months of a
Fund's operations. As noted in the Prospectuses, one type of expenditure ^ is
the payment of compensation to securities companies and other financial
<PAGE>
institutions and organizations, which may include ^ INVESCO-affiliated
companies, in order to obtain various distribution-related and/or administrative
services for the Funds. Each Fund is authorized by the Plan to use its assets to
finance the payments made to obtain those services. Payments will be made by IDI
to broker-dealers who sell shares of the Funds and may be made to banks, savings
and loan associations and other depository institutions. Although the
Glass-Steagall Act limits the ability of certain banks to act as underwriters of
mutual fund shares, the Company does not believe that these limitations would
affect the ability of such banks to enter into arrangements with IDI, but can
give no assurance in this regard. However, to the extent it is determined
otherwise in the future, arrangements with banks might have to be modified or
terminated, and, in that case, the size of one or more of the Funds possibly
could decrease to the extent that the banks would no longer invest customer
assets in a particular Fund. Neither the Company nor its investment adviser will
give any preference to banks or other depository institutions which enter into
such arrangements when selecting investments to be made by each Fund.
^
The nature and scope of services which are provided by securities dealers
and other organizations may vary by dealer but include, among other things,
processing new stockholder account applications, preparing and transmitting to
the Company's Transfer Agent computer-processable tapes of ^ transactions by the
Funds' customers, serving as the primary source of information to customers in
answering questions concerning each Fund, and assisting in other customer
transactions with each Fund.
The Plan was approved on May 16, 1997, at a meeting called for such
purpose by a majority of the directors of the Company, including a majority of
the directors who neither are "interested persons" of the Company nor have any
financial interest in the operation of the Plan ("independent directors"). The
Plan was approved by shareholders of the European and International Growth Funds
on October 28, 1997, shareholders of the Pacific Basin Fund on November 25,
1997, and by INVESCO on behalf of the Emerging Markets Fund on January 30, 1998
and on behalf of the International Blue Chip Fund on October 28, 1998, for
initial terms expiring October 28, 1998, November 25, 1998, January 30, 1999 and
October 28, 1999, respectively. The Plan was implemented on November 1, 1997
with respect to the European and International Growth Funds, December 1, 1997
with respect to the Pacific Basin Fund, February 2, 1998 with respect to the
Emerging Markets Fund, and October 28, 1998 with respect to the International
Blue Chip Fund.
The Plan provides that it shall continue in effect with respect to each
Fund for so long as such continuance is approved at least annually by the vote
of the board of directors of the Company cast in person at a meeting called for
the purpose of voting on such continuance. The Plan can be terminated at any
<PAGE>
time with respect to any Fund, without penalty, if a majority of the
independent directors, or shareholders of such Fund, vote to terminate the Plan.
The Company may, in its absolute discretion, suspend, discontinue or limit the
offering of the shares of any Fund at any time. In determining whether any such
action should be taken, the board of directors intends to consider all relevant
factors including, without limitation, the size of the Funds, the investment
climate for any particular Fund, general market conditions, and the volume of
sales and redemptions of Fund shares. The Plan may continue in effect and
payments may be made under the Plan following any such temporary suspension or
limitation of the offering of a Fund's shares; however, the Company is not
contractually obligated to continue the Plan for any particular period of time.
Suspension of the offering of a Fund's shares would not, of course, affect a
shareholder's ability to redeem his or her shares. So long as the Plan is in
effect, the selection and nomination of persons to serve as independent
directors of the Company shall be committed to the independent directors then in
office at the time of such selection or nomination. The Plan may not be amended
to increase ^ the amount of any Fund's payments thereunder without approval of
the shareholders of that Fund, and all material amendments to the Plan must be
approved by the board of directors of the Company, including a majority of the
independent directors. Under the agreement implementing the Plan, IDI or the
Funds, the latter by vote of a majority of the independent directors or of the
holders of a majority of any Fund's outstanding voting securities, may terminate
such agreement without penalty upon 30 days' written notice to the other party.
No further payments will be made by any Fund under the Plan in the event of its
termination as to that Fund.
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the Act, it shall remain in effect as such, so as
to authorize the use of each Fund's assets in the amounts and for the purposes
set forth therein, notwithstanding the occurrence of an assignment, as defined
by the Act, and rules thereunder. To the extent it constitutes an agreement
pursuant to a plan, each Fund's obligation to make payments to IDI shall
terminate automatically, in the event of such "assignment," in which event the
Funds may continue to make payments, pursuant to the Plan, to IDI or another
organization only upon the approval of new arrangements, which may or may not be
with IDI, regarding the use of the amounts authorized to be paid by it under the
Plan, by the directors, including a majority of the ^ independent directors, by
a vote cast in person at a meeting called for such purpose.
Information regarding the services rendered under the Plan and the amounts
paid therefor by each Fund are provided to, and reviewed by, the directors on a
quarterly basis. On an annual basis, the directors consider the continued
appropriateness of the Plan at the level of compensation provided therein.
