INVESCO EUROPEAN SMALL COMPANY FUND
(A SERIES OF INVESCO SPECIALTY FUNDS, INC.)
March 23, 1999
Dear INVESCO European Small Company Fund Shareholder:
The attached proxy materials describe a proposal that INVESCO European
Small Company Fund ("European Small Company Fund"), a series of INVESCO
Specialty Funds, Inc. ("Specialty Funds"), reorganize and become part of INVESCO
European Fund ("European Fund"), a series of INVESCO International Funds, Inc.
("International Funds"). If the proposal is approved and implemented, each
shareholder of European Small Company Fund will automatically become a
shareholder of European Fund.
The attached proxy materials also seek your approval to convert European
Small Company Fund to a series of International Funds and to make certain
changes in the fundamental investment restrictions of European Small Company
Fund (if the reorganization is not approved or cannot be completed for some
other reason), to elect directors, and to ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants of European Small Company
Fund.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS. The board
believes that combining the two Funds will benefit European Small Company Fund's
shareholders by providing them with a portfolio that has an investment objective
that is substantially similar to that of European Small Company Fund, that has a
similar investment strategy and that will have lower operating expenses as a
percentage of net assets. If, however, the reorganization is not approved or
cannot be completed for some other reason, you are being asked to approve the
conversion of European Small Company Fund to a series of International Funds.
You are also being asked to approve certain changes to the fundamental
investment restrictions of European Small Company Fund that will update and
streamline the Fund's restrictions. The attached proxy materials provide more
information about the proposed reorganization and the two Funds, the proposed
conversion and the proposed changes in fundamental investment restrictions, as
well as the other matters you are being asked to vote upon.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
shares early will permit European Small Company Fund to avoid costly follow-up
mail and telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today. As an alternative to using the paper proxy card to vote, you may
vote by telephone, by facsimile, through the Internet, or in person.
Very truly yours,
/s/ Mark H. Williamson
----------------------
Mark H. Williamson
President
INVESCO European Small Company Fund
<PAGE>
WHAT YOU SHOULD KNOW ABOUT
THIS PROPOSED FUND MERGER
March 23, 1999
INVESCO AND THE FUND'S BOARD OF DIRECTORS ENCOURAGE YOU TO READ THE ENCLOSED
PROXY STATEMENT CAREFULLY.
THE FOLLOWING IS A BRIEF OVERVIEW OF THE KEY ISSUE.
WHY IS MY FUND HOLDING A SPECIAL SHAREHOLDER MEETING?
The main reason for the meeting is so that shareholders of INVESCO European
Small Company Fund can decide whether or not to reorganize their fund. If
shareholders decide in favor of the proposal, EUROPEAN SMALL COMPANY FUND will
merge with another, similar mutual fund managed by INVESCO, and you will become
a shareholder of INVESCO EUROPEAN FUND.
Whether or not shareholders decide they wish to merge the Funds, there are other
matters of business to be considered. So, no matter how you choose to vote on
the proposed merger, please do review all of the other proposals and vote on
them as well.
WHAT ARE THE ADVANTAGES OF MERGING THE FUNDS?
There are two key potential advantages:
o By combining the Funds, SHAREHOLDERS MAY ENJOY LOWER EXPENSE RATIOS over time.
Larger funds tend to enjoy economies of scale not available to funds with
smaller assets under management.
o These LOWER COSTS MAY LEAD TO STRONGER PERFORMANCE, since total return to a
fund's shareholders is net of fund expenses.
The potential benefits and possible disadvantages are explained in more detail
in the enclosed proxy statement.
<PAGE>
HOW ARE THESE TWO FUNDS ALIKE?
The investment goals of the Funds are basically the same. They both seek
long-term capital appreciation. Each invests primarily in European countries,
and therefore both are subject to the special risks of international investing
(such as currency fluctuations, and differences in accounting and securities
regulation). However, there are significant differences in investment strategy.
o EUROPEAN SMALL COMPANY FUND focuses on the equity securities of companies with
$1 billion or less in market capitalization. While many of these stocks have
strong upside potential, their prices tend to be considerably more volatile than
stocks of larger cap firms.
o The managers for EUROPEAN FUND enjoy greater flexibility in selecting
portfolio holdings, and may diversify across the large-, mid-, and
small-capitalization market segments. This higher level of diversification may
help temper investment risk, while allowing managers to seek the strongest
growth opportunities across stock markets.
WHAT HAPPENS IF SHAREHOLDERS DECIDE IN FAVOR OF A MERGER?
A Closing Date will be set for the reorganization. Shareholders will receive
full and fractional shares of European Fund equal in value to the shares of
European Small Company Fund that they owned on the Closing Date.
The net asset value per share of European Fund will not be affected by the
transaction. That means the reorganization will not result in a dilution of any
shareholder's interest.
IF THE FUNDS MERGE, WILL THERE BE TAX CONSEQUENCES FOR ME?
Unlike a transaction where you direct INVESCO to sell shares of one fund in
order to buy shares of another, the reorganization WILL NOT BE CONSIDERED A
TAXABLE EVENT. The Funds themselves will recognize no gains or losses on assets
<PAGE>
as a result of a reorganization. So you will not have reportable capital gains
or losses due to the reorganization. (However, shareholders of the Fund may
receive a distribution of ordinary income and/or capital gains immediately prior
to the reorganization, to the extent that unpaid amounts of income and/or gains
remain in the Fund.)
You should consult your own tax adviser regarding any possible effect a
reorganization might have on you, given your personal circumstances --
particularly regarding state and local taxes.
WHO WILL PAY FOR THIS REORGANIZATION?
The expenses of the reorganization, including legal expenses, printing,
packaging and postage, plus the costs of any supplementary solicitation, will be
borne partly by INVESCO and partly by the two Funds.
WHAT DOES THE FUND'S BOARD OF DIRECTORS RECOMMEND?
The Board believes you should vote in favor of the reorganization. More
important, though, the directors recommend that you study the issues involved,
call us with any questions, and vote promptly to ensure that a quorum of
European Small Company Fund shares will be represented at this Fund's special
shareholders meeting.
WHERE DO I GET MORE INFORMATION ABOUT INVESCO EUROPEAN FUND?
o Please visit our Web site at WWW.INVESCO.COM
o Or call Investor Services toll-free at 1-800-525-8085
<PAGE>
[BACK COVER]
YOU SHOULD KNOW WHAT INVESCO KNOWS
At INVESCO, we've built a global reputation on professional investment
management. Some of the world's largest institutions and more than a million
individuals rely on our knowledgeable investment specialists for effective
management of their portfolios. INVESCO provides investors the perspective
gained from more than 65 years of helping clients seek their financial goals.
The heart of INVESCO's business is to provide strong core mutual fund portfolios
designed as solid foundations for our clients' investments. We draw on the
resources of affiliates worldwide, so we have seasoned experts in the investment
strategies you want to pursue -- both for your core investments as well as to
meet special needs. And we offer award-winning service to help you better take
advantage of our investment expertise. Call us to learn more about your choices
at INVESCO.
<PAGE>
INVESCO EUROPEAN SMALL COMPANY FUND
(A SERIES OF INVESCO SPECIALTY FUNDS, INC.)
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
MAY 20, 1999
To The Shareholders:
A special meeting of shareholders of the INVESCO European Small Company
Fund ("European Small Company Fund"), a series of INVESCO Specialty Funds, Inc.
("Specialty Funds"), will be held on May 20, 1999, at 10:00 a.m., Mountain Time,
at the office of INVESCO Funds Group, Inc., 7800 E. Union Avenue, Denver,
Colorado, for the following purposes:
(1) To approve an Agreement and Plan of Reorganization and Termination
under which INVESCO European Fund ("European Fund"), a series of INVESCO
International Funds, Inc. ("International Funds"), would acquire all of the
assets of European Small Company Fund in exchange solely for shares of European
Fund and the assumption by European Fund of all of European Small Company Fund's
liabilities, followed by the distribution of those shares to the shareholders of
European Small Company Fund, all as described in the accompanying
Prospectus/Proxy Statement;
(2) To approve an Agreement and Plan of Conversion and Termination
providing for the conversion of European Small Company Fund from a separate
series of Specialty Funds to a separate series of International Funds;
(3) To approve certain changes to the fundamental investment restrictions
of European Small Company Fund;
(4) To elect a board of directors of Specialty Funds;
(5) To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of European Small Company Fund; and
(6) To transact such other business as may properly come before the
meeting or any adjournment thereof.
<PAGE>
You are entitled to vote at the meeting and any adjournment thereof if you
owned shares of European Small Company Fund at the close of business on March
12, 1999. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF YOU
DO NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID envelope.
By order of the board of directors,
/s/ Glen A. Payne
-----------------
Glen A. Payne
Secretary
March 23, 1999
Denver, Colorado
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card, sign
and date the card, and return it in the envelope provided. IF YOU SIGN, DATE AND
RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
"FOR" THE PROPOSALS DESCRIBED ABOVE. In order to avoid the additional expense of
further solicitation, we ask your cooperation in mailing your proxy card
promptly. As an alternative to using the paper proxy card to vote, you may vote
by telephone, through the Internet, by facsimile machine or in person. Shares
that are registered in your name, as well as shares held in "street name"
through a broker, may be voted via the Internet or by telephone. To vote in this
manner, you will need the 12-digit "control" number(s) that appear on your proxy
card(s). To vote via the Internet, please access http://www.proxyvote.com on the
World Wide Web. In addition, shares that are registered in your name may be
voted by faxing your completed proxy card(s) to 1-800-733-1885. If we do not
receive your completed proxy after several weeks, you may be contacted by our
proxy solicitor, Shareholder Communications Corporation. Our proxy solicitor
will remind you to vote your shares or will record your vote over the phone if
you choose to vote in that manner. You may also call 1-800-690-6903 and vote by
phone.
Unless proxy cards submitted by corporations and partnerships are signed by the
appropriate persons as indicated in the voting instructions on the proxy card,
they will not be voted.
- --------------------------------------------------------------------------------
2
<PAGE>
INVESCO EUROPEAN FUND
(A SERIES OF INVESCO INTERNATIONAL FUNDS, INC.)
INVESCO EUROPEAN SMALL COMPANY FUND
(A SERIES OF INVESCO SPECIALTY FUNDS, INC.)
7800 EAST UNION AVENUE
DENVER, COLORADO 80237
(TOLL FREE) 1-800-646-8372
PROSPECTUS/PROXY STATEMENT
MARCH 23, 1999
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of the INVESCO European Small Company Fund ("European Small Company
Fund"), a series of INVESCO Specialty Funds, Inc. ("Specialty Funds"), in
connection with the solicitation of proxies by its board of directors for use at
a special meeting of its shareholders to be held on May 20, 1999, at 10:00 a.m.,
Mountain Time, and at any adjournment of the meeting, if the meeting is
adjourned for any reason.
As more fully described in this Proxy Statement, one of the main purposes
of the meeting is to vote on a proposed reorganization. In the reorganization,
the INVESCO European Fund ("European Fund"), a series of INVESCO International
Funds, Inc. ("International Funds"), would acquire all of the assets of European
Small Company Fund, in exchange solely for shares of European Fund and the
assumption by European Fund of all of the liabilities of European Small Company
Fund. Those shares of European Fund would then be distributed to the
shareholders of European Small Company Fund, so that each shareholder would
receive a number of full and fractional shares of European Fund having an
aggregate value that, on the effective date of the reorganization, is equal to
the aggregate net asset value of the shareholder's shares of European Small
Company Fund. As soon as practicable following the distribution of shares,
European Small Company Fund will be terminated.
European Fund is a diversified series of International Funds, which is an
open-end management investment company. The investment objective of both
European Fund and European Small Company Fund is to seek capital appreciation.
