Prospectus
February 1, 1998
INVESCO EMERGING MARKETS FUND
INVESCO Emerging Markets Fund (the "Fund") seeks to achieve capital
appreciation. Under normal circumstances, the Fund will invest at least 65% of
its total assets in securities of emerging country issuers. The Fund is not
intended as a complete investment program due to risks of investing in the Fund.
For a description of risks inherent in investing in the Fund see "Risk Factors"
and "Investment Objective and Policies - Portfolio Turnover."
The Fund is a series of INVESCO International Funds, Inc. (the "Company"),
an open-end management investment company consisting of four separate portfolios
of investments. This Prospectus relates to shares of INVESCO Emerging Markets
Fund. Separate prospectuses are available upon request from INVESCO
Distributors, Inc. for the Company's other three funds, INVESCO European Fund,
INVESCO Pacific Basin Fund and INVESCO International Growth Fund. Investors may
purchase shares of any or all of the Funds. 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 February 1, 1998, has been filed with the Securities and
Exchange Commission and is incorporated by reference into this Prospectus. To
obtain a free copy, write to INVESCO Distributors, Inc., Post Office 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 OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. 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 2
PERFORMANCE DATA 4
INVESTMENT OBJECTIVE AND POLICIES 4
RISK FACTORS 9
THE FUND AND ITS MANAGEMENT 11
HOW SHARES CAN BE PURCHASED 13
SERVICES PROVIDED BY THE FUND 15
HOW TO REDEEM SHARES 17
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS 19
ADDITIONAL INFORMATION 20
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ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares other than a fee to redeem or exchange shares held less than 3 months
(see "Shareholder Transaction Expenses"). The Fund, however, is authorized to
pay a Rule 12b-1 distribution fee of one quarter of one percent of the Fund's
average net assets each year. Lower expenses benefit Fund shareholders by
increasing the Fund's total return.
Shareholder Transaction Expenses
Sales load "charge" on purchases None
Sales load "charge" on reinvested dividends None
Redemption fees 1.00%*
Exchange fees 1.00%*
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 1.00%
12b-1 Fees 0.25%
Other Expenses 0.75%
(after voluntary expense limitation)(1)
Transfer Agency Fee(2) 0.20%
General Services, Administrative 0.55%
Services, Registration, Postage (3)
Total Fund Operating Expenses 2.00%
(after voluntary expense limitation)(1)
*There is a 1% fee retained by the Fund to offset transaction costs and other
expenses associated with short-term redemptions and exchanges, which is imposed
only on redemptions or exchanges of shares held less than ^ three 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 the date of this
Prospectus. 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 the Fund will not exceed 2.00% of the Fund's average net assets
pursuant to an agreement among the ^ Company, INVESCO Funds Group, Inc. and
INVESCO Asset Management Limited. 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 1.09% and 2.34%,
respectively, of the Fund's average net assets.
(2) Consists of the transfer agency fee described under "Additional
Information-Transfer and Dividend Disbursing Agent."
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(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 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
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$21 $63
The purpose of the foregoing table 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.") The above figures are estimates, since the Fund did not
commence a public offering of securities until the date of this Prospectus. The
Fund charges no sales load. The Fund's shares are subject to an annual
distribution fee of 0.25% of its average daily net assets. The Example should
not be considered a representation of 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 future annual
returns, which may be greater or less than the assumed amount.
Because the Fund pays a distribution fee on its shares, 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.
PERFORMANCE DATA
From time to time, the Fund may advertise its total return performance.
These figures are based upon historical earnings and are not intended to
indicate future performance. The "total return" of the Fund refers to the
average annual rate of return of an investment in the Fund. This figure is
computed by calculating the percentage change in value of an investment of
$1,000, assuming reinvestment of all income dividends and other distributions,
to the end of a specified period. Periods of one year, five years, ten years
and/or life of the Fund are generally used.
Thus, a report of total return should not be considered as representative
of future performance. The Fund charges no sales loads which would affect the
total return computation. However, the total return computation may be affected
as a result of the 1% redemption or exchange fee which is retained by the Fund
to offset transaction costs and other expenses associated with short-term
redemptions and exchanges, which is imposed on redemptions or exchanges of
shares held less than 3 months.
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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 recognized indices of investment results for the same period,
and/or assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company,
Standard & Poor's 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 Stock Exchange, Morgan Stanley
Capital International World Index, 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 rankings and
comparisons, which may be used by the Fund in performance reports, will be drawn
from the "Emerging Markets" Lipper mutual fund grouping, in addition to the
broad-based Lipper general fund grouping.
Further information about the performance of the Fund will be contained in
the Company's annual report to shareholders, which may be obtained without
charge by writing INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado
80217-3706; by calling 1-800-525-8085; or by visiting our web site at
http://www.invesco.com. The annual report containing information about the
Fund's first fiscal year of operations will be available on or about December 1,
1998.
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to achieve capital appreciation. The foregoing investment
objective is fundamental and may not be changed in any material respect without
the approval of the Fund's shareholders. Under normal circumstances, the Fund
will invest at least 65% of its total assets in equity securities of emerging
country issuers.
As used in this Prospectus, the term "emerging country" applies to any
country which, in the opinion of the Fund's investment adviser or sub-adviser
(collectively, "Fund Management"), is generally considered to be a developing or
emerging country by the international financial community. These countries
include countries with low- to middle-income economies according to the
International Bank for Reconstruction and Development (commonly known as the
World Bank), those listed in World Bank publications as developing or those
having emerging stock markets as defined by the International Finance
Corporation. Emerging countries generally include every nation in the world
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except the United States, Canada, Japan, Australia, New Zealand and the
nations in Western Europe other than Greece, Portugal and Turkey. The Fund will
focus its investments in those emerging countries that Fund Management believes
have the potential for rapid growth and that have undertaken economic and
securities market reforms making international investment feasible. The Fund
normally will invest in at least three different emerging countries, although
Fund Management expects the Fund's assets to be allocated among a larger number
of emerging countries. The Fund normally will not invest more than 50% of its
total assets in any one emerging country. The economies of these countries may
vary widely in their condition and may be subject to certain changes that could
have a positive or negative impact on the Fund. Investments in emerging
countries involve certain risks that are discussed below under "Risk Factors."
An "emerging country issuer" is a company that, in the opinion of Fund
Management, has one or more of the following characteristics: (i) its principal
securities trading market is in an emerging country; (ii) the company derives
50% or more of its annual revenue from either goods produced, sales made or
services performed in emerging countries; or (iii) the company is organized
under the laws of, or has its principal office in, an emerging country. Fund
Management will base its determination of whether a company is an emerging
country issuer on publicly available information or inquiries made to the
company.
Under normal conditions, the Fund will invest primarily in equity
securities (common stocks and, to a lesser degree, depository receipts, shares
of unaffiliated investment companies, preferred stocks and securities
convertible into common stocks, such as rights, warrants and convertible debt
securities) that are discussed more fully under "Risk Factors" and in the
Statement of Additional Information. In selecting the equity securities in which
the Fund invests, Fund Management attempts to identify companies that have
demonstrated or, in Fund Management's opinion, are likely to demonstrate in the
future, strong earnings growth or value that reflects the underlying economic
activity within the emerging country or countries in which they operate. Equity
securities may be issued by either established, well-capitalized companies or
newly-formed, small-cap companies, and may trade on regional or national stock
exchanges or in the over-the-counter market. The Fund's investments in small
capitalization stocks may include investments in companies that have limited
operating histories, product lines, and financial and managerial resources.
These companies may be subject to intense competition from larger companies, and
their stock may be subject to more abrupt or erratic market movements than the
stocks of larger, more established companies. Due to these and other factors,
small-cap companies may suffer significant losses as well as realize substantial
growth.
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The balance of the Fund's assets may be invested in debt securities
denominated in the currency of an emerging country, or issued or guaranteed by
an emerging country issuer or the government of an emerging country, as well as
equity or debt securities of U.S. and other developed country issuers, including
non-investment grade and unrated debt securities. Equity securities of developed
country issuers in which the Fund invests may be issued by either established,
well-capitalized companies or newly-formed, small-cap companies, and may trade
on regional or national stock exchanges or in the over-the-counter market. Debt
securities in which the Fund invests must meet the quality standards described
below. In addition, the Fund may hold certain cash and cash equivalent
securities as cash reserves ("cash securities").
As discussed above, consistent with its investment objective, the Fund may
invest in debt securities, including corporate bonds, commercial paper,
securities issued by the U.S. government, its agencies and instrumentalities, or
foreign governments and, to a lesser extent, municipal bonds, asset-backed
securities and zero coupon bonds. The Fund may invest in debt securities that
are rated below BBB by S&P or Baa by Moody's Investors Services, Inc.