<PAGE>
The only members of the board of directors or officers of the Fund who are
interested persons, as that term is defined in Section 2(a)(19) of the Act, of
the Company who have a direct or indirect financial interest in the operation of
the Plan are the officers and directors of the Company listed under "The Funds
and Their Management -- Officers and Directors of the Company" who are also
officers either of ^ IDI or companies affiliated with ^ IDI. The benefits which
the Company believes will be reasonably likely to flow to the Funds and their
respective shareholders under the Plan include the following:
(1) Enhanced marketing efforts, if successful, should result in an
increase in net assets through the sale of additional shares and
afford greater resources with which to pursue the investment
objectives of the Funds;
(2) The sale of additional shares reduces the likelihood that redemption
of shares will require the liquidation of securities of a Fund in
amounts and at times that are disadvantageous for investment
purposes;
(3) The positive effect which increased Fund assets will have on its
revenues could allow ^ INVESCO and its affiliated companies:
(a) To have greater resources to make the financial commitments
necessary to improve the quality and level of each Fund's
shareholder services (in both systems and personnel),
(b) To increase the number and type of mutual funds available to
investors from ^ INVESCO and its affiliated companies (and
support them in their infancy), and thereby expand the
investment choices available to all shareholders, and
(c) To acquire and retain talented employees who desire
to be associated with a growing organization; and
(4) Increased Fund assets may result in reducing each investor's share
of certain expenses through economies of scale (e.g. exceeding
established breakpoints in the advisory fee schedule and allocating
fixed expenses over a larger asset base), thereby partially
offsetting the costs of the Plan.
HOW SHARES ARE VALUED
As described in the section of each Fund's prospectus entitled "How Shares
Can Be Purchased," the net asset value of shares of each Fund is computed once
each day that the New York Stock Exchange is open as of the close of regular
trading on that Exchange (generally 4:00 p.m., New York time) and applies to
purchase and redemption orders received prior to that time. Net asset value per
<PAGE>
share is also computed on any other day on which there is a sufficient
degree of trading in the securities held by a Fund that the current net asset
value per share might be materially affected by changes in the value of the
securities held, but only if on such day the Fund receives a request to purchase
or redeem shares of that Fund. Net asset value per share is not calculated on
days the New York Stock Exchange is closed, such as federal holidays including
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The net asset value per share of each Fund is calculated by dividing the
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), by the number of outstanding shares of that Fund.^
Securities traded on national securities exchanges, the NASDAQ National Market
System, the NASDAQ Small Cap market and foreign markets are valued at their last
sale prices on the exchanges or markets where such securities are primarily
traded. Securities traded in the over-the-counter market for which last sale
prices are not available, and listed securities for which no sales were reported
on a particular date, are valued at their highest closing 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, securities will be valued at their fair values as determined in good
faith by the Company's board of directors or pursuant to procedures adopted by
the board of directors. The above procedures may include the use of valuations
furnished by a pricing service which employs a matrix to determine valuations
for normal institutional-size trading units of debt securities. Prior to
utilizing a pricing service, the Fund's board of directors reviews the methods
used by such service to assure itself that securities will be valued at their
fair values. The Fund's board of directors also periodically monitors the
methods used by such pricing services. Debt securities with remaining maturities
of 60 days or less at the time of purchase are normally valued at amortized
cost.
The value of securities held by each Fund, and other assets used in
computing net asset value, generally is determined as of the time regular
trading in such securities or assets is completed each day. Because regular
trading in most foreign securities markets is completed simultaneously with, or
prior to, the close of regular trading on the New York Stock Exchange, closing
prices for foreign securities usually are available for purposes of computing
the Funds' net asset values. However, in the event that the closing price of a
foreign security is not available in time to calculate a Fund's net asset value
on a particular day, the Company's board of directors has authorized the use of
the market price for the security obtained from an approved pricing service at
an established time during the day which may be prior to the close of regular
trading in the security. The value of all assets and liabilities initially
expressed in foreign currencies will be converted into U.S. dollars at the spot
rate of such currencies against U.S. dollars provided by an approved pricing
service.
<PAGE>
FUND PERFORMANCE
As discussed in the section of each Fund's Prospectus entitled
"Performance Data," all of the Funds advertise their total return performance.
Average annual total return performance for each Fund for the indicated periods
ended October 31, 1997, was as follows:
10 Years/
Life of
Fund 1 Year 5 Years Fund
European 18.07% 16.07% 11.41%
Pacific Basin -26.65% 2.06% 2.80%
International Growth 2.65% 9.70% 5.38%(1)
Emerging Markets (2) N/A N/A N/A
International Blue Chip (2) N/A N/A N/A
(1) 109 months (9.08 yrs.)
(2) The Emerging Markets and International Blue Chip Funds did not operate
during these time periods.
Average annual total return performance for each of the periods indicated was
computed by finding the average annual compounded rates of return that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1 + T)exponent n = ERV
where: P = initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown above were
determined by solving the above formula for "T" for each time period and Fund
indicated.