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about the reorganization and European Fund that
a shareholder should know before voting on the reorganization. A Statement of
Additional Information, dated March 23, 1999, relating to the reorganization and
including historical financial statements, has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated herein by reference (that
is, the Statement of Additional Information is legally a part of this Proxy
Statement). European Fund's Prospectus and Statement of Additional Information,
each dated March 1, 1999, and Annual Report to Shareholders for the fiscal year
ended October 31, 1998 have been filed with the SEC and are incorporated herein
by this reference. European Small Company Fund's Prospectus and Statement of
Additional Information, each dated December 1, 1998, have been filed with the
SEC and also are incorporated herein by this reference. Copies of European
Fund's Prospectus and Annual Report to Shareholders accompany this Proxy
Statement. Copies of the other referenced documents, as well as European Small
Company Fund's Annual Report to Shareholders for the fiscal year ended July 31,
1998 and Semi-Annual Report to Shareholders dated January 31, 1999, may be
obtained without charge, and further inquiries may be made, by writing to
INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado 80217-3706, or by
calling toll-free 1-800-624-8372.
The SEC maintains a website (http://www.sec.gov) that contains the
Statement of Additional Information and other material incorporated by
reference, together with other information regarding European Fund and European
Small Company Fund.
THE SEC HAS NOT APPROVED OR DISAPPROVED THE SHARES OF THE INVESCO EUROPEAN FUND,
OR DETERMINED WHETHER THIS PROXY STATEMENT IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
TABLE OF CONTENTS
VOTING INFORMATION.............................................................1
PART I: THE REORGANIZATION....................................................3
PROPOSAL 1: To approve an Agreement and Plan of Reorganization
and Termination under which European Fund would acquire all of
the assets of European Small Company Fund in exchange solely for
shares of European Fund and the assumption by European Fund of
all of European Small Company Fund's liabilities, followed by
the distribution of those shares to the shareholders of European
Small Company Fund.......................................................3
Synopsis...............................................................3
Comparison of Principal Risk Factors ..................................9
The Proposed Transaction..............................................13
PART II: PROPOSED ORGANIZATIONAL MATTER......................................17
PROPOSAL 2: To approve an Agreement and Plan of Conversion and
Termination providing for the conversion of European Small
Company Fund from a separate series of Specialty Funds to a
separate series of International Funds..................................17
Reason for the Proposed Conversion....................................18
Summary of the Plan of Conversion and Termination.....................19
Continuation of Fund Shareholder Accounts.............................20
Expenses..............................................................20
Temporary Waiver of Investment Restrictions...........................20
Tax Consequences of the Conversion....................................20
Conclusion............................................................21
PART III: PROPOSED MODIFICATIONS TO FUNDAMENTAL INVESTMENT
RESTRICTIONS AND ROUTINE CORPORATE GOVERNANCE MATTERS.........................21
PROPOSAL 3: To approve amendments to the fundamental investment
restrictions of European Small Company Fund.............................21
a. To amend the Fund's fundamental investment
restriction on issuer diversification.............................22
b. To amend the Fund's fundamental investment
restriction on borrowing..........................................23
3
<PAGE>
c. To amend the Fund's fundamental investment
restriction on issuing senior securities..........................24
d. To amend the Fund's fundamental investment
restriction on real estate investments............................25
e. To amend the Fund's fundamental investment
restriction on investing in commodities...........................25
f. To amend the Fund's fundamental investment
restriction on loans..............................................26
g. To amend the Fund's fundamental investment
restriction on underwriting securities............................26
h. To amend the Fund's fundamental investment
restriction on industry concentration.............................26
i. To amend the Fund's fundamental investment
restriction on investing in another investment
company...........................................................27
PROPOSAL 4: To elect the Directors of Specialty
Funds...................................................................28
PROPOSAL 5: To ratify or reject the z selection of
PricewaterhouseCoopers LLP as independent accountants of
European Small Company Fund.............................................36
OTHER BUSINESS................................................................37
INFORMATION CONCERNING ADVISER, SUB-ADVISER, DISTRIBUTOR,
AND AFFILIATED COMPANIES......................................................37
MISCELLANEOUS.................................................................38
Available Information.....................................................38
Legal Matters.............................................................38
Experts...................................................................39
APPENDIX A: PRINCIPAL SHAREHOLDERS...........................................A-1
APPENDIX B: AGREEMENT AND PLAN OF REORGANIZATION AND
TERMINATION..................................................................B-1
APPENDIX C: AGREEMENT AND PLAN OF CONVERSION AND
TERMINATION..................................................................C-1
4
<PAGE>
INVESCO EUROPEAN SMALL COMPANY FUND
(a series of INVESCO Specialty Funds, Inc.)
PROSPECTUS/PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
MAY 20, 1999
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of the INVESCO European Small Company Fund ("European Small Company
Fund"), a series of INVESCO Specialty Funds, Inc. ("Specialty Funds"), in
connection with the solicitation of proxies from European Small Company Fund
shareholders by the board of directors ("Board") of Specialty Funds for use at a
special meeting of shareholders to be held on May 20, 1999 ("Meeting"), and at
any adjournment of the Meeting. This Proxy Statement will first be mailed to
shareholders on or about March 23, 1999.
One-third of European Small Company Fund's shares outstanding on March 12,
1999, represented in person or by proxy shall constitute a quorum and must be
present for the transaction of business at the Meeting. If a quorum is not
present at the Meeting or a quorum is present but sufficient votes to approve
one or more of the proposals are not received, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies. Any such adjournment will require the affirmative vote of a majority
of those shares represented at the Meeting in person or by proxy. The persons
named as proxies will vote those proxies that they are entitled to vote FOR any
proposal in favor of such an adjournment and will vote those proxies required to
be voted AGAINST a proposal against such adjournment. A shareholder vote may be
taken on one or more of the proposals in this Proxy Statement prior to any such
adjournment if sufficient votes have been received and it is otherwise
appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and for which the broker does not have
discretionary voting authority. Abstentions and broker non-votes will be counted
as shares present for purposes of determining whether a quorum is present but
will not be voted for or against any adjournment or proposal. Accordingly,
abstentions and broker non-votes effectively will be a vote against adjournment
or against any proposal where the required vote is a percentage of the shares
present or outstanding. Abstentions and broker non-votes will not be counted,
however, as votes cast for purposes of determining whether sufficient votes have
been received to approve a proposal.
<PAGE>
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your directions as indicated on the proxy card, if your proxy
card is received properly executed by you or by your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval of each of
the proposals and the duly appointed proxies may, in their discretion, vote upon
such other matters as may come before the Meeting. The proxy card may be revoked
by giving another proxy or by letter or telegram revoking the initial proxy. To
be effective, revocation must be received by Specialty Funds prior to the
meeting and must indicate your name and account number. If you attend the
Meeting in person you may, if you wish, vote by ballot at the Meeting, thereby
canceling any proxy previously given.
In order to reduce costs, notices to a shareholder having more than one
account in European Small Company Fund listed under the same Social Security
number at a single address have been combined. The proxy cards have been coded
so that a shareholder's votes will be counted for each such account.
As of March 12, 1999 ("Record Date"), European Small Company Fund had
4,464,381.906 shares of common stock outstanding. The solicitation of proxies,
the cost of which will be borne half by INVESCO Funds Group, Inc. ("INVESCO"),
the investment adviser and transfer agent of European Small Company Fund, and
half by INVESCO European Fund ("European Fund"), a series of INVESCO
International Funds, Inc. ("International Funds"), and European Small Company
Fund, will be made primarily by mail but also may be made by telephone or oral
communications by representatives of INVESCO and INVESCO Distributors, Inc.
("IDI"), the distributor of the INVESCO group of investment companies ("INVESCO
Funds"), who will not receive any compensation for these activities from either
European Small Company Fund or European Fund, or by Shareholder Communications
Corporation, professional proxy solicitors, who will be paid fees and expenses
of up to approximately $3,253 for soliciting services. If votes are recorded by
telephone, Shareholder Communications Corporation will use procedures designed
to authenticate shareholders' identities, to allow shareholders to authorize the
voting of their shares in accordance with their instructions, and to confirm
that a shareholder's instructions have been properly recorded. You may also vote
by mail, by facsimile or through a secure Internet site. Proxies voted by
telephone, facsimile or Internet may be revoked at any time before they are
voted in the same manner that proxies voted by mail may be revoked.
Except as set forth in Appendix A, INVESCO does not know of any person who
owns beneficially 5% or more of the shares of European Small Company Fund or
European Fund (each a "Fund"). Directors and officers of Specialty Funds own in
the aggregate less than 1% of the shares of European Small Company Fund.
VOTE REQUIRED. Approval of Proposals 1 and 2 each require the affirmative
vote of a majority of the outstanding voting securities of European Small
Company Fund. Approval of Proposal 3 requires the affirmative vote of a
"majority of the outstanding voting securities" of the European Small Company
Fund, as defined in the Investment Company Act of 1940, as amended ("1940 Act").
2
<PAGE>
This means that Proposal 3 must be approved by the lesser of: (1) 67% of
European Small Company Fund's shares present at a meeting of shareholders if the
owners of more than 50% of European Small Company Fund's shares then outstanding
are present in person or by proxy; or (2) more than 50% of European Small
Company Fund's outstanding shares. A plurality of the votes cast at the Meeting
and at concurrent meetings of other series of Specialty Funds, taken in the
aggregate, is sufficient to approve Proposal 4. Approval of Proposal 5 requires
the affirmative vote of a majority of the shares of European Small Company Fund
present at the Meeting, provided a quorum is present. Each outstanding full
share of European Small Company Fund is entitled to one vote, and each
outstanding fractional share thereof is entitled to a proportionate fractional
share of one vote. If any Proposal is not approved by the requisite vote of
shareholders, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies.
PART I. THE REORGANIZATION
PROPOSAL 1. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION
AND TERMINATION ("REORGANIZATION PLAN") UNDER WHICH EUROPEAN
FUND WOULD ACQUIRE ALL OF THE ASSETS OF EUROPEAN SMALL COMPANY
FUND IN EXCHANGE SOLELY FOR SHARES OF EUROPEAN FUND AND THE
ASSUMPTION BY EUROPEAN FUND OF ALL OF EUROPEAN SMALL COMPANY
FUND'S LIABILITIES, FOLLOWED BY THE DISTRIBUTION OF THOSE SHARES
TO THE SHAREHOLDERS OF EUROPEAN SMALL COMPANY FUND
("REORGANIZATION")
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement, the Prospectus and Statement of Additional Information of
European Fund (which are incorporated herein by reference), the Prospectus and
Statement of Additional Information of European Small Company Fund (which are
incorporated herein by reference), and the Reorganization Plan (which is
attached as Appendix B to this Proxy Statement). As discussed more fully below,
Specialty Funds' Board believes that the Reorganization will benefit European
Small Company Fund shareholders. European Fund has an investment objective that
is substantially similar to the investment objective of European Small Company
Fund and has similar investment strategies. It is anticipated that, following
the Reorganization, the total operating expenses for the combined Fund, both
before and after taking into account voluntary fee waivers and expense
reimbursements, will be lower as a percentage of net assets than those of
European Small Company Fund.
THE PROPOSED REORGANIZATION
Specialty Funds' Board considered and approved the Reorganization Plan at
a meeting held on February 3, 1999. The Reorganization Plan provides for the
3
<PAGE>
acquisition of all the assets of European Small Company Fund by European Fund,
in exchange solely for shares of common stock of European Fund and the
assumption by European Fund of all the liabilities of European Small Company
Fund. European Small Company Fund then will distribute those shares of European
Fund to its shareholders, so that each European Small Company Fund shareholder
will receive the number of full and fractional shares that is equal in aggregate
value to the shareholder's holdings in European Small Company Fund as of the day
the Reorganization is completed. European Small Company Fund then will be
terminated as soon as practicable thereafter.
The Reorganization will occur as of the close of business on June 25,
1999, or at a later date when the Reorganization is approved and all
contingencies have been met ("Closing Date").
For the reasons set forth below under "The Proposed Transaction Reasons
for the Reorganization," Specialty Funds' Board, including its directors who are
not "interested persons," as that term is defined in the 1940 Act, of Specialty
Funds, International Funds, INVESCO, or INVESCO Asset Management Limited
("IAML") (collectively, the "Independent Directors"), has determined that the
Reorganization is in the best interests of European Small Company Fund, that the
terms of the Reorganization are fair and reasonable and that the interests of
European Small Company Fund's shareholders would not be diluted as a result of
the Reorganization. Accordingly, Specialty Funds' Board recommends approval of
the transaction. In addition, the Board of International Funds, including its
Independent Directors, has determined that the Reorganization is in the best
interests of European Fund, that the terms of the Reorganization are fair and
reasonable and that the interests of European Fund's shareholders would not be
diluted as a result of the Reorganization.