("Moody's") or equivalent ratings of other ratings services or, if unrated, that
are judged by Fund Management to be equivalent in quality to debt securities
having such ratings (commonly referred to as "junk bonds"), provided that the
Fund's investments in junk bonds are less than 35% of its total assets at the
time of purchase. The Fund expects that most foreign debt securities in which it
invests will not be rated by U.S. rating services, as discussed more fully
below. In no event will the Fund ever invest in a debt security rated below CCC
by S&P or Caa by Moody's or equivalent ratings of other ratings services or, if
unrated, is judged by Fund Management to be equivalent in quality to debt
securities having such ratings. The risks of investing in lower rated debt
securities are discussed below under "Risk Factors."
The amounts invested in equity, debt and cash securities may be varied
from time to time, depending upon Fund Management's assessment of business,
economic and market conditions. In periods of adverse economic and market
conditions, as determined by Fund Management, the Fund may depart from its basic
investment objective and assume a temporary defensive position, with up to 100%
of its assets invested in U.S. government and agency securities, investment
grade corporate bonds, or cash securities such as domestic certificates of
deposit and bankers' acceptances, repurchase agreements and commercial paper.
The Fund reserves the right to hold equity, debt and cash securities in whatever
proportion is deemed desirable at any time for temporary defensive purposes.
While the Fund is in a temporary defensive position, the opportunity to achieve
capital appreciation will be limited; however, the ability to maintain a
temporary defensive position enables the Fund to seek to avoid capital losses
during market downturns. Under normal market conditions, the Fund does not
expect to have a substantial portion of its assets invested in cash securities.
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In order to hedge its portfolio, the Fund may purchase and write options
on securities, including index options, and may invest in futures contracts for
the purchase or sale of foreign currencies, debt securities and instruments
based on financial indices (collectively, "futures contracts"), options on
futures contracts, forward contracts and interest rate swaps and swap-related
products. Interest rate swaps involve the exchange by the 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. These practices,
some of which may involve instruments known as derivatives, and their risks are
discussed below under "Risk Factors" and in the Statement of Additional
Information.
Additional information on certain types of securities in which the Fund
may invest is set forth below:
Delayed Delivery or When-Issued Securities.
Up to 10% of the value of the Fund's total assets may be committed to the
purchase or sale of securities on a when-issued or delayed-delivery basis --
that is, with settlement taking place in the future. The payment obligation and
the interest rate received on the securities generally are fixed at the time the
Fund enters into the commitment but the Fund would not pay for such securities
or start earning interest on them until they are delivered. However, the Fund
immediately assumes the risk of ownership, and between the date of purchase and
the settlement date, the market value of the securities may fluctuate.
Illiquid and Rule 144A Securities
The Fund is authorized to invest in securities that are illiquid because
they are subject to restrictions on their resale ("restricted securities") or
because, based upon their nature or the market for such securities, they are not
readily marketable. However, the Fund will not purchase any such security if the
purchase would cause the Fund to invest more than 15% of its net assets,
measured at the time of purchase, in illiquid securities. Securities the
proceeds of which are subject to limitations on repatriation of principal or
profits for more than seven days, and those for which there ceases to be a ready
market, will be deemed illiquid for this purpose. In addition, repurchase
agreements maturing in more than seven days will be considered as illiquid for
purposes of this restriction. Investments in illiquid securities involve certain
risks to the extent that the Fund may be unable to dispose of such a security at
the time desired or at a reasonable price. In addition, in order to resell a
restricted security, the Fund might have to bear the expense and incur the
delays associated with effecting registration.
<PAGE>
The securities that may be purchased subject to the foregoing restriction
include restricted securities that are not registered for sale to the general
public, but that can be resold to institutional investors ("Rule 144A
Securities"), may be purchased without regard to the foregoing 15% limitation if
a liquid institutional trading market exists. The liquidity of the Fund's
investments in Rule 144A Securities could be impaired if dealers or
institutional investors become uninterested in purchasing these securities. 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. For more information concerning Rule 144A Securities, see the
Statement of Additional Information.
Forward Foreign Currency Contracts
The Fund may enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") as a hedge against fluctuations in
foreign exchange rates pending the settlement of transactions in foreign
securities or during the time the Fund holds foreign securities. A forward
contract is an agreement between contracting parties to exchange an amount of
currency at some future time at an agreed upon rate. Although the Fund has not
adopted any limitations on its ability to use forward contracts as a hedge
against fluctuations in foreign exchange rates, it does not attempt to hedge all
of its foreign investment positions and will enter into forward contracts only
to the extent, if any, deemed appropriate by Fund Management. The Fund will not
enter into a forward contract for a term of more than one year or for purposes
of speculation. Investors should be aware that 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 may preclude the
opportunity for gain if the value of the hedged currency should rise. No
predictions can be made with respect to whether the total of such transactions
will result in a better or a worse position than had the Fund not entered into
any forward contracts. Forward contracts may, from time to time, be considered
illiquid, in which case they would be subject to the Fund's limitation on
investing in illiquid securities, discussed above. For additional information
regarding foreign securities, see the Company's Statement of Additional
Information.
^
Futures and Options
A futures contract is an agreement to buy or sell a specific amount of a
financial instrument or commodity at a particular price on a particular date.
The Fund will use futures contracts only to hedge against price changes in the
value of its current or intended investments in securities. In the event that an
anticipated decrease in the value of portfolio securities occurs as a result of
a general decrease in prices, the adverse effects of such changes may be offset,
<PAGE>
at least in part, by gains on the sale of futures contracts. Conversely,
the increased cost of portfolio securities to be acquired, caused by a general
increase in prices, may be offset, at least in part, by gains on futures
contracts purchased by the Fund. Brokerage fees are paid to trade futures
contracts, and the Fund is required to maintain margin deposits.
Put and call options on futures contracts or securities may be traded by
the Fund in order to protect against declines in the value of portfolio
securities or against increases in the cost of securities to be acquired. The
purchaser of an option purchases the right to effect a transaction in the
underlying future or security at a specified price (the "strike price") before a
specified date (the "expiration date"). In exchange for the right, the purchaser
pays a "premium" to the seller, which represents the price of the right to buy
or to sell the underlying instrument. In exchange for the premium, the seller of
the option becomes obligated to effect a transaction in the underlying future or
security, at the strike price, at any time prior to the expiration date, should
the buyer choose to exercise the option. A call option contract grants the
purchaser the right to buy the underlying future or security, at the strike
price, before the expiration date. A put option contract grants the purchaser
the right to sell the underlying future or security, at the strike price, before
the expiration date. Purchases of options on futures contracts may present less
dollar risk in hedging the Fund's portfolio than the purchase and sale of the
underlying futures contracts, since the potential loss is limited to the amount
of the premium plus related transaction costs. The premium paid for such a put
or call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise or liquidation of the option, and, unless the
price of the underlying futures contract or security changes sufficiently, the
option may expire without value to the Fund.
Although the Fund will enter into futures contracts and options on futures
contracts and securities solely for hedging or other nonspeculative purposes,
their use does involve certain risks. For example, a lack of correlation between
the value of an instrument underlying an option or futures contract and the
assets being hedged, or unexpected adverse price movements, could render a
Fund's hedging strategy unsuccessful and could result in losses. In addition,
there can be no assurance that a liquid secondary market will exist for any
contract purchased or sold, and the Fund may be required to maintain a position
until exercise or expiration, which could result in losses. Transactions in
futures contracts and options are subject to other risks as well, which are set
forth in greater detail in the Statement of Additional Information and Appendix
A therein.
Securities Lending
The Fund may lend its portfolio securities (not to exceed 10% of the
Fund's total assets) to broker-dealers or other institutional investors under
contracts requiring such loans to be callable at any time and to be secured
continuously by collateral in cash, cash equivalents, high quality short-term
<PAGE>
government securities or irrevocable letters of credit maintained on a
current basis at an amount at least equal to the market value of the securities
loaned, plus accrued interest and dividends. The Fund will continue to collect
the equivalent of the interest or dividends paid by the issuer on the securities
loaned and will also receive either interest (through investment of cash
collateral) or a fee (if the collateral is government securities). The Fund may
pay finder's and other fees in connection with securities loans. Lending
securities enables the Fund to earn additional income, but could result in a
loss or delay in recovering the securities.
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 for the Fund's
portfolio generally will not exceed 200%, under certain market conditions the
portfolio turnover rate may exceed 200%. Increased portfolio turnover would
cause the Fund to incur greater brokerage costs than would otherwise be the
case. The Fund's portfolio turnover rate, along with the Fund's brokerage
allocation policies, are discussed further in the Statement of Additional
Information.