From time to time, evaluations of performance made by independent sources
may also be used in advertisements, sales literature or shareholder reports,
including reprints of, or selections from, editorials or articles about the
Funds. Sources for Fund performance information and articles about the Funds
include, but are not limited to, the following:
American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
CNBC
CNN
Consumer Digest
Financial Times
Financial World
<PAGE>
Forbes
Fortune
Ibbotson Associates, Inc.
Institutional Investor
Investment Company Data, Inc.
Investor's Business Daily
Kiplinger's Personal Finance
Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis
Money
Morningstar
Mutual Fund Forecaster
No-Load Analyst
No-Load Fund X
Personal Investor
Smart Money
The New York Times
The No-Load Fund Investor
U.S. News and World Report
United Mutual Fund Selector
USA Today
Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
SERVICES PROVIDED BY THE FUNDS
Periodic Withdrawal Plan. As described in the section of each Fund's
prospectus entitled "Services Provided By the Funds," each Fund offers a
Periodic Withdrawal Plan. All dividends and distributions on shares owned by
shareholders participating in this Plan are reinvested in additional shares.
Because withdrawal payments represent the proceeds from sales of shares, the
amount of shareholders' investments in that Fund will be reduced to the extent
that withdrawal payments exceed dividends and other distributions paid and
reinvested. Any gain or loss on such redemptions must be reported for tax
purposes. In each case, shares will be redeemed at the close of business on or
about the 20th day of each month preceding payment and payments will be mailed
within five business days thereafter.
The Periodic Withdrawal Plan involves the use of principal and is not a
guaranteed annuity. Payments under such a Plan do not represent income or a
return on investment.
Participation in the Periodic Withdrawal Plan may be terminated at any
time by sending a written request to ^ INVESCO. Upon termination, all future
dividends and capital gain distributions will be reinvested in additional shares
unless a shareholder requests otherwise.
Exchange Policy. As discussed in the section of each Fund's Prospectus
entitled "Services Provided by the Funds," the Funds offer shareholders the
ability to exchange shares of the Funds for shares of certain other mutual funds
advised by ^ INVESCO. Exchange requests may be made either by telephone or by
written request to ^ INVESCO, using the telephone number or address on the cover
of this Statement of Additional Information. Exchanges made by telephone must be
in an amount of at least $250 if the exchange is being made into an existing
account of one of the INVESCO funds. All exchanges that establish a new account
must meet the fund's applicable minimum initial investment requirements. Written
exchange requests into an existing account have no minimum requirements other
than the fund's applicable minimum subsequent investment requirements. Any gain
or loss realized on such an exchange is recognized for federal income tax
purposes. This privilege is not an option or right to purchase securities but is
a revocable privilege permitted under the present policies of each of the funds
and is not available in any state or other jurisdiction where the shares of the
mutual fund into which transfer is to be made are not qualified for sale, or
when the net asset value of the shares presented for exchange is less than the
minimum dollar purchase required by the appropriate prospectus.
<PAGE>
TAX-DEFERRED RETIREMENT PLANS
As described in the section of each Fund's prospectus entitled "Services
Provided by the Funds," shares of the Funds may be purchased as the investment
medium for various tax-deferred retirement plans. Persons who request
information regarding these plans from ^ INVESCO will be provided with prototype
documents and other supporting information regarding the type of plan requested.
Each of these plans involves a long-term commitment of assets and is subject to
possible regulatory penalties for excess contributions, premature distributions
or insufficient distributions after age 70-1/2. The legal and tax implications
may vary according to the circumstances of the individual investor. Therefore,
the investor is urged to consult with an attorney or tax adviser prior to the
establishment of such a plan.
HOW TO REDEEM SHARES
Normally, payments for shares redeemed will be mailed within seven (7)
days following receipt of the required documents as described in the section of
each Fund's prospectus entitled "How to Redeem Shares." The right of redemption
may be suspended and payment postponed when: (a) the New York Stock Exchange is
closed for other than customary weekends and holidays; (b) trading on that
exchange is restricted; (c) an emergency exists as a result of which disposal by
a particular Fund of securities owned by it is not reasonably practicable, or it
is not reasonably practicable for a particular Fund fairly to determine the
value of its net assets; or (d) the Securities and Exchange Commission ("SEC")
by order so permits.
The Company has authorized one or more brokers to accept redemption orders
on the Funds' behalf. Such brokers are authorized to designate other
intermediaries to accept redemption orders on the Funds' behalf. The Funds will
be deemed to have received a redemption order when an authorized broker or, if
applicable, a broker's authorized designee, accepts the order. A redemption
order will be priced at a Fund's net asset value next calculated after the order
has been accepted by an authorized broker or the broker's authorized designee.
It is possible that in the future conditions may exist which would, in the
opinion of the Company's investment adviser, make it undesirable for a Fund to
pay for redeemed shares in cash. In such cases, the investment adviser may
authorize payment to be made in portfolio securities or other property of the
Fund. However, the Company is obligated under the 1940 Act to redeem for cash
all shares of a Fund presented for redemption by any one shareholder up to
$250,000 (or 1% of the Fund's net assets if that is less) in any 90-day period.