COMPARATIVE FEE TABLE
As shown in the tables below, a shareholder pays no fees to purchase Fund
shares, to exchange to another INVESCO Fund, or to sell shares. The only Fund
costs a shareholder pays are annual Fund operating expenses that are deducted
from Fund assets. The current fees and expenses incurred for the fiscal year
ended October 31, 1998 by European Fund and the fiscal year ended July 31, 1998
by European Small Company Fund, and PRO FORMA fees for European Fund after the
Reorganization are shown below.
4
<PAGE>
SHAREHOLDER FEES (fees paid directly from your investment)
EUROPEAN SMALL COMBINED FUND
EUROPEAN FUND COMPANY FUND (PRO FORMA)
------------- ------------ -----------
Sales charge (load) on None None None
purchases of shares
Sales charge (load) on None None None
reinvested dividends
Redemption fee or None* None* None
deferred sales charge
(load)
Exchange fee None None None
......
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
EUROPEAN SMALL COMBINED FUND
EUROPEAN FUND COMPANY FUND (PRO FORMA)
------------- ------------ -----------
<S> <C> <C> <C>
Management Fees 0.71% 0.75% 0.71%
Distribution (12b-1)Fees(1) 0.25% 0.25% 0.25%
Other Expenses 0.38% 1.04%(3) 0.39%
----- ------ -----
Total Fund Operating Expenses(2) 1.34% 2.04%(3) 1.35%
Expenses(2)
</TABLE>
* Effective May 1, 1999, European Fund and European Small Company Fund will
each impose redemption and exchange fees of 2.00% on shares held three months
or less and 1.00% for shares held more than three months but less than six
months. The fees will be retained by the Funds to offset transaction costs
and other expenses associated with short-term redemptions and exchanges.
These redemption fees will NOT apply to shares of European Fund issued in the
Reorganization.
(1)Because each Fund pays distribution fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc. Effective
November 1, 1997, European Fund was authorized to pay a distribution (12b-1)
fee of up to 0.25% of new assets (new sales of shares, exchanges into the
Fund, and reinvestments of dividends and other distributions made on or after
November 1, 1997). For the fiscal year ended October 31, 1998, actual
distribution (12b-1) fees were 0.23% of average net assets. Currently,
because of the increase in new assets, actual distribution (12b-1) fees are
0.25% of average new assets.
(2)The Funds' actual Total Fund Operating expenses were lower than the figures
shown because their transfer agent and/or custodian fees were reduced under
expense offset arrangements. Because of an SEC requirement, the figures shown
above DO NOT reflect these reductions.
(3)Certain expenses of European Small Company Fund are being absorbed
voluntarily by INVESCO and IAML, the Fund's sub-adviser. Accordingly, the
actual Other Expenses and Total Fund Operating Expenses paid, after
absorption, by European Small Company Fund were 1.01% and 2.01%,
respectively. INVESCO and IAML do not intend to continue absorbing the
expenses of European Small Company Fund. Thus, if the Reorganization is not
approved, European Small Company Fund's actual Other Expenses and Total Fund
Operating Expenses will likely increase.
5
<PAGE>
EXAMPLE OF EFFECT ON FUND EXPENSES
This Example is intended to help you compare the cost of investing in
European Small Company Fund with the cost of investing in European Fund and the
cost of investing in European Fund assuming the Reorganization has been
completed.
This Example assumes that you invest $10,000 in the specified Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. This Example also assumes that your investment has a 5% return each
year, that all dividends and other distributions are reinvested and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
EUROPEAN FUND $136 $425 $734 $1,613
EUROPEAN SMALL $207 $640 $1,098 $2,369
COMPANY FUND
COMBINED FUND $137 $428 $739 $1,624
(PRO FORMA)
......
FORM OF ORGANIZATION
European Fund is a series of International Funds, an open-end, diversified
investment management company that was organized as a Maryland corporation on
April 2, 1993. On July 1, 1993, European Fund acquired all the assets and
assumed all the liabilities of the European Portfolio of Financial Strategic
Portfolios, Inc., which was incorporated under the laws of Maryland on August
10, 1983. All financial and other information about European Fund for periods
prior to July 1, 1993 relates to such former portfolio. European Small Company
Fund is a series of Specialty Funds, an open-end, diversified investment
management company that was organized as a Maryland corporation on April 12,
1994. Neither International Funds nor Specialty Funds is required to (nor does
it) hold annual shareholder meetings. Neither Fund issues share certificates.
INVESTMENT ADVISER
INVESCO is the investment adviser of both Funds. In this capacity, INVESCO
is primarily responsible for providing the Funds with various administrative
services and supervising their daily business affairs. IAML is the sub-adviser
of the Funds and is primarily responsible for selecting and managing each Fund's
investments.
INVESCO is currently paid: (1) by European Fund a monthly advisory fee
computed daily at the annual rate of 0.75% on the first $350 million of the
Fund's average net assets, 0.65% on the next $350 million of such assets, and
0.55% on such assets over $700 million; and (2) by European Small Company Fund a
6
<PAGE>
monthly advisory fee computed daily at the annual rate of 0.75% on the first
$500 million of the Fund's average net assets, 0.65% on the next $500 million of
such assets, and 0.55% on such assets over $1 billion.
Out of the advisory fee which it receives from each Fund, INVESCO pays
IAML, as sub-adviser to each Fund: (1) with respect to European Fund, a monthly
fee based upon the average daily net value of the Fund's net assets of 0.30% on
the first $350 million of such assets; 0.26% on the next $350 million of such
assets, and 0.22% on such assets over $700 million; and (2) with respect to
European Small Company Fund, a monthly fee based upon the average daily net
value of the Fund's net assets of 0.30% on the first $500 million of the Fund's
average net assets; 0.26% on the next $500 million of such assets; and 0.22% on
such assets over $1 billion.
Following the Reorganization, INVESCO, in its capacity as investment
adviser to European Fund, will be primarily responsible for providing the
combined Fund with various administrative services and supervising the combined
Fund's daily business affairs. Following the Reorganization, IAML, in its
capacity as investment sub-adviser to European Fund, will be primarily
responsible for managing investment of the Funds' combined assets.
INVESTMENT OBJECTIVES AND POLICIES
European Fund has an investment objective generally similar to that of
European Small Company Fund in that each Fund seeks capital appreciation through
investment in equity securities of European companies, but the methodologies
through which the Funds seek this objective differ. Under normal conditions,
European Fund invests at least 80% of its total assets in equity securities of
companies domiciled in the United Kingdom, France, Germany, Belgium, Italy, the
Netherlands, Switzerland, Denmark, Sweden, Norway, Finland and Spain. There are
no limitations on the percentage of European Fund's assets that may be invested
in companies domiciled in any one country. European Small Company Fund seeks to
achieve capital appreciation by investing, under normal circumstances, at least
65% of its total assets in equity securities of European companies whose
individual equity market capitalizations would place them (at the time of
purchase) in the same size range of companies as approximately the lowest 25% of
market capitalizations of companies listed on a U.S. national securities
exchange or traded on the Nasdaq Stock Market ("small companies"). Typically,
the companies whose securities are held by European Small Company Fund have
equity market capitalizations under $1 billion. Additionally, under normal
circumstances, European Small Company Fund will invest at least 65% of its total
assets in issuers domiciled in at least five countries, including, but not
limited to, Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Holland, Ireland, Italy, Luxembourg, Norway, Portugal, Spain, Sweden,
Switzerland, Turkey and the United Kingdom. No more than 50% of European Small
Company Fund's total assets may be invested in any one country.
Neither European Fund nor European Small Company Fund has established
minimum investment standards, such as earnings history, type of industry or
dividend payment history with respect to their investments in foreign equity
securities and, therefore, investors in either Fund should consider that
7
<PAGE>
investments may consist in part of securities that may be deemed to be
speculative. While both Funds invest primarily in equity securities (or
securities convertible into common stocks), each Fund has some authority to
invest in debt securities. European Small Company Fund has the ability to invest
up to 15% of its total assets in debt securities rated below investment grade
(i.e., "junk bonds"), while European Fund has no such authority.
Both Funds have the authority to enter into forward currency contracts to
hedge against fluctuations in foreign exchange rates. European Small Company
Fund is also authorized to purchase and write options on securities (including
index options), and may enter into futures contracts and options on futures
contracts, and interest rate swaps and other swap-related products.
Both Funds are authorized to invest in illiquid securities, but European
Fund may only invest up to 10% of its assets in illiquid securities, while
European Small Company Fund may invest up to 15% of its net assets in such
securities. Both Funds may also enter into repurchase agreements with member
banks of the Federal Reserve System, registered broker-dealers, and registered
U.S. government securities dealers. In addition, each Fund may seek to earn
additional income by lending its portfolio securities to qualified brokers,
dealers, banks or other financial institutions, on a full-collateralized basis.
Both Funds may, in periods of abnormal economic and market conditions, as
determined by INVESCO or IAML, depart from their basic investment objective and
assume a temporary defensive position, with up to 100% of their 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.
There can be no assurance that either Fund will achieve its investment
objective.
OPERATION OF EUROPEAN FUND FOLLOWING THE REORGANIZATION
As indicated above, the investment objectives and policies of the two
Funds are similar, although European Small Company Fund has authority to invest
in certain securities and instruments that European Fund does not. Based on
their review of the investment portfolios of each Fund, INVESCO and IAML believe
that most of the assets held by European Small Company Fund will be consistent
with the investment policies of European Fund and thus can be transferred to and
held by European Fund if the Reorganization Plan is approved. If, however,
European Small Company Fund has any assets that may not be held by European
Fund, those assets will be sold prior to the Reorganization. The proceeds of
such sales will be held in temporary investments or reinvested in assets that
qualify to be held by European Fund. The possible need for European Small
Company Fund to dispose of assets prior to the Reorganization could result in
selling securities at a disadvantageous time and could result in European Small
Company Fund's realizing losses that would not otherwise have been realized.
Alternatively, these sales could result in European Small Company Fund's
realizing gains that would not otherwise have been realized, the net proceeds of
which would be included in a distribution to its shareholders prior to the
Reorganization.
8
<PAGE>
As discussed above, INVESCO serves as investment adviser to both Funds,
and IAML serves as sub-adviser to both Funds. After the Reorganization, both
will continue their respective roles. In its capacity as investment adviser to
European Fund, INVESCO will continue to be primarily responsible for providing
the combined Fund with various administrative services and supervising the
combined Fund's daily business affairs. IAML, as the sub-adviser to the European
Fund, will continue to be primarily responsible for selecting and managing the
combined Fund's investments. In addition, the directors and officers of European
Fund, its distributor, and other outside agents will continue to serve the Fund
in their current capacities.
PURCHASES AND REDEMPTIONS
PURCHASES. Shares of each Fund may be purchased by wire, telephone, mail
or direct payroll purchase. The shares of each Fund are sold on a continuous
basis at the net asset value ("NAV") per share next calculated after receipt of
a purchase order in good form. The NAV per share for each Fund is computed
separately and is determined once each day that the New York Stock Exchange is
open ("Business Day") as of the close of regular trading on that exchange, but
may also be computed at other times. For a more complete discussion of share
purchases, see "How Shares Can Be Purchased" in either Fund's Prospectus.
REDEMPTIONS. Shares of each Fund may be redeemed by telephone or by mail.
Redemptions are made at the NAV per share next determined after a request in
proper form is received at the Fund's office. Normally, payments for shares
redeemed will be mailed within seven days following receipt of the required
documents.
Effective May 1, 1999, European Fund and European Small Company Fund will
each impose redemption and exchange fees of 2.00% on shares held three months or
less and 1.00% for shares held more than three months but less than six months.
The fees will be retained by the Fund to offset transaction costs and other
expenses associated with short-term redemptions and exchanges. These redemption
fees will NOT apply to shares of European Fund issued in the Reorganization. For
a more complete discussion of share redemption procedures, see "How to Redeem
Shares" in either Fund's Prospectus.