Investment Restrictions
The Fund is subject to a variety of restrictions regarding its investments
that are set forth in this Prospectus and 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. Such
fundamental investment restrictions include the restrictions which prohibit the
Fund from: lending more than 10% of its total assets to other parties (excluding
purchases of commercial paper, debt securities and repurchase agreements);
investing more than 25% of the value of the Fund's total assets in any one
industry (other than government securities); with respect to 75% of its total
assets, purchasing 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 own more than 10% of the
outstanding voting securities of the issuer; and borrowing money or issuing
senior securities 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 its total
assets. However, unless otherwise noted, the Fund's investment restrictions and
its investment policies are not fundamental and may be changed by action of the
Company's board of directors. Unless otherwise noted, all percentage limitations
contained in the Fund's investment policies and restrictions apply at the time
an investment is made. Thus, subsequent changes in the value of an investment
<PAGE>
after purchase or in the value of the Fund's total assets will not cause
any such limitation to have been violated or to require the disposition of any
investment, except as otherwise required by law. If the credit ratings of an
issuer are lowered below those specified for investment by the Fund, the Fund is
not required to dispose of the obligations of that issuer. The determination of
whether to sell such an obligation will be made by Fund Management based upon an
assessment of credit risk and the prevailing market price of the investment. If
the Fund borrows money, its share price may be subject to greater fluctuation
until the borrowing is repaid. The Fund attempts to minimize such fluctuations
by not purchasing additional securities when borrowings, including reverse
repurchase agreements, are greater than 5% of the value of the Fund's total
assets. As a fundamental policy in addition to the above, 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. See "Additional Information -
Master/Feeder Option."
RISK FACTORS
There can be no assurance that the Fund will achieve its investment
objective. The Fund's investments in common stocks and other equity securities
may, of course, decline in value. The Fund's assets will be invested primarily
in emerging country issuers. Investors should recognize that investing in
securities of emerging country issuers involves certain risks and special
considerations, including those set forth below, which are not typically
associated with investing in securities of U.S. issuers. Further, certain
investments that the Fund may purchase, and investment techniques that the Fund
may use, involve risks, including those set forth below.
Investment in the Fund involves above-average investment risk. It is
designed as a long-term investment and not for short-term trading purposes and
should not be considered a complete investment program. A 1% fee is payable to
the Fund by redeeming or exchanging shareholders for the benefit of the Fund's
other remaining shareholders on the redemption or exchange of shares held less
than 3 months. This fee is described more fully under "Services Provided by the
Fund - Exchange Privilege" and "How to Redeem Shares."
Social, Political and Economic Risks
The emerging countries in which the Fund invests may be subject to a
substantially greater degree of social, political and economic instability than
is the case in the United States and other developed countries. Such instability
may result from, among other things, the following: (i) authoritarian
governments or military involvement in political and economic decision-making,
and changes in government through extra-constitutional means; (ii) popular
unrest associated with demands for improved political, economic and social
<PAGE>
conditions; (iii) internal insurgencies and terrorist activities; (iv)
hostile relations with neighboring countries; and (v) drug trafficking. Social,
political and economic instability could significantly disrupt the principal
financial markets in which the Fund invests and adversely affect the value of
the Fund's assets.
The economies of individual emerging countries may differ favorably or
unfavorably and significantly from the U.S. economy in such respects as the rate
of growth of gross domestic product or gross national product, rate of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, structural unemployment and balance of payments position.
Governments of many emerging countries have exercised and continue to exercise
substantial influence over many aspects of the private sector. In some cases,
the government owns or controls many companies, including some of the largest in
the country. Accordingly, government actions in the future could have a
significant effect on economic conditions in an emerging country, which could
affect private sector companies and the Fund, and on market conditions, prices
and yields of securities in the Fund's portfolio. There may be the possibility
of nationalization, asset expropriation or future confiscatory levels of
taxation affecting the Fund. In the event of nationalization, expropriation or
other confiscation, the Fund may not be fairly compensated for its loss and
could lose its entire investment in the country involved. The economies of most
emerging countries are heavily dependent upon international trade and
accordingly are affected by protective trade barriers and the economic
conditions of their trading partners. The enactment by the United States or
other principal trading partners of protectionist trade legislation, reduction
of foreign investment in the local economies and general declines in the
international securities markets could have a significant adverse effect upon
the securities markets of these countries. The economies of emerging countries
generally are less diverse and mature than the economies of the United States
and other developed countries, and are vulnerable to weaknesses in world prices
for the emerging countries' commodity exports and natural resources.
Securities Markets
Securities exchanges and broker-dealers in most emerging countries are
subject to less regulatory scrutiny than in the United States, as are emerging
country issuers. The limited size of the markets for securities may enable
adverse publicity, investors' perceptions or traders' positions or strategies to
affect prices unduly, at times decreasing not only the value but also the
liquidity of the Fund's investments.
The market capitalizations of listed equity securities on exchanges in
emerging countries are significantly smaller than those of the United States and
other major economies. Only a few issuers may constitute a major portion of the
market capitalization and trading equity. A large segment of the ownership of
<PAGE>
many emerging country issuers may be held by a limited number of persons
and families, which may limit the number of shares available for investment by
the Fund. As a consequence, individual emerging country securities markets are
vulnerable to the effect of large investors' trading significant blocks of
securities or by large dispositions of securities, e.g., as a result of margin
calls. The resulting limitations on the liquidity of emerging country securities
will influence the Fund's ability to acquire and dispose of such securities at
the price and time it desires to do so.
Other risks and considerations of investing in emerging country securities
markets include the following: generally higher commission rates on portfolio
transactions and longer settlement periods; the smaller trading volumes and
generally lower liquidity of emerging country stock markets, which may result in
greater price volatility; differences in accounting, auditing and financial
reporting standards which may result in less publicly available information than
is generally available with respect to U.S. issuers; foreign withholding taxes
payable on income and/or gain from the Fund's foreign securities, which may
reduce dividend income or capital gains available for distribution to
shareholders; and the possibility of the Fund experiencing difficulties in
pursuing legal remedies and collecting judgments.
In addition, in certain emerging countries there may be limitations on
investment by foreigners in the securities of companies located in those
countries, and restrictions on foreign currency transactions or repatriation of
capital. The Fund's ability to invest may be restricted to the use of investment
vehicles authorized by the local government, investment in shares of other
investment companies, or investments in American Depository Receipts or American
Depository Shares (collectively, "ADRs"), Global Depository Shares, or other
similar depository securities.
ADRs are instruments, usually issued by a U.S. bank or trust company,
evidencing ownership of securities of a foreign issuer into which the ADRs may
be convertible. ADRs are designed for use in U.S. markets and may be traded on
U.S. securities exchanges or over-the-counter markets. They are denominated in
dollars rather than the currency of the country in which the underlying
securities are issued.
ADRs may be issued in sponsored or unsponsored programs. In sponsored
programs, the issuer makes arrangements to have its securities traded in the
form of ADRs; in unsponsored programs, the issuer may not be directly involved
in the creation of the program. Although the regulatory requirements with
respect to sponsored and unsponsored programs are generally similar, the issuers
of unsponsored ADRs are not obligated to disclose material information in the
United States and, therefore, such information may not be reflected in the
market value of the ADRs. ADRs are subject to certain of the same risks as
<PAGE>
direct investments in foreign securities, including the risk that changes
in the value of the currency in which the security underlying an ADR is
denominated relative to the U.S. dollar may adversely affect the value of the
ADR.
As indicated above, the Fund may deem it most practical to invest in
certain emerging countries through other investment companies or similar
vehicles, although there can be no assurance that any such vehicles will be
available or will themselves have invested in the securities found most
desirable by the Fund. The Fund will not invest through other entities unless,
in the opinion of Fund Management, the potential advantages of such investment
justify the Fund's bearing its ratable share of the expenses of such entity
(constituting duplicate levels of advisory fees to be borne by the Fund and its
shareholders) and its share of any premium encompassed in the market value of
such entity at the time of the Fund's investment over the market value of the
entity's underlying holdings. In addition, there may be tax ramifications
relating to investment in such entities. Investments by the Fund in other
investment companies are subject to the following limits imposed by the
Investment Company Act of 1940: subject to certain exceptions, no more than 5%
of the Fund's total assets may be invested in any one investment company (but no
more than 3% of the voting stock of the underlying investment company) and no
more than 10% of the Fund's total assets may be invested in other investment
companies in the aggregate. See "Additional Information --Master/Feeder Option."
Currency Risks
For U.S. investors, the returns on foreign securities are influenced not
only by the returns on the foreign investments themselves, but also by currency
fluctuations (i.e., changes in the value of the currencies in which the
securities are denominated relative to the U.S. dollar). In a period when the
U.S. dollar generally rises against foreign currencies, the returns on foreign
securities for a U.S. investor are diminished. By contrast, in a period when the
U.S. dollar generally declines, the returns on foreign securities generally are
enhanced. Currencies of certain emerging countries have undergone sudden
devaluations relative to the U.S. dollar as a result of corresponding
inflationary trends or for other reasons. Any such devaluation may have a
deleterious effect on the Fund's investments. Inflation may have strong negative
consequences for the economy and political stability of a country that
experiences it, and may seriously affect its securities markets.