Securities delivered in payment of redemptions are selected entirely by the
investment adviser based on what is in the best interests of the Fund and its
shareholders, and are valued at the value assigned to them in computing the
Fund's net asset value per share. Shareholders receiving such securities are
likely to incur brokerage costs on their subsequent sales of the securities.
<PAGE>
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
The Funds intend to continue to conduct their business and satisfy the
applicable diversification of assets and source of income requirements to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The INVESCO European Fund,
INVESCO Pacific Basin Fund and INVESCO International Growth Fund so qualified
for the taxable year ended October 31, 1997, and intend to continue to qualify
during their current taxable year. The INVESCO Emerging Markets Fund commenced
operations on February 12, 1998 and intends to qualify during its current
taxable year. The International Blue Chip Fund commenced operations on ^ October
28, 1998 and intends to qualify during its current taxable year. As a result,
because the Funds intend to distribute all of their income and recognized gains,
it is anticipated that the Funds will pay no federal income or excise taxes and
will be accorded conduit or "pass through" treatment for federal income tax
purposes.
Dividends paid by ^ each Fund from net investment income as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
^ each Fund sends shareholders information regarding the amount and character of
dividends paid in the year.
Distributions by ^ each Fund of net capital gain (the excess of net
long-term capital gain over net short-term capital loss) are, for federal income
tax purposes, taxable to the shareholder as long-term capital gains regardless
how long a shareholder has held shares of the Fund. Long-term gains realized
between May 7, 1997 and July 28, 1997 on the sale of securities held for more
than 12 months are taxable at the maximum rate of 20%. Long-term gains realized
between July 29, 1997 and December 31, 1997 on the sale of securities held for
more than one year but not for more than 18 months are taxable at a maximum rate
of 28%^. Beginning January 1, 1998, the IRS Restructuring and Reform Act of
1998, signed into law on July 24, 1998, lowers the holding period for long-term
capital gains entitled to the 20% capital gains tax rate from 18 months to 12
months. Accordingly, all long-term gains realized after December 31, 1997 on the
sale of securities held for more than ^ 12 months ^ will be taxable at a maximum
rate of 20%^. Note that the rate of capital gains tax is dependent on the
shareholder's marginal tax rate ^ and may be lower than the above rates. At the
end of each year, information regarding the tax status of dividends and other
distributions is provided to shareholders. Shareholders should consult their tax
advisers as to the effect of the Tax Act on distributions by the Fund of net
capital gain.
All dividends and other distributions are regarded as taxable to the
investor, regardless whether such dividends and distributions are reinvested in
additional shares of the Funds or another fund in the INVESCO group. The net
<PAGE>
asset value of Fund shares reflects accrued net investment income and
undistributed realized capital and foreign currency gains; therefore, when a
distribution is made, the net asset value is reduced by the amount of the
distribution. If the net asset value of Fund shares were reduced below a
shareholder's cost as a result of a distribution, such distribution would be
taxable to the shareholder although a portion would be, in effect, a return of
invested capital. However, the net asset value per share will be reduced by the
amount of the distribution, which would reduce any gain (or increase any loss)
for tax purposes on any subsequent redemption of shares by the shareholder.
^ INVESCO may provide Fund shareholders with information concerning the
average cost basis of their shares in order to help them prepare their tax
returns. This information is intended as a convenience to shareholders and will
not be reported to the Internal Revenue Service (the "IRS"). The IRS permits the
use of several methods to determine the cost basis of mutual fund shares. The
cost basis information provided by ^ INVESCO will be computed using the
single-category average cost method, although neither ^ INVESCO nor the Funds
recommend any particular method of determining cost basis. Other methods may
result in different tax consequences. If a shareholder has reported gains or
losses with respect to shares of a Fund in past years, the shareholder must
continue to use the cost basis method previously used unless the shareholder
applies to the IRS for permission to change the method.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as a long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a non-deductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and net capital gains for the one-year period
ending on October 31 of that year, plus certain other amounts.
Dividends and interest received by each Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. Foreign taxes withheld will be
treated as an expense of the Fund.
Each Fund may invest in the stock of "passive foreign investment
companies" (PFICs). A PFIC is a foreign corporation (other than a controlled
foreign corporation) that, in general, meets either of the following tests: (1)
at least 75% of its gross income is passive or (2) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
<PAGE>
certain circumstances, a 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 the 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 the
Fund to the extent that income is distributed to its shareholders.
A Fund may elect to "mark-to-market" its stock in any PFIC.
Marking-to-market, in this context, means including in ordinary income for each
taxable year the excess, if any, of the fair market value of the PFIC stock over
the Fund's adjusted tax basis therein as of the end of that year. Once the
election has been made, the Fund also will be allowed to deduct from ordinary
income the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the end of the year, but only to the extent of any
net mark-to-market gains with respect to that PFIC stock included by the Fund
for prior taxable years. A Fund's adjusted tax 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.