European Small Company Fund shares will no longer be available for
purchase on the Business Day following the Closing Date. Redemptions of European
Small Company Fund's shares may be effected immediately prior to the Closing
Date.
EXCHANGES
Shares of each Fund may be exchanged for shares of another INVESCO Fund on
the basis of their respective NAVs per share at the time of the exchange. After
the Reorganization, shares of European Fund will continue to be exchangeable for
shares of another INVESCO Fund. For a more complete discussion of the Funds'
exchange policies, see "How Shares Can Be Purchased" in either Fund's
Prospectus.
9
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund earns investment income in the form of interest and dividends on
investments. Dividends paid by each Fund are based solely on its net investment
income. Each Fund's policy is to distribute substantially all of its investment
income, less expenses, to shareholders on an annual or semiannual basis, at the
discretion of the Board of that Fund. Dividends are automatically reinvested in
additional shares of a Fund at the NAV on the payable date (European Small
Company Fund) and the ex-dividend date (European Fund), unless otherwise
requested.
Each Fund also realizes capital gains and losses when it sells securities
or derivatives for more or less than it paid. If total gains on these sales
exceed total losses (including losses carried forward from previous years), the
Fund has capital gain net income. Net realized capital gains, if any, together
with net gains realized on foreign currency transactions, if any, are
distributed to each Fund's shareholders at least annually, usually in December.
Capital gains distributions are automatically reinvested in shares of the
respective Fund at the NAV on the payable date (European Small Company Fund) and
the ex-distribution date (European Fund), unless otherwise requested. Dividends
and other distributions are paid to holders of shares on the record date of
distribution regardless of how long a Fund's shares have been held by the
shareholder.
On or before the Closing Date, European Small Company Fund will declare as
a distribution substantially all of its net investment income and realized net
capital gain, if any, and distribute that amount plus any previously declared
but unpaid dividends, in order to continue to maintain its tax status as a
regulated investment company.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
The Funds will receive an opinion of their counsel, Kirkpatrick & Lockhart
LLP, to the effect that the Reorganization will constitute a tax-free
reorganization within the meaning of section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended ("Code"). Accordingly, neither Fund will
recognize any gain or loss as a result of the Reorganization. See "The Proposed
Transaction - Federal Income Tax Considerations," below. To the extent European
Small Company Fund sells securities prior to Closing Date, there may be net
recognized gains or losses to the Fund. Any net recognized gains would increase
the amount of any distribution made to shareholders of European Small Company
Fund prior to the Closing Date.
COMPARISON OF PRINCIPAL RISK FACTORS
Because European Small Company Fund's investment objective and policies
are substantially similar to those of European Fund, an investment in European
Fund is subject to many of the same specific risks as an investment in European
Small Company Fund. However, there are differences between the Funds. The
principal specific risks associated with investing in the Funds include:
10
<PAGE>
FOREIGN SECURITIES RISK. Both European Fund and European Small Company
Fund invest in foreign securities. Investments in securities of foreign
companies and in foreign markets involve certain additional risks not associated
with investments in domestic companies and markets. For U.S. investors, the
returns on foreign securities are influenced not only by the returns on the
foreign investments themselves, but also by currency fluctuations. That is, when
the U.S. dollar rises against a foreign currency, returns for U.S. investors on
foreign securities denominated in that foreign currency generally will decline.
In contrast, when the U.S. dollar declines against foreign currencies, returns
on those foreign securities generally will increase. Other aspects of
international investing to consider include:
o less publicly available information than is generally available about U.S.
issuers
o differences in accounting, auditing and financial reporting standards
o generally higher commission rates and longer settlement periods on foreign
portfolio transactions
o smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility
o less government regulation of stock exchanges, brokers and listed companies
abroad than in the United States
o investments in certain countries may be subject to foreign withholding taxes,
which may reduce dividend income or capital gains payable to shareholders
Additional risks attendant to investing in foreign securities include: the
possibility of expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations; political instability; potential
restrictions on the flow of international capital; and the possibility of the
Fund experiencing difficulties in pursuing legal remedies and collecting
judgments.
While the European Fund may invest in foreign securities without
limitation on the percentage of assets that may be invested in any country, the
European Small Company Fund may invest no more than 50% of Fund assets in any
single foreign country. To the extent that this difference in policy decreases
the degree of country diversification, there may be additional risks associated
with investing in European Fund, as compared to investing in European Small
Company Fund.
INTRODUCTION OF THE EURO. Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain are members of
the European Economic and Monetary Union ("EMU"). The EMU has established a
common European currency for EMU countries which is known as the "euro." Each
participating country adopted the euro as its currency on January 1, 1999. The
old national currencies will be sub-currencies of the euro until July 1, 2002,
at which time the old currencies will disappear entirely. Other European
countries may adopt the euro in the future.
The introduction of the euro presents some uncertainties and possible
risks, including whether the payment and operational systems of banks and other
11
<PAGE>
financial institutions will be capable of dealing with the new currency, whether
exchange rates for the old national currencies and the euro were adequately
established, and whether suitable clearing and settlement systems for the euro
will operate. These and other factors may cause market disruptions and could
adversely affect the value of securities held by the Fund.
The introduction of the euro may impact European capital markets in ways
that it is impossible to quantify at this time. For example, investors may begin
to view EMU countries as a single market, and that may impact future investment
decisions for the Fund. As the euro is implemented, there may be changes in the
relative strength and value of the U.S. dollar and other major currencies, as
well as possible adverse tax consequences. The euro transition by EMU countries
may impact the fiscal and monetary policies of participating countries. There
may be increased levels of price competition among business firms within EMU
countries and between businesses in EMU and non-EMU countries. The outcome of
these uncertainties could have unpredictable effects on trade and commerce and
result in increased volatility for all financial markets.
FUTURES, OPTIONS, FORWARD CONTRACTS, AND OTHER DERIVATIVES. The Funds
differ in the types of futures, options, forward contracts, and other derivative
securities in which they may invest. The European Fund is limited to investing
only in forward contracts for the purchase or sale of foreign currencies
("forward currency contracts"). It may not invest in any other types of
derivative securities. A forward currency contract is an agreement between
contracting parties to exchange an amount of currency at some future time at an
agreed-upon rate. The European Fund enters into forward foreign currency
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, and not for purposes of speculation. Although the Fund
has not adopted any limitations on its ability to use forward currency
contracts, it does not attempt to hedge all of its foreign investment positions,
and will enter into forward currency contracts only to the extent, if any,
deemed appropriate by INVESCO or IAML. The Fund does not enter into forward
contracts for terms of more than one year and no predictions can be made with
respect to whether the total of such transactions will result in a better or
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 below.
European Small Company Fund may invest in futures, options, forward
contracts, swaps, and other derivative instruments. The Fund invests in these
instruments as a hedge against adverse movements in securities, foreign
currency, and interest rate markets, and not for purposes of speculation. Risks
inherent in the use of futures, options, forward contracts, and swaps include:
(1) the risk that interest rates, securities prices and currency markets will
not move in the directions anticipated, in which case the Fund could be left in
a less favorable position than if such strategies had not been used; (2)
imperfect correlation between the price of futures, options and forward
contracts and movements in the prices of the securities or currencies being
12
<PAGE>
hedged; (3) the fact that the skills needed to use these strategies are
different from those needed to select portfolio securities; and (4) the possible
absence of a liquid secondary market for any particular instrument at any time.
The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs and, as a result, no more than
5% of the Fund's total assets are committed to such investments.
ILLIQUID AND RULE 144A SECURITIES. The Funds differ slightly in their
respective approaches toward investing in illiquid and Rule 144A securities.
Securities are considered to be illiquid if they have not been registered under
the Securities Act of 1933 and are thus subject to restrictions on their resale
("restricted securities") or if, based upon their nature or the market for such
securities, they are not readily marketable. Any limitations on resale and
marketability may have the effect of preventing the Funds from disposing of such
securities at the time desired or at a reasonable price. In addition, in order
to resell restricted securities, the Funds might have to bear the expense and
incur the delays associated with registering such securities. The European Fund
may not invest more than 10% of its net assets in illiquid and restricted
securities. For both Funds, repurchase agreements maturing in more than seven
days are considered as illiquid for purposes of this restriction. Rule 144A
securities are not registered for sale to the general public and are thus
restricted. However, these securities can be resold to qualified institutional
investors, provided that a liquid institutional trading market develops. For
European Fund, Rule 144A securities are subject to the 10% limitation on
illiquid securities, even if a liquid institutional trading market develops. In
contrast, the European Small Company Fund may purchase Rule 144A securities
without regard to its 15% limitation on illiquid securities if a liquid
institutional trading market exists. If a liquid institutional trading market
does not develop for the Funds' Rule 144A securities, the value of the Funds'
investments in these securities may be negatively affected.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. European Fund may invest in
companies domiciled in certain countries by purchasing common shares of
closed-end investment companies organized to invest in the securities markets of
particular countries (each a "country fund"). This is done only when it is not
possible for non-residents to make direct investments in securities of the
companies in those countries. European Fund's investments in country funds are
limited in that it may not purchase shares of a country fund if: (a) such a
purchase would cause the Fund to own more than 3% of the total outstanding
voting stock of a particular country fund; or (b) such purchase would cause the
Fund to have more than 5% of its total assets invested in a particular country
fund or more than 10% of its total assets invested in the securities of other
investment companies. Investments in certain country funds may involve the
payment of substantial premiums above the value of such country funds' portfolio
securities. In addition, to the extent that European Fund invests in country
funds, its investment return may be reduced by duplicative advisory fees and
operating expenses resulting from two separate management companies managing the
Fund's assets. European Small Company Fund does not invest in other investment
companies.
LOWER-RATED DEBT SECURITIES. European Fund does not invest in lower-rated
debt securities. In contrast, European Small Company Fund may invest up to 15%
of total fund assets in debt securities that are rated below BBB by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), or Baa by Moody's
13
<PAGE>
Investors Service, Inc. ("Moody's") or, if unrated, are determined by INVESCO or
IAML to be equivalent in quality to debt securities having such ratings
(commonly referred to as "junk bonds"). European Small Company Fund does not
invest in debt securities rated below CCC by S&P or Caa by Moody's or, if
unrated, determined by INVESCO or IAML to be equivalent in quality to debt
securities having such ratings. (For a further discussion of bond ratings, see
European Small Company Fund's Statement of Additional Information.)
SMALLER CAPITALIZATION COMPANIES. The European Fund may, but is not
required to, invest in smaller capitalization companies, including those traded
on regional foreign stock exchanges or in the foreign over-the-counter market.
In contrast, the European Small Company Fund must invest at least 65% of its
total assets in equity securities of European companies whose individual equity
market capitalizations would place them, at the time of purchase, in the same
size range as the lowest 25% market capitalization companies listed on a U.S.
national securities exchange or traded on the Nasdaq Stock Market. These are
typically companies with a market capitalization of less than $1 billion.
Smaller capitalization companies may have limited operating histories, product
lines, and financial and managerial resources. These companies also may be
subject to intense competition from larger companies, and their stock may be
subject to more abrupt or erratic market movements than the stock of larger,
more established companies. Due to these and other factors, smaller
capitalization companies may suffer significant losses, although they may
realize substantial growth.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The European Fund does not
invest in when-issued securities, while the European Small Company Fund may make
commitments to purchase or sell equity or debt securities in advance of their
issue in an amount up to 10% of its total assets, measured at the time the
commitment is made. The purchase of securities on a when-issued basis involves
the risk that the value of the securities purchased will decline prior to
settlement.