The currencies of certain emerging countries are not commonly traded in
foreign exchange markets. Certain emerging countries have managed currencies
that, for foreign exchange purposes, do not float freely against the U.S.
dollar. Other governmental restrictions on the convertibility of their currency
may be imposed.
<PAGE>
^
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as an open-end, diversified management investment company.
It was incorporated on April 2, 1993, under the laws of Maryland. On July 1,
1993, the Company assumed all of the assets and liabilities of the European
Portfolio and Pacific Basin Portfolio of Financial Strategic Portfolios, Inc.,
which was incorporated under the laws of Maryland on August 10, 1983. On July 1,
1993, the Company also assumed, through its INVESCO International Growth Fund,
all of the assets and liabilities of that fund's predecessor, the Financial
International Growth Fund of Financial Series Trust, a Massachusetts business
trust organized on July 15, 1987. The overall supervision of each Fund is the
responsibility of the Company's board of directors.
INVESCO Funds Group, Inc. ("IFG"), 7800 E. Union Avenue, Denver, Colorado,
serves as the Company's investment adviser pursuant to an investment advisory
agreement. Under this agreement, IFG provides the Fund with various management
services and supervises the Fund's daily business affairs. INVESCO Distributors,
Inc. ("IDI") provides services relating to the distribution and sale of the
Fund's shares pursuant to a distribution agreement.
IFG has contracted with INVESCO Asset Management Limited ("IAML") for
investment sub-advisory and research services on behalf of the Fund. IAML,
subject to the supervision of IFG, is primarily responsible for selecting and
managing the Fund's investments. Although the Company is not a party to the
sub-advisory agreement, the agreement has been approved by the initial
shareholder of the Fund. Services provided by IFG and IAML are subject to review
by the Company's board of directors.
IFG, IAML 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. IFG and
IAML continued to operate under their existing names. Together, IFG and IAML
constitute "Fund Management." AMVESCAP PLC has approximately $177.5 billion in
assets under management. IFG was established in 1932 and, as of September 30,
1997, managed 14 mutual funds, consisting of 46 separate portfolios, with
combined assets of approximately $16.4 billion on behalf of more than 858,051
shareholders.
The Fund is managed by a team of portfolio managers. A senior investment
policy group determines the country-by-country allocation of the Fund's assets,
overall stock selection methodology and the ongoing implementation and risk
control policies applicable to the Fund's portfolio. Individual country
specialists are responsible for managing security selection for their assigned
country's share of the allocation within the parameters established by the
investment policy group.
<PAGE>
The Fund pays IFG a monthly advisory fee which is based upon a percentage
of the average net assets of the Fund, determined daily. The maximum advisory
fee is computed at the following annual ^ rates: 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 over $1 billion.
Out of its advisory fee which it receives from the Fund, IFG pays IAML, as
sub-adviser to the Fund, a monthly fee, which is computed at the annual rate of
0.333% on the first $500 million of the Fund's average net assets, 0.2833% on
the next $500 million of the Fund's average net assets and 0.25% on the Fund's
average net assets in excess of $1 billion. No fee is paid by the Fund to IAML.
The Company also has entered into an Administrative Services Agreement (the
"Administrative Agreement") with IFG. Pursuant to the Administrative Agreement,
IFG performs certain administrative, recordkeeping and internal sub-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 Fund shareholder accounts maintained by certain
retirement and employee benefit plans for the benefit of participants in such
plans. For such services, the Fund pays IFG a fee consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed at the annual rate
of 0.015% per year of the average net assets of the Fund. IFG also is paid a fee
by the Fund for providing transfer agent services. See "Additional Information."
The Fund's expenses, which are accrued daily, are generally deducted from
the Fund's total income before dividends are paid. These expenses include the
fees of the investment adviser, distribution fees, legal, transfer agent,
custodian and auditor's fees, commissions, taxes, compensation of independent
directors, insurance premiums, printing, and other expenses relating to the
Fund's operations which are not expressly assumed by IFG under its agreements
with the Company. If necessary, certain expenses for the Fund will be absorbed
by IFG and IAML 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, IFG 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
their 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
IFG or IDI, as the Company's Distributor. The Fund may place orders for
portfolio transactions with qualified broker/dealers that recommend the Fund, 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 the
execution of the transaction and level of commission are comparable to those
available from other qualified brokerage firms.
<PAGE>
Fund Management permits investment and other personnel to purchase and
sell securities for their own accounts, subject to policies governing personal
investing. These policies require investment and other personnel to 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.
HOW SHARES CAN BE PURCHASED
Shares of the Fund 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 regular, minimum
purchases of at least $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 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 requirements. In no case can a bank wire or telephone order be in
an amount less than $1,000. For further information, the purchaser may call the
Fund'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., at 7800 E.
Union Avenue, Suite 300, Denver, CO 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 cancellation, 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. IFG has agreed to indemnify the
Fund for any losses resulting from the cancellation of telephone purchases.
<PAGE>
If your check does not clear, or if a telephone purchase must be cancelled
due to nonpayment, you will be responsible for any related loss the Fund or IFG
incurs. If you are already a shareholder in the INVESCO funds, the Fund has the
option to redeem shares from any identically registered account in the Fund 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 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. IFG or IDI 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.
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 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 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
that Fund. If market quotations are not readily available, a security or other
asset 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 it, at IDI's discretion, to engage in certain
activities, and provide certain services approved by the Board 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 IFG-affiliated companies, to
obtain various distribution-related and/or administrative services for the Fund
(except administrative services already provided under separate agreements with
IFG-affiliated companies). Such services may include, among other things,
processing new shareholder account applications, preparing and transmitting to
<PAGE>
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, the 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, 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 IFG or its
affiliates or by third parties.
Under the Plan, the Company's payments to IDI on behalf of the Fund 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 IFG 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 the limitations described above will not be paid by the Fund under the
Plan, and will be borne by IDI. In addition, IDI may from time to time make
additional payments from its revenues to securities dealers, financial advisers
and 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 its 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 IFG. 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 any permissible
activities for all of the mutual funds advised by IFG subject to review by the
Fund'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, including
profits from investment advisory fees received from the Fund, provided that such
fees are legitimate and not excessive. For more information see "How Shares Can
Be Purchased" in the Statement of Additional information.
<PAGE>
SERVICES PROVIDED BY THE FUND
Shareholder Accounts. IFG maintains a share account that reflects the
current holdings of each shareholder. Share certificates will be issued only
upon specific request. Since 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 of 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.
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 date. A shareholder may, however, elect
to reinvest dividends and other distributions in certain of the other no-load
mutual funds advised by IFG and distributed by IDI, or to receive payment of all
dividends and other distributions in excess of $10.00 by check by giving written
notice to IFG 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 IFG.
Periodic Withdrawal Plan. A Periodic Withdrawal Plan is available to
shareholders who own or purchase shares of any mutual funds advised by IFG
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, IFG, 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 IFG 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 IFG.
Exchange Policy. Shares of the Fund may be exchanged for shares of the
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 IFG, on the basis of their
respective net asset values at the time of the exchange: INVESCO Capital
Appreciation Funds, Inc. (formerly, INVESCO Dynamics Fund, Inc.), INVESCO
Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO
Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO Industrial Income Fund,
<PAGE>
Inc., INVESCO Money Market Funds, Inc., INVESCO Multiple Asset Funds, Inc.,
INVESCO Specialty Funds, Inc., INVESCO Strategic Portfolios, Inc., INVESCO
Tax-Free Income Funds, Inc. and INVESCO Value Trust.
Upon an exchange of shares held less than 3 months (other than shares
acquired through reinvestment of dividends or other distributions), a fee of 1%
of the current net asset value of the shares being exchanged will be assessed
and retained by the Fund for the benefit of the Fund's other shareholders. This
fee is intended to encourage long-term investment in the Fund, to avoid
transaction and other expenses caused by early redemptions, and to facilitate
portfolio management. The fee is not a deferred sales charge, is not a
commission paid to IFG, and does not benefit IFG in any way. The fee applies to
redemptions from the Fund and exchanges into any of the other no-load mutual
funds which are also advised by IFG and distributed by IDI. The Fund will use
the "first-in, first-out" method to determine the 3 month holding period. Under
this method the date of redemption or exchange will be compared with the
earliest purchase date of shares held in the account. If this holding period is
less than 3 months, the redemption/exchange fee will be assessed on the current
net asset value of those shares.
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 IFG, using the telephone number or
address on the cover 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, 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, which it believes are
reasonable, designed to confirm that exchange instructions are genuine. 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.