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and other
distributions generally will be subject to applicable state and local taxes.
Qualification as a regulated investment company under the Code for federal
income tax purposes does not entail government supervision of management or
investment policies.
INVESTMENT PRACTICES
Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover for any of the Funds. Brokerage costs to each Fund are commensurate
with the rate of portfolio activity. During the fiscal years ended October 31,
1997, 1996 and 1995, the European Fund's portfolio turnover rates were 90%, 91%
and 96%, respectively; the Pacific Basin Fund's portfolio turnover rates were
86%, 70% and 56%, respectively; and the International Growth Fund's portfolio
<PAGE>
turnover rates were 57%, 64% and 62%, respectively. The Emerging Markets
Fund International Blue Chip Fund did not operate during these time periods. ^
In computing the portfolio turnover rate, all investments with maturities or
expiration dates at the time of acquisition of one year or less are excluded.
Subject to this exclusion, the turnover rate is calculated by dividing (A) the
lesser of purchases or sales of portfolio securities for the fiscal year by (B)
the monthly average of the value of portfolio securities owned by the Fund
during the fiscal year.
Placement of Portfolio Brokerage. Either ^ INVESCO, IGAM or IAML, as the
investment adviser or sub-adviser to a Fund, places orders for the purchase and
sale of securities with brokers and dealers based upon ^ INVESCO's evaluation of
the financial responsibility of the brokers and dealers, and considering the
brokers' and dealers' ability to effect transactions at the best available
prices. Fund Management evaluates the overall reasonableness of brokerage
commissions paid by reviewing the quality of executions obtained on portfolio
transactions of each Fund, 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 any commissions or
discounts charged the Fund are consistent with prevailing and reasonable
commissions, Fund Management 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 Fund
Management seeks reasonably competitive rates, the Funds do not necessarily pay
the lowest commission, spread or discount available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, Fund Management 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 Fund Management in
making informed investment decisions. Research services prepared and furnished
by brokers through which the Funds effect securities transactions may be used by
Fund Management in servicing all of their respective accounts and not all such
services may be used by Fund Management in connection with the Funds.
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, Fund Management, consistent with the
standard of seeking to obtain the best execution on portfolio transactions, may
place orders with such brokers for the execution of transactions for the Funds
on which the commissions are in excess of those which other brokers might have
charged for effecting the same transactions.
Portfolio transactions may be effected through qualified ^ brokers and
dealers that recommend the Funds to their clients or who act as agent in the
purchase of any of the Funds' shares for their clients. When a number of brokers
<PAGE>
and dealers can provide comparable best price and execution on a particular
transaction, the Company's adviser may consider the sale of Fund shares by a
broker or dealer in selecting among qualified ^ brokers and dealers.
Certain financial institutions (including brokers who may sell shares of
the Fund, or affiliates of such brokers) are paid a fee (the "Services Fee") for
recordkeeping, shareholder communications and other services provided by the
brokers to investors purchasing shares of the Fund through no transaction fee
programs ("NTF Programs") offered by the financial institution or its affiliated
broker (an "NTF Program Sponsor"). The Services Fee is based on the average
daily value of the investments in each Fund made in the name of such NTF Program
Sponsor and held in omnibus accounts maintained on behalf of investors
participating in the NTF Program. With respect to certain NTF Programs, the
Company's directors have authorized the Funds to apply dollars generated from
the Fund's Plan and Agreement of Distribution pursuant to Rule 12b-1 under the
1940 Act (the "Plan") to pay the entire Services Fee, subject to the maximum
Rule 12b-1 fee permitted by the Plan. With respect to other NTF Programs, the
Company's directors have authorized the Funds to pay transfer agency fees to ^
INVESCO based on the number of investors who have beneficial interests in the
NTF Program Sponsor's omnibus accounts in that Fund. ^ INVESCO, in turn, pays
these transfer agency fees to the NTF Program Sponsor as a sub-transfer agency
or recordkeeping fee in payment of all or a portion of the Services Fee. In the
event that the sub-transfer agency or recordkeeping fee is insufficient to pay
all of the Services Fee with respect to these NTF Programs, the directors of the
Company have authorized the Funds to apply dollars generated from the Plan to
pay the remainder of the Services Fee, subject to the maximum Rule 12b-1 fee
permitted by the Plan. ^ INVESCO itself pays the portion of the Fund's Services
Fee, if any, that exceeds the sum of the sub-transfer agency or recordkeeping
fee and Rule 12b-1 fee. The Company's directors have further authorized ^
INVESCO to place a portion of the Funds' brokerage transactions with certain NTF
Program Sponsors or their affiliated brokers, if ^ INVESCO reasonably believes
that, in effecting the Fund's transactions in portfolio securities, the broker
is able to provide the best execution of orders at the most favorable prices. A