TURNOVER RATE. Although neither of the Funds trades for short-term
profits, securities may be sold without regard to the time they have been held
in a Fund when, in the opinion of each of the Funds' management, investment
considerations warrant such action. As a result, for European Fund, certain
market conditions may dictate that the portfolio turnover rate exceed 100%,
which may be higher than that of other investment companies seeking capital
appreciation. For European Small Company Fund, while it is anticipated that the
portfolio turnover rates for the Fund's portfolio generally will not exceed
200%, certain market conditions may dictate that portfolio turnover rates exceed
200%. Increased portfolio turnover rates may cause a Fund to incur greater
brokerage costs than would otherwise be the case and may result in the
acceleration of capital gains that are taxable when distributed to shareholders.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to ensure
that its own major computer systems will continue to function on and after
14
<PAGE>
January 1, 2000. In addition, the markets for, or value of, securities in which
the Funds invest may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000. For example,
improperly functioning systems could result in securities trade settlement
problems and liquidity issues, production issues for individual companies, and
overall economic uncertainties. Individual issuers may incur increased costs in
making their own systems Year 2000 compliant. The combination of market
uncertainty and increased costs means that there is a possibility that Year 2000
computer issues may adversely affect the Funds' investments.
See "Risk Factors" in European Fund's and European Small Company Fund's
Prospectuses for a more complete description of investment risks.
THE PROPOSED TRANSACTION
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction will be
consummated are set forth in the Reorganization Plan. Significant provisions of
the Reorganization Plan are summarized below; however, this summary is qualified
in its entirety by reference to the Reorganization Plan, which is attached as
Appendix B to this Proxy Statement.
The Reorganization Plan provides for: (a) the acquisition by European Fund
on the Closing Date of all the assets of European Small Company Fund in exchange
solely for European Fund shares and the assumption by European Fund of all of
European Small Company Fund's liabilities; and (b) the distribution of those
European Fund shares to the shareholders of European Small Company Fund.
The assets of European Small Company Fund to be acquired by European Fund
include all cash, cash equivalents, securities, receivables, claims and rights
of action, rights to register shares under applicable securities laws, books and
records, deferred and prepaid expenses shown as assets on European Small Company
Fund's books, and all other property owned by European Small Company Fund.
European Fund will assume from European Small Company Fund all liabilities,
debts, obligations and duties of European Small Company Fund of whatever kind or
nature; provided, however, that European Small Company Fund will use its best
efforts to discharge all of its known liabilities before the Closing Date.
European Fund will deliver its shares to European Small Company Fund, which will
distribute the shares to European Small Company Fund's shareholders.
The value of European Small Company Fund's assets to be acquired by
European Fund and the NAV per share of the shares of European Fund to be
exchanged for those assets will be determined as of the close of regular trading
on the New York Stock Exchange on the Closing Date ("Valuation Time"), using the
valuation procedures described in each Fund's then-current Prospectus and
15
<PAGE>
Statement of Additional Information. European Small Company Fund's net value
shall be the value of its assets to be acquired by European Fund, less the
amount of European Small Company Fund's liabilities, as of the Valuation Time.
On, or as soon as practicable after, the Closing Date, European Small
Company Fund will distribute the European Fund shares that it receives PRO RATA
to its shareholders of record as of the effective time of the Reorganization, so
that each European Small Company Fund shareholder will receive a number of full
and fractional European Fund shares equal in aggregate value to the
shareholder's holdings in European Small Company Fund; European Small Company
Fund will be terminated as soon as practicable after the share distribution. The
shares will be distributed by opening accounts on the books of European Fund in
the names of European Small Company Fund shareholders and by transferring to
those accounts the shares previously credited to the account of European Small
Company Fund on those books. Fractional shares in European Fund will be rounded
to the third decimal place.
Because the European Fund shares will be issued at NAV in exchange for the
net assets of European Small Company Fund, the aggregate value of European Fund
shares issued to European Small Company Fund shareholders will equal the
aggregate value of European Small Company Fund shares. The NAV per share of
European Fund will be unchanged by the transaction. Thus, the Reorganization
will not result in a dilution of any shareholder's interest.
Any transfer taxes payable upon the issuance of European Fund shares in a
name other than that of the registered European Small Company Fund shareholder
will be paid by the person to whom those shares are to be issued as a condition
of the transfer. Any reporting responsibility of European Small Company Fund to
a public authority will continue to be its responsibility until it is dissolved.
Half of the cost of the Reorganization, including professional fees and
the cost of soliciting proxies for the Meeting, consisting principally of
printing and mailing expenses, together with the cost of any supplementary
solicitation, will be borne by INVESCO, the investment adviser to each Fund, and
half by the Funds. The Boards of International Funds and Specialty Funds each
considered the fact that INVESCO will pay half of these expenses in approving
the Reorganization and finding that the Reorganization is in the best interests
of its Fund.
The consummation of the Reorganization is subject to a number of
conditions set forth in the Reorganization Plan, some of which may be waived by
either Fund. In addition, the Reorganization Plan may be amended in any mutually
agreeable manner, except that no amendment may be made subsequent to the Meeting
that has a material adverse effect on the European Small Company Fund
shareholders' interests.
16
<PAGE>
REASONS FOR THE REORGANIZATION
The Board of Specialty Funds, including a majority of its Independent
Directors, has determined that the Reorganization is in the best interests of
European Small Company Fund, that the terms of the Reorganization are fair and
reasonable and that the interests of European Small Company Fund's shareholders
will not be diluted as a result of the Reorganization. The Board of
International Funds, including a majority of its Independent Directors, has
determined that the Reorganization is in the best interests of European Fund,
that the terms of the Reorganization are fair and reasonable and that the
interests of European Fund's shareholders will not be diluted as a result of the
Reorganization.
In approving the Reorganization, each Board, including a majority of its
Independent Directors, considered a number of factors, including the following:
(1) the compatibility of the Funds' investment objectives, policies and
restrictions;
(2) the effect of the Reorganization on the Funds' expected investment
performance;
(3) the effect of the Reorganization on the expense ratio of each Fund
relative to its current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including whether
European Small Company Fund could continue to operate on a stand-alone
basis or should be liquidated; and
(7) the potential benefits of the Reorganization to INVESCO and to other
persons.
The Reorganization was recommended to the Board of each Fund by INVESCO at
meetings of the Boards held on February 3, 1999. In recommending the
Reorganization, INVESCO advised the Boards that the investment advisory and
administration fee schedule applicable to European Fund would be equal to or
lower than that currently in effect for European Small Company Fund, and that it
is likely INVESCO would cease to absorb certain expenses of European Small
Company Fund. The Boards considered the fact that European Fund has a better
performance record than European Small Company Fund and that European Small
Company Fund has had more difficulty in attracting assets than European Fund.
The Boards also considered the similarity in investment objective and portfolio
composition between the two Funds. Further, the Board of each Fund was advised
by INVESCO that, because European Fund has greater net assets than European
Small Company Fund, combining the two Funds could reduce the expenses borne by
17
<PAGE>
European Small Company Fund as a percentage of net assets. In addition, INVESCO
advised the Board that any reduction in the expense ratios of the Funds as a
result of the Reorganization could benefit INVESCO by reducing any
reimbursements or waivers of expenses resulting from INVESCO's obligation to
limit the expenses of European Small Company Fund to 2.00%. The Boards were also
advised that following the Reorganization, the expense ratio for European Fund
may decrease because the investment advisory and administration fee paid by that
Fund decreases as its size increases.
DESCRIPTION OF SECURITIES TO BE ISSUED
International Funds is registered with the SEC as an open-end management
investment company. It has an authorized capitalization of 500 million shares of
common stock (par value $0.01 per share), of which 100 million are allocated to
European Fund. Shares of European Fund entitle their holders to one vote per
full share and fractional votes for fractional shares held.
European Fund does not hold annual meetings of shareholders. There
normally will be no meetings of shareholders for the purpose of electing
directors unless fewer than a majority of the directors holding office have been
elected by shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. 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 Fund's Articles of Incorporation, or at their
discretion.
Both Funds are series of investment companies organized as Maryland
corporations. Thus, the rights of shareholders of each Fund with respect to
shareholder meetings, inspection of shareholder lists, and distributions on
liquidation of a Fund are identical.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of European Small Company
Fund, which prohibit it from acquiring more than a stated percentage of another
company, might be construed as restricting its ability to carry out the
Reorganization. By approving the Reorganization Plan, European Small Company
Fund shareholders will be agreeing to waive, only for the purpose of the
Reorganization, those fundamental investment restrictions that could prohibit or
otherwise impede the transaction.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of European Small Company Fund's assets for European Fund
shares and European Fund's assumption of European Small Company Fund's
liabilities is intended to qualify for federal income tax purposes as a tax-free
reorganization under section 368(a)(1)(C) of the Code. The Funds will receive an
opinion of their counsel, Kirkpatrick & Lockhart LLP, substantially to the
effect that --
(1) European Fund's acquisition of European Small Company Fund's
assets in exchange solely for European Fund shares and European Fund's
assumption of European Small Company Fund's liabilities, followed by
European Small Company Fund's distribution of those shares PRO RATA to its
shareholders constructively in exchange for their European Small Company
18
<PAGE>
Fund shares, will constitute a "reorganization" within the meaning of
section 368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
(2) European Small Company Fund will recognize no gain or loss on
the transfer to European Fund of its assets in exchange solely for
European Fund shares and European Fund's assumption of European Small
Company Fund's liabilities or on the subsequent distribution of those
shares to European Small Company Fund's shareholders in constructive
exchange for their European Small Company Fund shares;
(3) European Fund will recognize no gain or loss on its receipt of
the transferred assets in exchange solely for European Fund shares and its
assumption of European Small Company Fund's liabilities;
(4) European Fund's basis for the transferred assets will be the
same as the basis thereof in European Small Company Fund's hands
immediately before the Reorganization, and European Fund's holding period
for those assets will include European Small Company Fund's holding period
therefor;
(5) A European Small Company Fund shareholder will recognize no gain
or loss on the constructive exchange of all its European Small Company
Fund shares solely for European Fund shares pursuant to the
Reorganization; and
(6) A European Small Company Fund shareholder's basis for the
European Fund shares to be received by it in the Reorganization will be
the same as the aggregate basis for its European Small Company Fund shares
to be constructively surrendered in exchange for those European Fund
shares, and its holding period for those European Fund shares will include
its holding period for those European Small Company Fund shares, provided
they are held as capital assets by the shareholder on the Closing Date.
The tax opinion may state that no opinion is expressed as to the effect of
the Reorganization on the Funds or any shareholder with respect to any asset as
to which any unrealized gain or loss is required to be recognized for federal
income tax purposes at the end of a taxable year (or on the termination or
transfer thereof) under a mark-to-market system of accounting.
Shareholders of European Small Company Fund should consult their tax
advisers regarding the effect, if any, of the Reorganization in light of their
individual circumstances. Because the foregoing discussion only relates to
federal income tax consequences of the Reorganization, those shareholders also
should consult their tax advisers about the state and local tax consequences, if
any, of the Reorganization.
19
<PAGE>
CAPITALIZATION
The following table shows the capitalization of each Fund as of October
31, 1998, and on a PRO FORMA combined basis (unaudited) as of October 31, 1998,
giving effect to the Reorganization:
EUROPEAN SMALL COMBINED FUND
COMPANY FUND (PRO FORMA)
EUROPEAN FUND (UNAUDITED) (UNAUDITED)
------------- ----------- -----------
Net Assets ................. $672,145,769 $59,891,043 $732,036,812
Net Asset Value Per Share... $ 17.62 $ 12.48 $ 17.62
Shares Outstanding.......... 38,150,545 4,800,168 41,549,583
REQUIRED VOTE. Approval of the Reorganization Plan requires the
affirmative vote of a majority of the outstanding voting securities of European
Small Company Fund.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" PROPOSAL 1
20
<PAGE>
PART II. PROPOSED ORGANIZATIONAL MATTER
PROPOSAL 1 SEEKS SHAREHOLDER APPROVAL TO REORGANIZE EUROPEAN SMALL COMPANY
FUND INTO EUROPEAN FUND. IF PROPOSAL 1 IS APPROVED, SHAREHOLDERS WILL RECEIVE
FULL AND FRACTIONAL SHARES OF EUROPEAN FUND EQUIVALENT IN AGGREGATE VALUE TO THE
SHARES OF EUROPEAN SMALL COMPANY FUND THAT THEY OWNED ON THE CLOSING DATE AND
PROPOSAL 2 WILL HAVE NO EFFECT. HOWEVER, WHETHER OR NOT SHAREHOLDERS VOTE TO
APPROVE THE REORGANIZATION PLAN AS SET FORTH IN PROPOSAL 1, THE BOARD RECOMMENDS
THAT SHAREHOLDERS APPROVE PROPOSAL 2, SET FORTH BELOW. THIS PROPOSAL IS INTENDED
TO RATIONALIZE THE OPERATIONS OF EUROPEAN SMALL COMPANY FUND BY RESTRUCTURING
THAT FUND AS A SERIES OF INTERNATIONAL FUNDS RATHER THAN A SERIES OF SPECIALTY
FUNDS.