<PAGE>
In order to prevent abuse of this policy to the disadvantage of other
shareholders, the Fund reserves the right to terminate the exchange option of
any shareholder who requests more than four exchanges in a year. 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 exchange option 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 Investment Company Act of
1940, or where sales of the fund into which the shareholder is exchanging are
temporarily stopped, notice of all such modifications or termination 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, and should be aware that
the exchange option may only be available in those states where exchanges
legally may be made, which will require that the shares being acquired are
registered for sale in the shareholder's state of residence. Shareholders
interested in exercising the exchange option may contact IFG 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
minimum monthly exchange in this program is $50.00. This automatic exchange
program can be changed by the shareholder at any time by notifying IFG at least
two weeks prior to the date the change is to be made. Further information
regarding this service can be obtained by contacting IFG.
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
IFG at least two weeks prior to the date the change is to be made. Further
information regarding this service can be obtained by contacting IFG.
Direct Payroll Purchase. Shareholders may elect to have their employer
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 IFG.
<PAGE>
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 of 1986, as amended, 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 IFG. INVESCO Trust Company, a subsidiary of IFG, 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 IFG 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 current net asset
value per share 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 at the time of redemption may be more or less than the price you paid to
purchase your shares. Upon the redemption of shares held less than 3 months
(other than shares acquired through reinvestment of dividends or other
distributions), a fee of 1% of the current net asset value of the shares will be
assessed and retained by the Fund for the benefit of the Fund's other
shareholders. This fee is intended to encourage long-term investment in the
Fund, to avoid transaction and other expenses caused by early redemptions, and
to facilitate portfolio management. The fee is not a deferred sales charge, is
not a commission paid to IFG, and does not benefit IFG in any way. The fee
applies to redemptions from the Fund and exchanges into any of the other no-load
mutual funds which are also advised by IFG and distributed by IDI. The Fund will
use the "first-in, first-out" method to determine the 3 month holding period.
Under this method the date of redemption or exchange will be compared with the
earliest purchase date of shares held in the account. If this holding period is
less than 3 months, the redemption/exchange fee will be assessed on the current
net asset value of those shares.
If the shares to be redeemed are represented by stock certificates, a
written request for redemption signed by the registered shareholder(s) and the
certificates must be forwarded to INVESCO Funds Group, Inc., Post Office Box
173706, Denver, Colorado 80217-3706. Redemption requests sent by overnight
<PAGE>
courier, including Express Mail, should be sent to the street address, not
Post Office Box, of INVESCO Funds Group, Inc. at 7800 E. Union Avenue, Denver,
CO 80237. If no certificates have been issued, a written redemption request
signed by each registered owner of the account must be submitted to IFG at the
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 after the Fund has
allowed a reasonable time for 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 or her Fund account,
IFG will terminate any 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 IFG,
using the telephone number on the cover of this Prospectus. The 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
<PAGE>
redemptions. Unless IFG 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 INVESCO Trust Company-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.
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.
The privilege of redeeming Fund shares by telephone is available to
shareholders automatically unless expressly declined. By signing a New Account
Application, 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 believe to be genuine. The Fund employs procedures, which it believes
are reasonable, designed to confirm that telephone instructions are genuine.
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, in order to continue to qualify for tax treatment as a
regulated investment company. Thus, the Funds do not expect to pay any federal
income or excise taxes.
Unless shareholders are exempt from income taxes, they must include all
dividends and other distributions in taxable income for federal, state and local
income tax purposes. 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
<PAGE>
dividends and interest as ordinary income and are taxed at the taxpayer's
marginal tax rate. The Taxpayer Relief At of 1997 (the "Tax Act"), enacted in
August 1997, changed the taxation of long-term capital gains by applying
different capital gains rates depending on the taxpayer's holding period and
marginal rate of federal income tax. Long-term gains realized on the sale of
securities held for more than one year but not for more than 18 months are
taxable at a rate of 28%. This category of long-term gains is often referred to
as "mid-term" gains but is technically termed "28% rate gains." Long-term gains
realized on the sale of securities held for more than 18 months are taxable at a
rate of 20%. The Tax Act, however, does not address the application of these
rules to distributions of net capital gain (excess of long-term capital gain
over short-term capital losses) by a regulated investment company, including
whether such distributions may be treated by its shareholders in accordance with
the Fund's holding period for the assets it sold that generated the gain. The
application of the new capital gain rules must be determined by further
legislation or future regulations that are not available as this Prospectus is
being prepared. At the end of each year, information regarding the tax status of
dividends and other distribuitons is provided to shareholders. Shareholders
should consult their tax advisers as to the effect of the Tax Act on
distribuitons by the Funds of net capital gain.
Shareholders also may realize capital gains or losses when they sell their
Fund shares at more or less than the price originally paid. Capital gain on
shares held for more than one year will be long-term capital gain, in which
event it will be subject to federal income tax at the rates indicated above.
The Fund may be subject to withholding of foreign taxes on dividends or
interest received on foreign securities. Foreign taxes withheld will be treated
as an expense of the Fund.
Individuals and certain other non-corporate shareholders may be subject to
backup withholding of 31% on dividends, capital gain and other distributions and
redemption proceeds. Unless you are subject to backup withholding for other
reasons, you can avoid backup withholding on your Fund account by ensuring that
we have a correct, certified tax identification number.
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 income earned by it. The
Fund's policy is to distribute substantially all of this income, less Fund
<PAGE>
expenses, to shareholders on an annual basis, at the discretion of the
fund's board of directors. Dividends are automatically reinvested in additional
shares of the Fund at the net asset value on the payable date unless otherwise
requested.
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, if any, realized on foreign currency transactions, are
distributed to shareholders at least annually, usually in December. Capital gain
distributions are automatically reinvested in additional shares of the Fund at
the net asset value on the payable date unless otherwise requested.
Dividend 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 by the shareholder. 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 the 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 Fund have equal voting rights, based on
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
an investment advisory contract, voting is on a Fund-by-Fund basis. When all
Funds are not affected by a matter to be voted upon, only shareholders of the
Fund affected by the matter will be entitled to vote thereon. The Company is not
generally required, and does not expect, to hold regular annual meetings of
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 Investment Company Act of 1940. Directors may be removed by
action of the holders of a majority or more 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
<PAGE>
IFG 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 Funds Group, Inc., 7800 E.
Union Ave., Denver, Colorado 80237, 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 IFG, may provide
sub-transfer agency services to the Fund which reduce or eliminate the need for
identical services to be provided on behalf of the Fund by IFG. In such cases,
IFG may pay the third party an annual sub-transfer agency or recordkeeping fee
out of the transfer agency fee which is paid to IFG by the Fund.
<PAGE>
PROSPECTUS
February 1, 1998
INVESCO EMERGING MARKETS FUND
A no-load mutual fund seeking capital
appreciation.
^
INVESCO Distributors, Inc.,
^ Distributor(sm)
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
filed by the Company with
the Securities and Exchange
Commission can be located
on a web site maintained
by the Commission at
http://www.sec.gov.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1998
INVESCO INTERNATIONAL FUNDS, INC.
A no-load mutual fund seeking capital appreciation through
investment in designated geographical sectors.
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 an open-end
management investment company organized in series form consisting of four funds:
the INVESCO European Fund (the "European Fund"), the INVESCO Pacific Basin Fund
(the "Pacific Basin Fund"), the INVESCO International Growth Fund
(the"International Growth Fund") and the INVESCO Emerging Markets Fund (the
"Emerging Markets Fund")(the "Funds"). The European, Pacific Basin and Emerging
Markets Funds seek to provide investors with capital appreciation. The
International Growth Fund seeks 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 are available:
The EUROPEAN FUND seeks to achieve its investment objective by investing
primarily in equity securities of companies domiciled in specific European
countries.
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
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.
<PAGE>
The EMERGING MARKETS FUND seeks to achieve its investment objective by
investing primarily in equity securities of emerging country issuers.
Additional funds may be offered in the future.
Separate prospectuses for the European, Pacific Basin and International
Growth Funds dated March 1, 1997 and the Emerging Markets Fund dated February 1,
1998, which provide the basic information you should know before investing in
the Funds, 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 prospectus.
Investment Adviser: INVESCO FUNDS GROUP, INC.
Distributor: INVESCO DISTRIBUTORS, INC.
TABLE OF CONTENTS
Page
----
INVESTMENT POLICIES AND RESTRICTIONS.........................................3
THE FUNDS AND THEIR MANAGEMENT..............................................23
HOW SHARES CAN BE PURCHASED.................................................37
HOW SHARES ARE VALUED.......................................................41
FUND PERFORMANCE............................................................42
SERVICES PROVIDED BY THE FUNDS..............................................44
TAX-DEFERRED RETIREMENT PLANS...............................................45
HOW TO REDEEM SHARES........................................................45
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES....................................45
INVESTMENT PRACTICES........................................................48
ADDITIONAL INFORMATION......................................................52
APPENDIX A..................................................................56
APPENDIX B..................................................................61
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The investment objectives and policies of the Funds are discussed in their
respective prospectuses under the heading "Investment Objectives and Policies."