portion of the commissions earned by such a broker from executing portfolio
transactions on behalf of the Funds may be credited by the NTF Program Sponsor
against its Services Fee. Such credit shall be applied first against any
sub-transfer agency or recordkeeping fee payable with respect to the Funds, and
second against any Rule 12b-1 fees used to pay a portion of the Services Fee, on
a basis which has resulted from negotiations between ^ INVESCO or IDI and the
NTF Program Sponsor. Thus, the Funds pay sub-transfer agency or recordkeeping
fees to the NTF Program Sponsor in payment of the Services Fee only to the
extent that such fees are not offset by the Funds' credits. In the event that
the transfer agency fee paid by the Funds to ^ INVESCO with respect to investors
who have beneficial interests in a particular NTF Program Sponsor's omnibus
<PAGE>
accounts in the Funds exceeds the Services Fee applicable to that Fund,
after application of credits, ^ INVESCO may carry forward the excess and apply
it to future Services Fees payable to that NTF Program Sponsor with respect to
the Funds. The amount of excess transfer agency fees carried forward will be
reviewed for possible adjustment by ^ INVESCO prior to each fiscal year-end of
the Company. The Company's board of directors has also authorized the Funds to
pay to IDI the full Rule 12b-1 fees contemplated by the Plan to compensate IDI
for expenses incurred by IDI in engaging in the activities and providing the
services on behalf of the Funds contemplated by the Plan, subject to the maximum
Rule 12b-1 fee permitted by the Plan, notwithstanding that credits have been
applied to reduce the portion of the 12b-1 fee that would have been used to
compensate IDI for payments to such NTF Program Sponsor absent such credits.
The aggregate dollar amounts of brokerage commissions paid by the Company,
on behalf of the Funds, for the fiscal years ended October 31, 1997, 1996 and
1995 were $2,845,570, $2,717,105 and $105,752, respectively. The aggregate
dollar amounts of brokerage commissions paid by the INVESCO European, Pacific
Basin and International Growth Funds for the fiscal years ended October 31,
1997, 1996 and 1995, were $1,477,524, $1,070,781 and $51,678, respectively, for
the INVESCO European Fund; $1,007,320, $1,284,787 and $18,451 respectively, for
the INVESCO Pacific Basin Fund; and $360,726, $361,537 and $35,623 for the
INVESCO International Growth Fund. For the fiscal year ended October 31, 1997,
brokers providing research services received $0 in commissions on portfolio
transactions effected for the Company on aggregate portfolio transactions of $0.
The Company paid $0 in compensation to brokers for the sale of shares of these
Funds during the fiscal year ended October 31, 1997. The Emerging Markets Fund
and International Blue Chip Fund did not incur any brokerage commissions during
these time periods.
The increased brokerage commissions paid by the Funds in fiscal 1996
versus the prior fiscal years were primarily the result of the increased volume
of purchases and sales of Fund shares by investors, which resulted in higher
levels of purchases and sales of portfolio securities and corresponding
increases in the amounts of brokerage commissions.
At October 31, 1997, each of the Funds held securities of its regular
brokers or dealers, or their parents, as follows:
Value of
Securities
Fund Broker or Dealer at 10/31/97
Pacific Basin State Street Bank and Trust $5,661,000
Fund
European Fund $0
<PAGE>
International State Street Bank and Trust 289,000
Growth Fund North America
Emerging Markets
Fund (1) N/A N/A
International Blue
Chip Fund (1) N/A N/A
(1) The Emerging Markets and International Blue Chip Funds were not operating at
this time.
Neither ^ INVESCO, IGAM nor IAML receives any brokerage commissions on
portfolio transactions effected on behalf of any of the Funds, and there is no
affiliation between ^ INVESCO, IGAM, IAML or any person affiliated with ^
INVESCO, IGAM, IAML or the Funds and any broker or dealer that executes
transactions for the Funds.
ADDITIONAL INFORMATION
Common Stock. The Company has 500,000,000 authorized shares of common
stock with a par value of $0.01 per share. As of October 31, 1997, the following
shares were outstanding: INVESCO European Fund, 18,729,780, INVESCO
International Growth Fund, 5,149,447, and INVESCO Pacific Basin Fund, 6,565,265.
Of the Company's authorized shares, 100,000,000 shares have been allocated to
each of the Company's five Funds. The board of directors has the authority to
designate additional classes of Common Stock without seeking the approval of
shareholders and may classify and reclassify any authorized but unissued shares.
Shares of each ^ series represent the interests of the shareholders of
such ^ series in a particular portfolio of investments of the Company. Each ^
series of the Company's shares is preferred over all other ^ series in respect
of the assets specifically allocated to that ^ series, and all income, earnings,
profits and proceeds from such assets, subject only to the rights of creditors,
are allocated to shares of that ^ series. The assets of each ^ series are
segregated on the books of account and are charged with the liabilities of that
^ series and with a share of the Company's general liabilities. The board of
directors determines those assets and liabilities deemed to be general assets or
liabilities of the Company, and these items are allocated among ^ series in a
manner deemed by the board of directors to be fair and equitable. Generally,
such allocation will be made based upon the relative total net assets of each ^
series. In the unlikely event that a liability allocable to one ^ series exceeds
the assets belonging to the ^ series, all or a portion of such liability may
have to be borne by the holders of shares of the Company's other ^ series.