PROPOSAL 2. TO APPROVE AN AGREEMENT AND PLAN OF CONVERSION AND
TERMINATION ("CONVERSION PLAN") PROVIDING FOR THE CONVERSION OF
EUROPEAN SMALL COMPANY FUND FROM A SEPARATE SERIES OF SPECIALTY
FUNDS TO A SEPARATE SERIES OF INTERNATIONAL FUNDS ("CONVERSION")
European Small Company Fund is presently organized as one of seven series
of Specialty Funds. Specialty Fund's Board, including a majority of its
Independent Directors, has approved the Conversion Plan attached to this Proxy
Statement as Appendix C. The Conversion Plan provides for the conversion of
European Small Company Fund from a separate series of Specialty Funds, a
Maryland corporation, to a newly established separate series (the "New Series")
of International Funds, also a Maryland corporation. THE PROPOSED CHANGE WILL
HAVE NO MATERIAL EFFECT ON THE SHAREHOLDERS, OFFICERS, OPERATIONS, OR MANAGEMENT
OF EUROPEAN SMALL COMPANY FUND.
The New Series, which has not yet commenced business operations and was
established for the purpose of effecting the Conversion, will carry on the
business of European Small Company Fund following the Conversion and will have
investment objectives, policies, and limitations identical to those of European
Small Company Fund. The investment objectives, policies, and limitations of
European Small Company Fund will not change except as approved by shareholders
and as described in Proposal 3 of this Proxy Statement. Since both Specialty
Funds and International Funds are Maryland corporations organized under
substantially similar Articles of Incorporation, the rights of the security
holders of European Small Company Fund under state law and its governing
documents are expected to remain unchanged after the Conversion. Shareholder
voting rights under both Specialty Funds and International Funds are currently
based on the number of shares owned. The same individuals serve as Directors of
both Specialty Funds and International Funds.
21
<PAGE>
INVESCO, European Small Company Fund's investment adviser, will be
responsible for providing the New Series with various administrative services
and supervising the New Series' daily business affairs, subject to the
supervision of International Funds' Board, under a management contract
substantially identical to the contract in effect between INVESCO and European
Small Company Fund immediately prior to the Closing Date. IAML, European Small
Company Fund's sub-adviser, will have primary responsibility for providing
investment advice and research services to the New Series under a Sub-Advisory
Agreement substantially identical to the agreement in effect between IAML and
INVESCO immediately prior to the Closing Date. European Small Company Fund's
distribution agent, IDI, will distribute shares of the New Series under a
General Distribution Agreement substantially identical to the contract in effect
between IDI and European Small Company Fund immediately prior to the Closing
Date.
REASON FOR THE PROPOSED CONVERSION
Specialty Funds' Board unanimously recommends conversion of European Small
Company Fund to a separate series of International Funds (i.e., the New Series).
The proposed Conversion is part of an overall plan that involves the conversion
of other INVESCO Funds as well. The goal of the conversions is to combine
similar types of funds into a single corporate entity. Ultimately, if all of the
conversions are approved, the INVESCO Funds will be organized into a group of
core companies, with one core company for each major fund type -- for example,
all INVESCO Funds that invest internationally will be series of one core
company, all INVESCO Funds that invest solely in debt securities will be series
of one core company, and all INVESCO Funds that invest in equity securities of
domestic issuers will be series of one core company. Moving European Small
Company Fund from Specialty Funds to International Funds will also consolidate
and streamline the production and mailing of certain financial reports and legal
documents, reducing expense to European Small Company Fund. Ultimately, it is
expected that all INVESCO Funds that invest internationally will become series
of International Funds. THE PROPOSED CHANGE WILL HAVE NO MATERIAL EFFECT ON THE
SHAREHOLDERS, OFFICERS, OPERATIONS, OR MANAGEMENT OF EUROPEAN SMALL COMPANY
FUND.
The proposal to present the Conversion Plan to shareholders was approved
by the Board of Specialty Funds, including all of its Independent Directors, on
February 3, 1999. The Board recommends that European Small Company Fund
shareholders vote FOR the approval of the Conversion Plan. Such a vote
encompasses approval of both: (i) the conversion of European Small Company Fund
to a separate series of International Funds; and (ii) a temporary waiver of
certain investment limitations of European Small Company Fund to permit the
Conversion (see "Temporary Waiver of Investment Restrictions," below). If
shareholders of European Small Company Fund do not approve the Reorganization
Plan set forth in Proposal 1, which provides for combining European Small
Company Fund with European Fund, and do not approve the alternative Conversion
Plan set forth herein, the European Small Company Fund will continue to operate
as a series of Specialty Funds.
22
<PAGE>
SUMMARY OF THE CONVERSION PLAN
The following discussion summarizes the important terms of the Conversion
Plan. This summary is qualified in its entirety by reference to the Conversion
Plan itself, which is attached as Appendix C to this Proxy Statement.
If this Proposal is approved by shareholders, then on the Closing Date,
European Small Company Fund will transfer all of its assets to the New Series in
exchange solely for shares of the New Series ("New Series Shares") equal to the
number of European Small Company Fund shares outstanding on the Closing Date
("Fund Shares") and the assumption by the New Series of all of the liabilities
of European Small Company Fund. Immediately thereafter, European Small Company
Fund will constructively distribute to each European Small Company Fund
shareholder one New Series Share for each Fund Share held by the shareholder on
the Closing Date, in liquidation of such Fund Shares. As soon as is practicable
after this distribution of New Series Shares, European Small Company Fund will
be terminated as a series of Specialty Funds and will be wound up and
liquidated. UPON COMPLETION OF THE CONVERSION, EACH EUROPEAN SMALL COMPANY FUND
SHAREHOLDER WILL OWN FULL AND FRACTIONAL NEW SERIES SHARES EQUAL IN NUMBER AND
AGGREGATE NAV TO HIS OR HER FUND SHARES.
The Conversion Plan obligates International Funds, on behalf of the New
Series, to enter into: (i) a Management Contract with INVESCO with respect to
the New Series (the "New Management Contract"); (ii) a Sub-Advisory Agreement
between INVESCO and IAML with respect to the New Series (the "New Sub-Advisory
Agreement"); and (iii) a Distribution and Service Plan under Rule 12b-1 (the
"New 12b-1 Plan") with respect to the New Series (collectively, the "New
Agreements"). Approval of the Conversion Plan will authorize Specialty Funds
(which will be issued a single share of the New Series on a temporary basis) to
approve the New Agreements as sole initial shareholder of the New Series. Each
New Agreement will be identical to the corresponding contract, agreement, or
plan in effect with respect to European Small Company Fund immediately prior to
the Closing Date.
The New Agreements will take effect on the Closing Date, and each will
continue in effect until May 15, 2000. Thereafter, the New Management Contract
and New Sub-Advisory Agreement will continue in effect only if their respective
continuances are approved at least annually: (i) by the vote of a majority of
International Funds' Independent Directors cast in person at a meeting called
for the purpose of voting on such approval; and (ii) by the vote of a majority
of International Funds' directors or a majority of the outstanding voting shares
of the New Series. The New 12b-1 Plan will continue in effect only if approved
annually by a vote of International Funds' Independent Directors, cast in person
at a meeting called for that purpose. The New Management Contract and New
Sub-Advisory Agreement will be terminable without penalty on sixty days' written
notice either by International Funds, INVESCO, or IAML, as the case may be, and
each will terminate automatically in the event of its assignment. The New 12b-1
Plan will be terminable at any time without penalty by a vote of a majority of
International Funds' Independent Directors or a majority of the outstanding
voting shares of the New Series.
23
<PAGE>
International Funds' Board will hold office without limit in time except
that: (i) any Director may resign; and (ii) a Director may be removed at any
special meeting of International Funds' shareholders at which a quorum is
present by the affirmative vote of a majority of the outstanding voting shares
of International Funds. In case a vacancy shall for any reason exist, a majority
of the remaining Directors, though less than a quorum, will vote to fill such
vacancy by appointing another Director, so long as, immediately after such
appointment, at least two-thirds of the Directors have been elected by
shareholders. If, at any time, less than a majority of the Directors holding
office have been elected by shareholders, the Directors then in office will
promptly call a shareholders' meeting for the purpose of electing Directors.
Otherwise, there need normally be no meetings of shareholders for the purpose of
electing Directors.
Assuming the Conversion Plan is approved and the Reorganization Plan set
forth in Proposal 1 is not approved, it is currently contemplated that the
Conversion will become effective on the Closing Date. However, the Conversion
may become effective at such other date as to which Specialty Funds and
International Funds may agree in writing.
The obligations of Specialty Funds and International Funds under the
Conversion Plan are subject to various conditions as stated therein.
Notwithstanding the approval of the Conversion Plan by European Small Company
Fund shareholders, it may be terminated or amended at any time prior to the
Conversion by action of either Board to provide against unforeseen events, if:
(i) there is a material breach by the other party of any representation,
warranty, or agreement contained in the Conversion Plan to be performed at or
prior to the Closing Date; or (ii) it reasonably appears that a party will not
or cannot meet a condition of the Conversion Plan. Either Specialty Funds or
International Funds may at any time waive compliance with any of the covenants
and conditions contained in, or may amend, the Conversion Plan, provided that
the waiver or amendment does not materially adversely affect the interests of
European Small Company Fund shareholders.
CONTINUATION OF FUND SHAREHOLDER ACCOUNTS
International Funds' transfer agent will establish accounts for the New
Series shareholders containing the appropriate number of New Series Shares to be
received by each holder of Fund Shares under the Conversion Plan. Such accounts
will be identical in all material respects to the accounts currently maintained
by Specialty Funds' transfer agent for shareholders.
EXPENSES
Half of the cost of the Conversion will be borne by INVESCO, European
Small Company Fund's investment adviser, and the remaining half by European
Small Company Fund and the New Series.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of European Small Company
Fund, which prohibit it from acquiring more than a stated percentage of
24
<PAGE>
ownership of another company, might be construed as restricting its ability to
carry out the Conversion. By approving the Conversion Plan, European Small
Company Fund shareholders will be agreeing to waive, only for the purpose of the
Conversion, those fundamental investment restrictions that could prohibit or
otherwise impede the transaction.
TAX CONSEQUENCES OF THE CONVERSION
Both Specialty Funds and International Funds will receive an opinion from
their counsel, Kirkpatrick & Lockhart LLP, that the Conversion will constitute a
tax-free reorganization within the meaning of section 368(a)(1)(F) of the Code.
Accordingly, European Small Company Fund, the New Series, and European Small
Company Fund's shareholders will recognize no gain or loss for federal income
tax purposes upon: (i) the transfer of European Small Company Fund's assets in
exchange solely for New Series Shares and the assumption by the New Series of
European Small Company Fund's liabilities; or (ii) the distribution of the New
Series Shares to European Small Company Fund's shareholders in liquidation of
their Fund Shares. The opinion will further provide, among other things, that:
(a) a European Small Company Fund shareholder's aggregate basis for federal
income tax purposes of the New Series Shares to be received by the shareholder
in the Conversion will be the same as the aggregate basis of his or her Fund
Shares to be constructively surrendered in exchange for those New Series Shares;
and (b) a European Small Company Fund shareholder's holding period for his or
her New Series Shares will include the shareholder's holding period for his or
her Fund Shares, provided that those Fund Shares were held as capital assets at
the time of the Conversion.