Further information about the Funds' respective investment policies and
restrictions is set
forth below.
Types of 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. 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 the amount that would be received worth in market value if the security
were exchanged for the underlying equity security. Conversion value fluctuates
directly with the price of the underlying security. If conversion value is
<PAGE>
substantially below investment value, the price of the convertible security
is governed 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. The Funds invest 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. A
forward foreign currency exchange contract ("forward contract") is an agreement
between the
<PAGE>
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. In recent years, a large institutional market
has developed for certain securities that are not registered under the
Securities Act of 1933 (the "1933 Act"). 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 such unregistered
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
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.
<PAGE>
Lending of Securities. All of the Funds may lend their portfolio securities
to 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 the 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 the 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), the 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 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
<PAGE>
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 the 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, 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 Fund's 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 Fund 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 Fund invests generally will be affected by changes in
the level of interest rates. An increase in interest rates will tend to reduce
<PAGE>
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 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 the 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 the 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. The 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 the 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 Fund 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 the 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 the
Fund to value, particular securities at certain times, thereby making it
difficult to make specific valuation determinations.
The Fund expects that most emerging country debt securities in which it
invests 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
category, please refer to Appendix B to the Statement of Additional Information.
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 of more of
such commodities. A rise in protectionism on the part of its trading partners,
or unwillingness by such partners to make payment for goods in hard currency,
could also adversely affect the country's ability to export its products and
repay its debts. Sovereign debtors may also be dependent on expected receipts
from such agencies and others abroad to reduce principal and interest arrearages
on their debt. However, failure by the sovereign debtor or other entity to
<PAGE>
implement economic reforms negotiated with multilateral agencies or others,
to achieve specified levels of economic performance, or to make other debt
payments when due, may cause third parties to terminate their commitments to
provide funds to the sovereign debtor, which may further impair such debtor's
willingness or ability to service its debts.
The Fund may invest in debt securities issued under the "Brady Plan" in
connection with restructurings in emerging country debt markets or earlier
loans. These securities, often referred to as "Brady Bonds," are, in some cases,
denominated in U.S. dollars and collateralized as to principal by U.S. Treasury
zero coupon bonds 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 Fund may engage in repurchase agreements with banks, registered
broker-dealers, and registered government securities dealers which are deemed
creditworthy. A repurchase agreement is a transaction in which the 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. The 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, the Fund would suffer a loss.
Although the Fund has 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 its securities subject to repurchase
agreements 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
<PAGE>
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.
Futures and Options on Futures and Securities
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 and other securities, which are included among the types
of instruments sometimes known as derivatives. The Fund will comply with and
adhere to all limitations in the manner and extent to which it effects
transactions in futures and options on such futures currently imposed by the
rules and policy guidelines of the Commodity Futures Trading Commission (the
"CFTC") as conditions for exemption of a mutual fund, or investment advisers
thereto, from registration as a commodity pool operator. Under those
restrictions, the Fund will not, as to any positions, whether long, short or a
combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of the
Fund's total assets after taking into account unrealized profits and losses on
options it has entered into. In the case of an option that is "in-the-money," as
defined in the Commodity Exchange Act (the "CEA"), the in-the-money amount may
be excluded in computing such 5%. (In general a call option on a future is
"in-the-money" if the value of the future exceeds the exercise ("strike") price
of the call; a put option on a future is "in-the-money" if the value of the
future which is the subject of the put is exceeded by the strike price of the
put.) The Fund may use futures and options thereon solely for bona fide hedging
or for other non-speculative purposes within the meaning and intent of the
applicable provisions of the CEA and the regulations thereunder. As to long
positions which are used as part of the Fund's portfolio management strategies
and are incidental to its activities in the underlying cash market, the
"underlying commodity value" of the Fund's futures and options thereon must not
exceed the sum of (i) cash set aside in an identifiable manner, or short-term
U.S. debt obligations or other dollar-denominated high-quality, short-term money
instruments so set aside, plus sums deposited on margin; (ii) cash proceeds from
existing investments due in 30 days; and (iii) accrued profits held at the
futures commission merchant. The "underlying commodity value" of a future is
computed by multiplying the size of the future by the daily settlement price of
the future. For an option on a future, that value is the underlying commodity
value of the future underlying the option.
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
<PAGE>
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. 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 and Options Contracts").
Where futures are purchased to hedge against a possible increase in the
price of a security before a Fund is able in an orderly fashion to invest in the
security, it is possible that the market may decline instead. If the Fund, 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.
<PAGE>
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
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.
<PAGE>
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
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.
<PAGE>
These transactions may in some instances involve the delivery of
securities or other underlying assets by the 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.
Investment Restrictions. As described in the section of each Fund's
prospectus entitled "Investment Objective and Policies," the Funds operate under
certain investment restrictions. The following policies are fundamental and may
not be changed with respect to a particular Fund 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"). For
purposes of the following limitations, 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
Neither the INVESCO Pacific Basin or European Funds, nor the Company on
behalf of such Funds, will:
(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);
<PAGE>
(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, or write, purchase or sell
puts or calls or combinations thereof;
(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;
(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 net 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;
<PAGE>
(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.
INVESCO International Growth Fund
Neither INVESCO International Growth Fund, nor the Company on behalf of
such Fund, will:
(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;
<PAGE>
(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, exept for the Fund's purchase or sale
of options or futures, or writing, purchasing or selling puts or
calls 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;
(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
<PAGE>
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.
The Emerging Markets Fund may not:
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.
<PAGE>
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.
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.
<PAGE>
(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
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
and restriction (f) applicable to the Emerging Markets Fund, the board of
directors has delegated to Fund Management the authority to determine that a
<PAGE>
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 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.
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
("IFG"), is employed as the Company's investment adviser. IFG was established in
1932 and also serves as an investment adviser to INVESCO Capital Appreciation
Funds, Inc. (formerly, INVESCO Dynamics Fund, Inc.), INVESCO Diversified Funds,
Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO Growth Fund, Inc.,
INVESCO Income Funds, Inc., INVESCO Industrial Income Fund, Inc., INVESCO Money
<PAGE>
Market Funds, Inc., INVESCO Multiple Asset Funds, Inc., INVESCO Strategic
Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc., INVESCO Value Trust, and
INVESCO Variable Investment Funds, Inc.
The Sub-Adviser. IFG, as investment adviser, has contracted with INVESCO
Asset Management Limited ("IAML") to provide investment advisory and research
services on behalf of the Funds. IAML has the primary responsibility for
providing portfolio investment management services to the Funds.
The Distributor. Effective September 30, 1997, 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 IFG.
Prior to September 30, 1997, IFG served as the Funds' distributor.
IFG, IAML 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 $177.5 billion in assets under
management. IFG was established in 1932 and as of September 30, 1997, managed 14
mutual funds, consisting of 46 separate portfolios, on behalf of over 858,051
shareholders. AMVESCAP PLC's North American subsidiaries include the following:
--INVESCO Capital Management, Inc. of Atlanta, Georgia manages
institutional investment portfolios, consisting primarily of discretionary
employee benefit plans for corporations 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 two registered investment companies.
--INVESCO Management & Research, Inc. of Boston, Massachusetts, primarily
manages pension and endowment accounts.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
--INVESCO Realty Advisors, Inc. of Dallas, Texas is responsible for
providing advisory services in the U.S. real estate markets for 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.
<PAGE>
--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, EC2M 4YR, England.
As indicated in the Funds' Prospectuses, IFG 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 IFG, IAML and their North American affiliates. These
policies require officers, inside directors, investment and other personnel of
IFG, 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 IFG, 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 IFG or IAML.
Investment Advisory Agreement. IFG serves as investment adviser 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 IFG 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. The Agreement was approved by IFG 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. 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
<PAGE>
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 IFG 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 IFG).
Further, IFG 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 IFG 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 IFG 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; 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 IFG'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 IFG are borne by the Funds.
As full compensation for its advisory services to the Company, IFG
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.
<PAGE>
(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.
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, IFG 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 (except Emerging Markets Fund) for an
initial term expiring February 28, 1999. The Sub-Agreement was approved by IFG
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.