<PAGE>
All shares, regardless of ^ series, have equal voting rights. Voting with
respect to certain matters, such as ratification of independent accountants or
election of directors, will be by all ^ series of the Company. When not all
series are affected by a matter to be voted upon, such as approval of an
investment advisory contract or changes in a Fund's investment policies, only
shareholders of the Fund affected by the matter may be entitled to vote. Company
shares have noncumulative voting rights, which means that the holders of a
majority of the shares voting for the election of directors can elect 100% of
the directors if they choose to do so. In such event, the holders of the
remaining shares voting for the election of directors will not be able to elect
any person or persons to the board of directors. After they have been elected by
shareholders, the directors will continue to serve until their successors are
elected and have qualified or they are removed from office, or until death,
resignation or retirement. Directors may appoint their own successors, provided
that always at least a majority of the directors have been elected by the
Company's shareholders. It is the intention of the Company not to hold annual
meetings of shareholders. The directors will call annual or special meetings of
shareholders for action by shareholder vote as may be required by the 1940 Act
or the Company's Articles of Incorporation, or at their discretion.
Principal Shareholders. As of June 30, 1998, the following
entities held more than 5% of the Funds' outstanding equity
securities.
Amount and Nature Percent
Name and Address of Ownership of Class
- ---------------- ----------------- --------
Pacific Basin Fund
Charles Schwab & Co., Inc. 2,391,566.6230 36.12%
Special Custody Acct. for
the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
European Fund
Charles Schwab & Co., Inc. 11,819,215.7470 35.21%
Special Custody Acct. for
the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
National Financial Services Corp. 3,138,173.1800 9.35%
The Exclusive Benefit of Customers
One World Financial Center
200 Liberty Street, 5th Floor
Attn: Kate - Recon
New York, NY 10281-1003
Donaldson, Lufkin & Jenrette 1,898,004.1630 5.65%
Securities Corp.
Mutual Funds, 5th Floor
P.O. Box 2052
Jersey City, NJ 07303-2052
<PAGE>
International Growth Fund
Charles Schwab & Co., Inc. 474,254.2570 15.18%
Special Custody Acct. for
the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
The 401(k) Retirement & 160,474.3540 5.14%
Savings Plan for Employees
of Fairfield, Inc.
Attn: Terri Winstead - Benefits
US 52 South P.O. Box 7940
Lafayette, IN 47903
Wachovia Bank NA TR 157,665.7140 5.05%
Coca-Cola Enterprises
Supplemental MCSIP
301 N. Main St. MCNC 31057
P.O. Box 3073
Winston-Salem, NC 27150-0001
Emerging Markets Fund
INVESCO Funds Group, Inc. 36,673.6720 32.55%
Attn: Sheila Wendland
P.O. Box 173706
Denver, CO 80217-3706
Charles Schwab & Co., Inc. 9,261.5110 8.22%
Special Custody Acct. for
the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
A. Blankenburg 7,218.4160 6.41%
Edna Blankenburg JT TEN
109 W. 6th St.
Oakley, KS 67748-1613
International Blue Chip Fund
The International Blue Chip Fund was not operating during this time
period.
Independent Accountants. PricewaterhouseCoopers LLP, 950 Seventeenth
Street, Denver, Colorado, has been selected as the independent accountants of
the Company. The independent accountants are responsible for auditing the
financial statements of the Company.
Custodian. State Street Bank and Trust Company, P.O. Box 351, Boston,
Massachusetts, has been designated as custodian of the cash and investment
securities of the Company. The bank is also responsible for, among other things,
receipt and delivery of each Fund's investment securities in accordance with
procedures and conditions specified in the custody agreement. Under its contract
with the Company, the custodian is authorized to establish separate accounts in
foreign countries and to cause foreign securities owned by the Company to be
held outside the United States in branches of U.S. banks and, to the extent
permitted by applicable regulations, in certain foreign banks and foreign
securities depositories.
<PAGE>
Transfer Agent. The Company is provided with transfer agent, registrar and
dividend disbursing agent services by ^ INVESCO, 7800 E. Union Avenue, Denver,
Colorado 80237, pursuant to the Transfer Agency Agreement described herein. Such
services include the issuance, cancellation and transfer of shares of each of
the Funds, and the maintenance of records regarding the ownership of such
shares.
Reports to Shareholders. The Company's fiscal year ends on October 31. The
Fund distributes reports at least semiannually to its shareholders. Financial
statements regarding the Company, audited by the independent accountants, are
sent to shareholders annually.
Legal Counsel. The firm of Kirkpatrick & Lockhart LLP, Washington, D.C., is
legal counsel for the Company. The firm of Moye, Giles, O'Keefe, Vermeire &
Gorrell, Denver, Colorado, acts as special counsel to the Funds.