CONCLUSION
Specialty Funds' Board has concluded that the proposed Conversion Plan is
in the best interests of European Small Company Fund's shareholders, provided
the Reorganization Plan set forth in Proposal 1 is not approved. A vote in favor
of the Conversion Plan encompasses: (i) approval of the conversion of European
Small Company Fund to the New Series; (ii) approval of the temporary waiver of
certain investment limitations of European Small Company Fund to permit the
Conversion (see "Temporary Waiver of Investment Restrictions," above); and (iii)
authorization of Specialty Funds, as sole initial shareholder of the New Series,
to approve: (a) a Management Contract with respect to the New Series between
International Funds and INVESCO; (b) a Sub-Advisory Agreement with respect to
the New Series between INVESCO and IAML; and (c) a Distribution and Service Plan
under Rule 12b-1 with respect to the New Series. Each of these New Agreements
will be identical to the corresponding contract, agreement, or plan in effect
with European Small Company Fund immediately prior to the Closing Date. If
approved, the Conversion Plan will take effect on the Closing Date. If neither
the Conversion Plan nor the Reorganization of European Small Company Fund under
Proposal 1 is approved, European Small Company Fund will continue to operate as
a series of Specialty Funds; otherwise, European Small Company Fund will be
reorganized or converted consistent with shareholder approval.
25
<PAGE>
REQUIRED VOTE. Approval of the Conversion Plan requires the affirmative
vote of a majority of the outstanding voting securities of European Small
Company Fund.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" PROPOSAL 2
PART III. PROPOSED MODIFICATIONS TO FUNDAMENTAL INVESTMENT RESTRICTIONS AND
ROUTINE CORPORATE GOVERNANCE MATTERS
THESE PROPOSALS MAKE CERTAIN ROUTINE CHANGES TO MODERNIZE SOME OF EUROPEAN
SMALL COMPANY FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS AND SEEK SHAREHOLDER
APPROVAL OF CERTAIN ROUTINE CORPORATE GOVERNANCE MATTERS. IF THE REORGANIZATION
DESCRIBED IN PROPOSAL 1 IS APPROVED BY SHAREHOLDERS AT THE MEETING, THE PROPOSED
FUNDAMENTAL RESTRICTION CHANGES WILL NOT BE IMPLEMENTED, BECAUSE EUROPEAN SMALL
COMPANY FUND SHAREHOLDERS WILL BECOME SHAREHOLDERS OF EUROPEAN FUND. WHETHER OR
NOT SHAREHOLDERS VOTE TO APPROVE THE REORGANIZATION DESCRIBED IN PROPOSAL 1, THE
BOARD RECOMMENDS THAT SHAREHOLDERS APPROVE THE PROPOSALS SET FORTH BELOW.
PROPOSAL 3. TO APPROVE AMENDMENTS TO THE FUNDAMENTAL INVESTMENT
RESTRICTIONS OF EUROPEAN SMALL COMPANY FUND
As required by the 1940 Act, European Small Company Fund has adopted
certain fundamental investment restrictions ("fundamental restrictions"), which
are set forth in the Fund's Statement of Additional Information. These
fundamental restrictions may be changed only with shareholder approval.
Restrictions and policies that the Fund has not specifically designated as
fundamental are considered to be "non-fundamental" and may be changed by the
Board of Specialty Funds without shareholder approval.
Some of European Small Company Fund's fundamental restrictions reflect
past regulatory, business or industry conditions, practices or requirements that
are no longer in effect. Also, as other INVESCO Funds have been created over the
years, they have adopted substantially similar fundamental restrictions that are
substantially similar but that often have been phrased in slightly different
ways, resulting in minor but unintended differences in effect or potentially
giving rise to unintended differences in interpretation. Accordingly, the Board
of Specialty Funds has approved revisions to European Small Company Fund's
fundamental restrictions in order to simplify and modernize the Fund's
fundamental restrictions and make them more uniform with those of the other
INVESCO Funds.
26
<PAGE>
The Board believes that eliminating the disparities among the INVESCO
Funds' fundamental restrictions will enhance management's ability to manage the
Fund's assets efficiently and effectively in changing regulatory and investment
environments and permit the Board to review and monitor investment policies more
easily. In addition, standardizing the fundamental investment policies of the
INVESCO Funds will assist the INVESCO Funds in making required regulatory
filings in a more efficient and cost-effective way. Although the proposed
changes in fundamental restrictions will allow European Small Company Fund
greater investment flexibility to respond to future investment opportunities,
the Board does not anticipate that the changes, individually or in the
aggregate, will result at this time in a material change in the level of
investment risk associated with an investment in the Fund.
The text and a summary description of each proposed amended fundamental
restriction of European Small Company Fund are set forth below, together with
the text of the corresponding current fundamental restriction. The text below
also describes any non-fundamental restrictions that would be adopted by the
Board in conjunction with the revision of certain fundamental restrictions. Any
non-fundamental restriction may be modified or eliminated by the Board at any
future date without further shareholder approval.
If approved by European Small Company Fund shareholders at the Meeting,
the proposed changes in European Small Company Fund's fundamental restrictions
will be adopted by the Fund only if the Reorganization is NOT approved by
European Small Company Fund shareholders. In that event, European Small Company
Fund's Statement of Additional Information will be revised to reflect those
changes as soon as practicable following the Meeting. If the Reorganization is
approved, the proposed changes in the Fund's fundamental restrictions will not
be implemented. Instead, as described in Proposal 1, European Small Company Fund
shareholders will become shareholders of European Fund, whose shareholders are
being asked to approve substantially similar changes in European Fund's
fundamental restrictions, and European Small Company Fund will be terminated.
A. MODIFICATION OF FUNDAMENTAL RESTRICTION ON ISSUER DIVERSIFICATION
European Small Company Fund's current fundamental restriction on issuer
diversification is as follows:
The Fund may not, with respect to seventy-five percent (75%) of
its 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.
27
<PAGE>
The Board recommends that this restriction be replaced with the following
fundamental restriction:
The Fund may not, with respect to 75% of the Fund's total
assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of
its agencies or instrumentalities, or securities of other
investment companies) if, as a result, (i) more than 5% of the
Fund's total assets would be invested in the securities of that
issuer, or (ii) the Fund would hold more than 10% of the
outstanding voting securities of that issuer.
The primary purpose of the modification is to revise the Fund's
fundamental restriction on issuer diversification to conform to a restriction
that is expected to become standard for all INVESCO Funds. The proposed change
would standardize the language of the Fund's fundamental restriction on issuer
diversification. In addition, the proposal would also provide the Fund's
managers with greater investment flexibility because it would allow European
Small Company Fund to invest in other investment companies, to the extent
permitted by the 1940 Act. The ability of mutual funds to invest in other
investment companies is currently generally restricted by rules under the 1940
Act, including a rule limiting all such investments to 10% of the mutual fund's
total assets and investment in any one investment company to an aggregate of 5%
of the value of the investing fund's total assets and 3% of the total
outstanding voting stock of the acquired investment company.
B. MODIFICATION OF FUNDAMENTAL RESTRICTION ON BORROWING AND ADOPTION OF NON-
FUNDAMENTAL RESTRICTION ON BORROWING
European Small Company Fund's current fundamental restriction on borrowing
is as follows:
The Fund may not 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.
In applying this restriction, if the Fund has borrowed money in
an amount exceeding 5% of the value of the Fund's net assets,
the Fund will not purchase additional securities while any such
borrowing exists.
28
<PAGE>
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not borrow money, except that the Fund may borrow
money in an amount not exceeding 33-1/3% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings).
The primary purpose of the proposal is to eliminate differences between
the INVESCO Funds' current restrictions on borrowing and those imposed by the
1940 Act. Currently, the Fund's fundamental restriction is significantly more
limiting than the restrictions imposed by the 1940 Act in that it limits the
purposes for which European Small Company Fund may borrow money. In addition, in
applying the current restriction, the Fund will not purchase additional
securities if the Fund has outstanding borrowings in excess of 5% of the value
of its net assets. The proposed revision would eliminate the restrictions on the
purposes for which the Fund may borrow money and the limitation on purchases of
securities while borrowings in excess of 5% of the Fund's net assets are
outstanding. In addition, the proposal would delete the explicit requirement,
which tracks that already contained in the 1940 Act, that any borrowings that
come to exceed 33-1/3% of the Fund's total assets by reason of a decline in
total assets be reduced within three business days. The proposed revision would
also separate the Fund's fundamental restriction on borrowing and issuing senior
securities into two fundamental restrictions, a revision that is expected to be
standard for all of the INVESCO Funds. (See Modification of fundamental
investment restriction on issuing senior securities, below.)
If the proposal is approved, the Board will adopt a non-fundamental policy
with respect to borrowing as follows:
The Fund may borrow only from a bank or from an open-end
management investment company managed by INVESCO Funds Group,
Inc. or an affiliate or a successor thereof for temporary or
emergency purposes (not for leveraging or investing) or by
engaging in reverse repurchase agreements with any party
(reverse repurchase agreements will be treated as borrowings for
purposes of fundamental limitation (_)).
The non-fundamental limitation reflects the Fund's current policy that
borrowing by the Fund may only be done for temporary or emergency purposes. In
addition to borrowing from banks, as permitted in the Fund's current policy, the
non-fundamental policy would permit the Fund to borrow from open-end funds
managed by INVESCO or an affiliate or successor thereof. The Fund would not be
able to do so, however, unless it obtains permission for such borrowings from
the SEC. The non-fundamental policy also clarifies that reverse repurchase
agreements will be treated as borrowings. The Board believes that this approach,
making the Fund's fundamental restriction on borrowing no more limiting than is
required under the 1940 Act, while incorporating more strict limits on borrowing
in a non-fundamental restriction, will maximize the Fund's flexibility for
future contingencies.
29
<PAGE>
C. MODIFICATION ON FUNDAMENTAL RESTRICTION ON ISSUING SENIOR SECURITIES
The Fund's current restriction on issuing senior securities is as follows:
The Fund may not 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.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not issue senior securities, except as permitted
under the Investment Company Act of 1940.
The primary purpose of the proposal is to eliminate any unnecessary
limitations in the policy and conform it to 1940 Act requirements. The Board
believes that the adoption of the proposed fundamental restriction, which does
not specify the manner in which senior securities may be issued, and is no more
limiting than is required by the 1940 Act, will maximize the Fund's flexibility
for future contingencies and will conform to the fundamental restrictions of the
other INVESCO Funds on the issuance of senior securities.
D. MODIFICATION OF FUNDAMENTAL RESTRICTION ON REAL ESTATE INVESTMENTS
European Small Company Fund's current fundamental restriction on real
estate investments is as follows:
The Fund may not 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.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not purchase or sell real estate unless acquired as
a result of ownership of securities or other instruments (but
30
<PAGE>
this shall not prevent the Fund from investing in securities or
other instruments backed by real estate or securities of
companies engaged in the real estate business).
In addition to conforming European Small Company Fund's fundamental
restriction to that of the other INVESCO Funds, the proposed amendment of the
Fund's fundamental restriction on investment in real estate more completely
describes the types of real estate-related securities investments that are
permissible for the Fund and would permit the Fund to purchase or sell real
estate acquired as a result of ownership of securities or other instruments
(e.g., through foreclosure on a mortgage in which the Fund directly or
indirectly holds an interest). The Board believes that this clarification will
make it easier for decisions to be made concerning the Fund's investments in
real estate-related securities without materially altering the general
restriction on direct investments in real estate or interests in real estate.
E. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN COMMODITIES
European Small Company Fund's current fundamental restriction on the
purchase of commodities is as follows:
The Fund may not 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).
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund will not purchase or sell physical commodities;
however, this policy shall not prevent the Fund from purchasing
and selling foreign currency, futures contracts, options,
forward contracts, swaps, caps, floors, collars and other
financial instruments.
The proposed changes to this investment restriction are intended to
conform the restriction to those of the other INVESCO Funds and to ensure that
European Small Company Fund will have the maximum flexibility to enter into
hedging or other transactions utilizing financial contracts and derivative
products when doing so is permitted by operating policies established for the
Fund by the Board. Due to the rapid and continuing development of derivative
products and the possibility of changes in the definition of "commodities,"
particularly in the context of the jurisdiction of the Commodities Futures
Trading Commission, it is important for the Fund's policy to be flexible enough
to allow it to enter into hedging and other transactions using these products
when doing so is deemed appropriate by INVESCO and is within the investment
31
<PAGE>
parameters established by the Board. To maximize that flexibility, the Board
recommends that the Fund's fundamental restriction on commodities investments be
clear in permitting the use of derivative products, even if the current
non-fundamental restrictions of the Fund would not permit investment in one or
more of the permitted transactions.