Thereafter, the Sub-Agreement 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-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 Sub-Agreement 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-Agreement provides that IAML, subject to the supervision of IFG,
shall manage the investment portfolios of the 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
<PAGE>
Fund, unless otherwise directed by the directors of the Company or IFG, 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 IAML; (e)
determining what portion of each applicable Fund 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-Agreement provides that, as compensation for its services, IAML
shall receive from IFG, 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. Effective
January 1, 1998, IAML shall receive a fee based on the following annual rates:
0.25% on the first $350 million; 0.2166% on the next $350 million and 0.1833% 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. Effective
January 1, 1998, IAML shall receive a fee based on the following annual rates:
0.333% on the first $500 million; 0.25% on the next $500 million and 0.2167% 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 following annual ^ rates:
0.333% on the first $500 million of the Fund's average net assets; 0.28% on the
next $500 million of the Fund's average net assets; and 0.25% on the Fund's
average net assets in excess of $1 billion. The sub-advisory fees are paid by
INVESCO, NOT the Funds.
Administrative Services Agreement. IFG, 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 IFG, 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
<PAGE>
Administrative 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 Administrative Agreement may be terminated at any time
without penalty by IFG 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 IFG 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 IFG, 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 IFG 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 of the
Company.
Transfer Agency Agreement. IFG 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, 1998. 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.
<PAGE>
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:
European Fund
-------------
Fiscal Year
Ended Advisory Administrative Transfer
October 31 Fee Services Fee Agency Fee
- ---------- -------- -------------- ----------
1996 $1,793,380 $45,868 $839,761
1995 1,815,386 46,308 869,684
1994 2,503,180 60,180 698,202
Pacific Basin Fund
------------------
Fiscal Year
Ended Advisory Administrative Transfer
October 31 Fee Services Fee Agency Fee
- ---------- -------- -------------- ----------
1996 $1,396,490 $37,930 $870,770
1995 1,571,623 41,483 852,343
1994 2,255,967 55,169 615,420
International Growth Fund
-------------------------
Fiscal Year
Ended Advisory Administrative Transfer
October 31 Fee Services Fee Agency Fee
- ---------- -------- -------------- ----------
1996 $ 893,966 $23,409 $383,054
1995 963,765 24,541 361,657
1994 1,307,707 29,616 242,814
Emerging Markets Fund
---------------------
The Emerging Markets Fund paid IFG no advisory, administrative or transfer
agency fees as of the date of this Statement of Additional Information since ^
the Fund did not commence a public offering of its shares until ^ February 12,
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' portfolios are
properly administered. The officers of the Company, all of whom are officers and
employees of, and are paid by, IFG, 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 the Company. These investment decisions are reviewed by the investment
committee of IFG.
<PAGE>
All of the officers and directors of the Company hold comparable positions
with INVESCO Capital Appreciation Funds, Inc. (formerly, INVESCO Dynamics Fund,
Inc.), INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds,
Inc., INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO Industrial
Income Fund, Inc., INVESCO Money Market Funds, Inc., INVESCO Multiple Asset
Funds, Inc., INVESCO Specialty Funds, Inc., INVESCO Strategic Portfolios, Inc.,
INVESCO Tax-Free Income Funds, Inc. and INVESCO Variable Investment Funds, Inc.
All of the directors of the Company also serve as trustees of INVESCO Value
Trust. In addition, all of the directors of the Fund, with the exception of Dan
Hesser, also are directors of INVESCO Treasurer's Series Trust. All of the
officers of the Company also hold comparable positions with INVESCO Value Trust.
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 Treasurer's Series Trust. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. Vice Chairman of INVESCO
Treasurer's Series Trust. 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, Urbaine Life Insurance Company and Midwestern
United Life Insurance Company. Address: Security Life Center, 1290 Broadway,
Denver, Colorado. Born: January 12, 1928.
DAN J. HESSER,+* President, CEO and Director. Chairman of the Board,
President, and Chief Executive Officer of INVESCO Funds Group, Inc. and INVESCO
Distributors, Inc.; President and Director of INVESCO Trust Company. President
and Chief Operating Officer of INVESCO Global Health Sciences Fund. Born:
December 27, 1939.
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.
<PAGE>
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.
DANIEL D. CHABRIS,+# Director. Financial Consultant; Assistant Treasurer of
Colt Industries Inc., New York, New York, from 1966 to 1988. Address: 19
Kingsbridge Way, Madison, Connecticut. Born: August 1, 1923.
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.
HUBERT L. HARRIS, JR.,* Director. Chairman (since 1996) and President
(January 1990 to May 1996) of INVESCO Services, Inc.; Chief Executive Officer of
INVESCO Individual Services Group. Member of the Executive Committee of the
Alumni Board of Trustees of Georgia Institute of Technology. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: July 15, 1943.
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. Director of Golden Poultry Co., Inc.
Trustee of INVESCO Global Health Sciences Fund and Gables Residential Trust.
Address: 7 Piedmont Center, Suite 100, Atlanta, Georgia. Born: September 14,
1930.
<PAGE>
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.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995), General
Counsel and Secretary of INVESCO Funds Group, Inc. and INVESCO Trust Company
(since 1989) and of INVESCO Distributors, Inc. (since 1997); Vice President (May
1989 to April 1995). Formerly, employee of a U.S. regulatory agency, Washington,
D.C. (June 1973 through May 1989). Born: September 25, 1947.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
Funds Group, Inc. and INVESCO Trust Company (since 1988) and of INVESCO
Distributors, Inc. (since 1997). Born: October 1, 1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO Funds Group, Inc. (since 1995) and of INVESCO Distributors, Inc. (since
1997) and Trust Officer of INVESCO Trust Company since July 1995 and formerly
(August 1992 to July 1995) Vice President of INVESCO Funds Group, Inc. and trust
officer of INVESCO Trust Company. 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 Funds Group,
Inc. (since 1984) and Trust Officer of INVESCO Trust Company. Born: September
14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO Funds Group,
Inc. (since 1984) and of INVESCO Distributors, Inc. (since 1997) and Trust
Officer of INVESCO Trust Company. Born: February 3, 1948.
#Member of the audit committee of the Company.
+Member of the executive committee of the Company. On occasion, the
executive committee acts upon the current and ordinary business of the Company
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
*These directors are "interested persons" of the Company as defined in the
Investment Company Act of 1940.
<PAGE>
**Member of the management liaison committee of the Company.
As of November 7, 1997, officers and directors of the Company, as a group,
beneficially owned less than 1% of each Fund's outstanding shares.
Director Compensation
The following table sets forth, for the fiscal year ended October 31, 1996:
the compensation paid by the Company to its independent directors for services
rendered in their capacities as directors of the Company; the benefits accrued
as Company expenses with respect to the Defined Benefit Deferred Compensation
Plan discussed below; and the estimated annual benefits to be received by these
directors upon retirement as a result of their service to the Company. In
addition, the table sets forth the total compensation paid by all of the mutual
funds distributed by INVESCO Distributors, Inc. (including the Company), INVESCO
Advisor Funds, Inc. (formerly distributed by IFG), 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, 1995, there were 48 funds in the INVESCO Complex. Dr. Soll became an
independent director of the Company effective May 15, 1997 and is not included
in this table. Dr. Gramm became an independent director of the Company effective
July 29, 1997, and is not included in this table.
<PAGE>
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, $ 4,309 $ 887 $ 738 $ 98,850
Vice Chairman of
the Board
Victor L. Andrews 4,089 781 813 87,350
Bob R. Baker 4,140 805 1,090 68,000
Lawrence H. Budner 4,026 838 813 73,000
Daniel D. Chabris 4,154 956 578 68,350
A. D. Frazier, Jr.(4),(5) 3,973 0 0 73,350
Kenneth T. King 4,108 921 669 63,500
John W. McIntyre(4) 3,987 0 0 70,000
------- ------ ------ --------
Total $32,786 $5,188 $4,701 $571,400
% of Net Assets 0.0060%(6) 0.0010%(6) 0.0043%(7)
(1)The vice chairman of the board, the chairmen of the audit, management
liaison 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.
(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 any 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
<PAGE>
retirement and higher estimated benefits for directors who are further from
retirement. With the exception of Messrs. Frazier and McIntyre, 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)Messrs. Frazier and McIntyre began serving as directors of the Company
on April 19, 1995.
(5)Effective November 1, 1996, Mr. Frazier was employed by INVESCO PLC (the
predecessor to AMVESCAP PLC), a company affiliated with IF and did not receive
any director's fees or other compensation from the Company or other funds in the
INVESCO Complex for his service as a director on or after May 1, 1996, at which
time he was deemed to be an interested person of the Funds and of the other
funds in the INVESCO Complex.
(6)Total as a percentage of the Company's net assets as of October 31,
1996. The Emerging Markets Fund did not incur directors fees as of the date of
this Statement of Additional Information.
(7)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1995.
Messrs. Brady, Harris and Hesser, as "interested persons" of the Company
and other funds in the INVESCO Complex, receive compensation as officers or
employees of IFG 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 IFG 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 retiring from the boards 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 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 40% of the basic retainer. 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
the director or to his or her beneficiary or estate. If a qualified director
<PAGE>
becomes disabled or dies either prior to age 72 or during his 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 is not making
any payments to directors under the plan as of the date of this Statement of
Additional Information. 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 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.