Financial Statements. The Company's audited financial statements and the
notes thereto for the fiscal year ended October 31, 1997 and the report of Price
Waterhouse LLP with respect to such financial statements are incorporated herein
by reference from the Company's Annual Report to Shareholders for the fiscal
year ended October 31, 1997.
Prospectuses. The Company will furnish, without charge, a copy of the
prospectus for each of its Funds, upon request. Such requests should be made to
the Company at the mailing address or telephone number set forth on the first
page of this Statement of Additional Information.
Registration Statement. This Statement of Additional Information and the
Prospectuses do not contain all of the information set forth in the Registration
Statement the Company has filed with the SEC. The complete Registration
Statement may be obtained from the SEC upon payment of the fee prescribed by the
rules and regulations of the SEC.
<PAGE>
APPENDIX A
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS
(International Growth Fund, European Fund, Pacific Basin Fund and
Emerging Markets Fund only)
Options on Securities
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price, in the case of a put option. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such as
the Chicago Board of Options Exchange and the New York Stock Exchange, which are
regulated by the Securities and Exchange Commission. The Options Clearing
Corporation guarantees the performance of each party to an exchange-traded
option, by in effect taking the opposite side of each such option. A holder or
writer may engage in transactions in exchange-traded options on securities and
options on indices of securities only through a registered broker/dealer which
is a member of the exchange on which the option is traded.
An option position in an exchange-traded option may be closed out only on
an exchange which provides a secondary market for an option of the same series.
Although the Fund will generally purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
<PAGE>
liquid secondary market on an exchange will exist for any particular option
at any particular time. In such event it might not be possible to effect closing
transactions in a particular option with the result that the Fund would have to
exercise the option in order to realize any profit. This would result in the
Fund incurring brokerage commissions upon the disposition of underlying
securities acquired through the exercise of a call option or upon the purchase
of underlying securities upon the exercise of a put option. If the Fund as
covered call option writer is unable to effect a closing purchase transaction in
a secondary market, unless the Fund is required to deliver the securities
pursuant to the assignment of an exercise notice, it will not be able to sell
the underlying security until the option expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities: (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or particular class or series of options) in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange which had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at a particular time, render certain of the facilities of any of the
clearing corporations inadequate and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders. However, the Options Clearing Corporation, based on forecasts
provided by the U.S. exchanges, believes that its facilities are adequate to
handle the volume of reasonably anticipated options transactions, and such
exchanges have advised such clearing corporation that they believe their
facilities will also be adequate to handle reasonably anticipated volume.
In addition, options on securities may be traded over-the-counter through
financial institutions dealing in such options as well as the underlying
instruments. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the Fund.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. If the transacting dealer fails
<PAGE>
to make or take delivery of the securities underlying an option it has
written, in accordance with the terms of that option as written, the Fund would
lose the premium paid for the option as well as any anticipated benefit of the
transaction. The Fund will engage in OTC option transactions only with primary
U.S. Government securities dealers recognized by the Federal Reserve Bank of New
York.
Futures Contracts
A Futures Contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future, for a fixed price. By its terms, a Futures Contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that they are bilateral agreements,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, Futures Contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their term.
The purchase or sale of a Futures Contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalent, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index or instrument underlying the Futures Contract fluctuates, making positions
in the Futures Contract more or less valuable, a process known as "marking to
market."
A Futures Contract may be purchased or sold only on an exchange, known as
a "contract market," designated by the Commodity Futures Trading Commission for
the trading of such contract, and only through a registered futures commission
merchant which is a member of such contract market. A commission must be paid on
each completed purchase and sale transaction. The contract market clearing house
guarantees the performance of each party to a Futures Contract, by in effect
taking the opposite side of such Contract. At any time prior to the expiration
of a Futures Contract, a trader may elect to close out its position by taking an
opposite position on the contract market on which the position was entered into,
subject to the availability of a secondary market, which will operate to
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terminate the initial position. At that time, a final determination of
variation margin is made and any loss experienced by the trader is required to
be paid to the contract market clearing house while any profit due to the trader
must be delivered to it.
Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities, U.S. Treasury Bills, bank certificates of deposit and commercial
paper. In addition, interest rate futures contracts include contracts on indices
of municipal securities. Foreign currency futures contracts currently are traded
on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German
mark and on Eurodollar deposits.
Options on Futures Contracts
An Option on a Futures Contract provides the holder with the right to
enter into a "long" position in the underlying Futures Contract, in the case of
a call option, or a "short" position in the underlying Futures Contract, in the
case of a put option, at a fixed exercise price to a stated expiration date.
Upon exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of Futures Contracts, such as payment
of variation margin deposits. In addition, the writer of an Option on a Futures
contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a Futures Contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
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APPENDIX B
BOND RATINGS
The following is a description of Moody's and S&P's bond ratings:
Moody's Corporate Bond Ratings
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any longer period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
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S&P Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to
default and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal.