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.
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 which was implemented November 1, 1997. 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
<PAGE>
operation of the Plan ("12b-1 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 December 1, 1997 and IFG on behalf
of the Emerging Markets Fund on ^ January 30, 1998, for initial terms expiring
October 28, 1998, December 1, 1998^, and ^ February 1, 1999, respectively.
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
and with respect to the Emerging Markets 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 certain services in connection with the distribution of
each Fund's shares to investors. Payment amounts 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 permitted by the Plan is the payment of
compensation to securities companies and other financial institutions and
organizations, which may include IDI-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 Plan was not implemented until November 1, 1997 with respect to the
European and International Growth Funds, December 1, 1997 with respect to the
Pacific Basin Fund and ^ February 1, 1998 with respect to the Emerging Markets
Fund.
<PAGE>
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 each Fund's
transactions by 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 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 also can be terminated at
any time with respect to any Fund, without penalty, if a majority of the 12b-1
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 materially 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 12b-1 directors. Under
the agreement implementing the Plan, IDI or the Funds, the latter by vote of a
majority of the 12b-1 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
<PAGE>
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 12b-1 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.
The only directors or 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 IFG or companies
affiliated with IFG. The benefits which the Company believes will be reasonably
likely to flow to the Funds and their 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 the Funds 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 IFG 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 IFG 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.
<PAGE>
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
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
<PAGE>
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.
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, 1996, was as follows:
10 Years/
Life of
Fund 1 Year 5 Years Fund
- --------- ------ ------- ---------
European 23.47% 10.60% 9.21%
Pacific Basin 3.55% 4.86% 7.22%
International Growth 12.01% 5.07% 5.65%(1)
Emerging Markets (2) N/A N/A N/A
- -----------------
(1) 109 months (9.08 yrs.)
(2) The Emerging Markets Fund 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:
<PAGE>
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
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
<PAGE>
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 IFG. 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 IFG. Exchange requests may be made either by telephone or by written
request to IFG, 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 IFG 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 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.
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.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
The Fund intends to continue to conduct its 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 Fund so qualified for the
taxable year ended October 31, 1996, and intends to continue to qualify during
<PAGE>
its current taxable year. As a result, because the Fund intends to
distribute all of its income and recognized gains, it is anticipated that the
Fund 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 the 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,
the Fund sends shareholders information regarding the amount and character of
dividends paid in the year.
Distributions by the 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. The Taxpayer Relief Act of 1997
(the "Tax Act"), enacted in August 1997, changed the taxation of long-term
capital gains by applying different capital gains rates depending on the
taxpayer's holding period and marginal rate of federal income tax. Long-term
gains realized on the sale of securities held for more than one year but not for
more than 18 months are taxable at a rate of 28%. This category of long-term
gains is often referred to as "mid-term" gains but is technically termed "28%
rate gains". Long-term gains realized on the sale of securities held for more
than 18 months are taxable at a rate of 20%. The Tax Act, however, does not
address the application of these rules to distributions of net capital gain
(excess of long-term capital gain over short-term capital losses) by a regulated
investment company, including whether such distributions may be treated by its
shareholders in accordance with the Fund's holding period for the assets it sold
that generated the gain. The application of the new capital gain rules must be
determined by further legislation or future regulations that are not available
as this Prospectus is being prepared. 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 Fund. The net 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.
<PAGE>
IFG 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 IFG will be computed using the single-category
average cost method, although neither IFG nor the Fund recommends 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 the 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.
The 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 it
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 the 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 imposes taxes on capital gains in
respect of investments by foreign investors. Foreign taxes withheld will be
treated as an expense of the Fund.
The Fund may invest in the stock of "passive foreign investment companies"
(PFICs). A PFIC is a foreign corporation (other than a controlled foreign
corporation) 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 certain
circumstances, the Fund will be subject to federal income tax on a portion of
any "excess distribution" received on the stock of a PFIC or of any gain on
disposition of 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.
<PAGE>
The 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. The 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 the 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,
1996, 1995 and 1994, the European Fund's portfolio turnover rates were 91%, 96%
and 70%, respectively; the Pacific Basin Fund's portfolio turnover rates were
70%, 56% and 70%, respectively; and the International Growth Fund's portfolio
turnover rates were 64%, 62% and 87%, respectively. The Emerging Markets 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.
<PAGE>
Placement of Portfolio Brokerage. Either IFG or IAML, as the Company's
investment adviser or sub-adviser, places orders for the purchase and sale of
securities with brokers and dealers based upon their 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 the commissions 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 or spread 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 broker-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 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 broker-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
<PAGE>
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 IFG
based on the number of investors who have beneficial interests in the NTF
Program Sponsor's omnibus accounts in that Fund. IFG, 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. IFG 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 IFG to place a
portion of the Funds' brokerage transactions with certain NTF Program Sponsors
or their affiliated brokers, if IFG 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 IFG 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 IFG with respect to investors who have beneficial interests in a
particular NTF Program Sponsor's omnibus accounts in the Funds exceeds the
Services Fee applicable to that Fund, after application of credits, IFG 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 IFG
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.
<PAGE>
The aggregate dollar amounts of brokerage commissions paid by the INVESCO
European and Pacific Basin Funds for the fiscal years ended October 31, 1996,
1995 and 1994, were $1,070,781, $51,678 and $486,571, respectively, for the
European Fund and $1,284,787, $18,451 and $24,970 respectively, for the INVESCO
Pacific Basin Fund. For the fiscal year ended October 31, 1996, brokers
providing research services received $1,024 and $0 in commissions on portfolio
transactions effected for the INVESCO European Fund and INVESCO Pacific Basin
Fund, respectively, on aggregate portfolio transactions of $512,291 and $0,
respectively. The INVESCO Pacific Basin and European Funds each paid ^ $0 in
compensation to brokers for the sale of shares of these Funds during the fiscal
year ended October 31, 1996. The aggregate dollar amount of brokerage
commissions paid by the INVESCO International Growth Fund for the fiscal years
ended October 31, 1996, 1995 and 1994 were $361,537, $35,623 and $561,639
respectively. During the year ended October 31, 1996, no commissions were paid
to brokers in connection with their provision of research services to the Fund.
The Emerging Markets 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, 1996, each of the Funds held securities of its regular
brokers or dealers, or their parents, as follows:
<PAGE>
Value of
Securities
Fund Broker or Dealer at 10/31/96
- ---- ---------------- -----------
Pacific Basin None
Fund
European Fund Associates Corp. of North $9,640,000
America
International State Street Bank and Trust 3,061,000
Growth Fund North America
Emerging Markets N/A N/A
Fund(1)
(1) The Emerging Markets Fund was not operating at this time period.
<PAGE>
Neither IFG nor IAML receives any brokerage commissions on portfolio
transactions effected on behalf of any of the Funds, and there is no affiliation
between IFG, IAML or any person affiliated with IFG, 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, 1996, 35,184,100 of
such shares were outstanding. Of the Company's authorized shares, 100,000,000
shares have been allocated to each of the Company's four 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 class represent the interests of the shareholders of such
class in a particular portfolio of investments of the Company. Each class of the
Company's shares is preferred over all other classes in respect of the assets
specifically allocated to that class, and all income, earnings, profits and
proceeds from such assets, subject only to the rights of creditors, are
allocated to shares of that class. The assets of each class are segregated on
the books of account and are charged with the liabilities of that class 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 classes 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 class. In the unlikely
event that a liability allocable to one class exceeds the assets belonging to
the class, all or a portion of such liability may have to be borne by the
holders of shares of the Company's other classes.
<PAGE>
All shares, regardless of class, have equal voting rights. Voting with
respect to certain matters, such as ratification of independent accountants or
election of directors, will be by all classes of the Company. When not all
classes 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 class 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 November 1, 1997, 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. 2,507,988.3460 38.217%
Special Custody Acct. for
the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
<PAGE>
European Fund
Charles Schwab & Co., Inc. 6,565,222.3860 35.051%
Special Custody Acct. for
the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
International Growth Fund
Commerce Bank of Kansas City 2,104,959.6810 40.873%
Ttee for Farmland Industries
Coop Retirement Plan
PO Box 13366
Kansas City, MO 64199
Charles Schwab & Co., Inc. 514,924.2010 9.998%
Special Custody Acct. for
the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Emerging Markets Fund
^ The Emerging Markets Fund was not operating at this time period.
Independent Accountants. Price Waterhouse 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 securities
depositories.
<PAGE>
Transfer Agent. The Company is provided with transfer agent, registrar and
dividend disbursing agent services by IFG, 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, 1996 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, 1996.
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
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
liquid secondary market on an exchange will exist for any particular option at
<PAGE>
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
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
<PAGE>
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
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
S&P Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to
default and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal.