F. MODIFICATION OF FUNDAMENTAL RESTRICTION ON LOANS
European Small Company Fund's current fundamental restriction on loans is
as follows:
The Fund may not lend any security or make any other loan if, as
a result, more than 33-1/3% of its total assets would be lent to
other parties (but this limitation does not apply to purchases
of commercial paper, debt securities or to repurchase
agreements).
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not lend any security or make any loan if, as a
result, more than 33-1/3% of its total assets would be lent to
other parties, but this limitation does not apply to the
purchase of debt securities or to repurchase agreements.
The primary purpose of the proposal is to eliminate minor differences in
the wording of the INVESCO Funds' current restrictions on loans for greater
uniformity. The proposed changes to this fundamental restriction are relatively
minor and would have no substantive effect on European Small Company Fund's
lending activities or other investments.
G. MODIFICATION OF FUNDAMENTAL RESTRICTION ON UNDERWRITING SECURITIES
European Small Company Fund's current fundamental restriction on
underwriting securities is as follows:
The Fund may not 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.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not underwrite securities of other issuers, except
insofar as it may be deemed to be an underwriter under the
Securities Act of 1933, as amended, in connection with the
disposition of the Fund's portfolio securities.
32
<PAGE>
The purpose of the proposal is to eliminate minor differences in the
wording of the Fund's current restrictions on underwriting for greater
uniformity with the fundamental restrictions of other INVESCO Funds.
H. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INDUSTRY CONCENTRATION
European Small Company Fund's current fundamental restriction on industry
concentration is as follows:
The European Small Company Fund may not invest more than 25% of
the value of its total assets in any particular industry (other
than government securities).
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not purchase the securities of any issuer (other
than securities issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities or municipal
securities) if, as a result, more than 25% of the Fund's total
assets would be invested in the securities of companies whose
principal business activities are in the same industry.
If the proposed revision is approved, the Board will also adopt the
following non- fundamental restriction:
With respect to fundamental limitation ( ), domestic and foreign
banking will be considered to be different industries.
The primary purpose of the modification is to eliminate minor differences
in the wording of the INVESCO Funds' current restrictions on concentration for
greater uniformity and to avoid unintended limitations, without materially
altering the restriction. The proposed changes to European Small Company Fund's
fundamental concentration policy clarify that the concentration limitation does
not apply to securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities or to municipal securities. The exclusion from the
current concentration limitation refers simply to "government securities." A
failure to except all such securities from the concentration policy could hinder
the Fund's ability to purchase such securities in conjunction with taking
temporary defensive positions.
I. MODIFICATION OF FUNDAMENTAL POLICY ON INVESTING IN ANOTHER INVESTMENT
COMPANY
European Small Company Fund's current fundamental policy regarding
investment in another investment company is as follows:
33
<PAGE>
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.
The Board recommends that shareholders vote to replace this policy with
the following fundamental policy:
The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities
of a single open-end management investment company managed by
INVESCO Funds Group, Inc. or an affiliate or a successor
thereof, with substantially the same fundamental investment
objective, policies and limitations as the Fund.
The proposed revision to European Small Company Fund's current fundamental
policy would ensure that the INVESCO Funds have uniform policies permitting each
Fund to adopt a "master/feeder" structure whereby one or more Funds invest all
of their assets in another Fund. The master/feeder structure has the potential,
under certain circumstances, to minimize administration costs and maximize the
possibility of gaining a broader investor base. Currently, none of the INVESCO
Funds intend to establish a master/feeder structure; however, the Board
recommends that European Small Company Fund shareholders adopt a policy that
would permit this structure in the event that the Board determines to recommend
the adoption of a master/feeder structure by the Fund. The proposed revision,
unlike the current policy, would require that any fund in which the Fund may
invest under a master/feeder structure be advised by INVESCO or an affiliate.
If the proposal is approved, the Board will adopt a non-fundamental
restriction for the Fund as follows:
The Fund may invest in securities issued by other investment
companies to the extent that such investments are consistent
with the Fund's investment objective and policies and
permissible under the 1940 Act.
The primary purpose of this non-fundamental restriction is to conform to
the other INVESCO Funds and to the 1940 Act requirements for investing in other
investment companies. Adoption of this non-fundamental policy will enable the
Fund Adoption of this non-fundamental policy will enable the Fund to purchase
the securities of other investment Companies to the extent permitted under the
1940 Act or pursuant to an exemption granted by the SEC. If a Fund did purchase
the securities of another investment company, shareholders might incur
additional expenses because the Fund would have to pay its ratable share of the
expenses of the other investment Company.
REQUIRED VOTE. Approval of Proposal 3 requires the affirmative vote of a
"majority of the outstanding voting securities" of European Small Company Fund,
which for this purpose means the affirmative vote of the lesser of (1) 67% or
more of the shares of the Fund present at the Meeting or represented by proxy if
more than 50% of the outstanding shares of the Fund are so present or
represented, or (2) more than 50% of the outstanding shares of the Fund.
SHAREHOLDERS WHO VOTE "FOR" PROPOSAL 3 WILL VOTE "FOR" EACH PROPOSED CHANGE
DESCRIBED ABOVE. THOSE SHAREHOLDERS WHO WISH TO VOTE AGAINST ANY OF THE SPECIFIC
PROPOSED CHANGES DESCRIBED ABOVE MAY DO SO ON THE PROXY PROVIDED.
THE BOARD UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" PROPOSAL 3
34
<PAGE>
PROPOSAL 4. TO ELECT THE DIRECTORS OF SPECIALTY FUNDS
The Board of Specialty Funds has nominated the individuals identified
below for election to the Board at the Meeting. Specialty Funds currently has
ten directors. Vacancies on the Board are generally filled by appointment by the
remaining directors. However, the 1940 Act provides that vacancies may not be
filled by directors unless thereafter at least two-thirds of the directors shall
have been elected by shareholders. To ensure continued compliance with this rule
without incurring the expense of calling additional shareholder meetings,
shareholders are being asked at this meeting to elect the current ten directors
to hold office until the next meeting of shareholders. Consistent with the
provisions of Specialty Funds' by-laws, and as permitted by Maryland law,
Specialty Funds does not anticipate holding annual shareholder meetings. Thus,
the directors will be elected for indefinite terms, subject to termination or
resignation. Each nominee has indicated a willingness to serve if elected. If
any of the nominees should not be available for election, the persons named as
proxies (or their substitutes) may vote for other persons in their discretion.
Management has no reason to believe that any nominee will be unavailable for
election.
All of the Independent Directors now being proposed for election were
nominated and selected by Independent Directors. Eight of the ten current
directors are Independent Directors.
The persons named as attorneys-in-fact in the enclosed proxy have advised
Specialty Funds that unless a proxy instructs them to withhold authority to vote
for all listed nominees or for any individual nominee, they will vote all
validly executed proxies for the election of the nominees named below.
The nominees for director, their ages, a description of their principal
occupations, the number of European Small Company Fund shares owned by each, and
their respective memberships on Board committees are listed in the table below.
35
<PAGE>
NUMBER OF
EUROPEAN
SMALL
COMPANY FUND
SHARES
DIRECTOR BENEFICIALLY
OR OWNED
PRINCIPAL OCCUPATION EXECUTIVE DIRECTLY OR
NAME, POSITION AND BUSINESS OFFICER OF INDIRECTLY MEMBER
WITH SPECIALTY EXPERIENCE (DURING THE SPECIALITY ON DEC. 31, OF
FUNDS, AND AGE PAST FIVE YEARS) FUNDS SINCE 1998 (1) COMMITTEE
- -------------- ----------------------- ----------- ------------ ---------
CHARLES W. Chief Executive Officer 1993 0 (3),
BRADY, CHAIRMAN and Director of (5), (6)
OF THE BOARD, AMVESCAP PLC, London,
AGE 63* England, and of various
subsidiaries thereof.
Chairman of the Board
of INVESCO Global
Health Sciences Fund.
FRED A. Trustee of INVESCO 1993 9.5490 (2),
DEERING, VICE Global Health Sciences (3), (5)
CHAIRMAN OF THE Fund. Formerly,
BOARD, AGE 71 Chairman of the
Executive Committee and
Chairman of the Board
of Security Life of
Denver Insurance
Company, Denver,
Colorado; Director of
ING American Holdings
Company and First ING
Life Insurance Company
of New York.
MARK H. President, Chief 1998 0 (3), (5)
WILLIAMSON, Executive Officer, and
PRESIDENT, Director, INVESCO
CHIEF EXECUTIVE Distributors Inc.;
OFFICER, AND President, Chief
DIRECTOR, AGE Executive Officer, and
47* Director, INVESCO;
President, Chief
Operating Officer, and
Trustee, INVESCO Global
Health Sciences Fund.
Formerly, Chairman of
the Board and Chief
Executive Officer,
NationsBanc Advisers,
Inc. (1995-1997);
Chairman of the Board,
NationsBanc
Investments, Inc.
(1997-1998).
36
<PAGE>
NUMBER OF
EUROPEAN
SMALL
COMPANY FUND
SHARES
DIRECTOR BENEFICIALLY
OR OWNED
PRINCIPAL OCCUPATION EXECUTIVE DIRECTLY OR
NAME, POSITION AND BUSINESS OFFICER OF INDIRECTLY MEMBER
WITH SPECIALTY EXPERIENCE (DURING THE SPECIALITY ON DEC. 31, OF
FUNDS, AND AGE PAST FIVE YEARS) FUNDS SINCE 1998 (1) COMMITTEE
- -------------- ---------------------- ----------- ------------ ---------
DR. VICTOR L. Professor Emeritus, 1993 9.5490 (4),
ANDREWS, Chairman Emeritus and (6), (8)
DIRECTOR, AGE 68 Chairman of the CFO
Roundtable of the
Department of Finance
at Georgia State
University, Atlanta,
Georgia and President,
Andrews Financial
Associates, Inc.
(consulting firm).
Formerly, member of
the faculties of the
Harvard Business
School and the Sloan
School of Management
of MIT. Dr. Andrews is
also a director of the
Sheffield Funds, Inc.
BOB R. BAKER, President and Chief 1993 9.5490 (3),
DIRECTOR, AGE 62 Executive Officer of (4), (5)
AMC Cancer Research
Center, Denver,
Colorado, since
January 1989; until
December 1988, Vice
Chairman of the Board,
First Columbia
Financial Corporation,
Englewood, Colorado.
Formerly, Chairman of
the Board and Chief
Executive Officer of
First Columbia
Financial Corporation.
LAWRENCE H. Trust Consultant; 1993 9.5490 (2),
BUDNER, Prior to June 1987, (6), (7)
DIRECTOR, AGE 68 Senior Vice President
and Senior Trust
Officer, InterFirst
Bank, Dallas, Texas.
37
<PAGE>
NUMBER OF
EUROPEAN
SMALL
COMPANY FUND
SHARES
DIRECTOR BENEFICIALLY
OR OWNED
PRINCIPAL OCCUPATION EXECUTIVE DIRECTLY OR
NAME, POSITION AND BUSINESS OFFICER OF INDIRECTLY MEMBER
WITH SPECIALTY EXPERIENCE (DURING THE SPECIALITY ON DEC. 31, OF
FUNDS, AND AGE PAST FIVE YEARS) FUNDS SINCE 1998 (1) COMMITTEE
- -------------- ---------------------- ----------- ------------ ---------
DR. WENDY LEE Self-employed (since 1997 9.5490 (4), (8)
GRAMM, 1993). Professor of
DIRECTOR, AGE 54 Economics and Public
Administration,
University of Texas at
Arlington. Formerly,
Chairman, Commodities
Futures Trading
Commission
(1988-1993);
Administrator for
Information and
Regulatory Affairs,
Office of Management
and Budget
(1985-1988); Executive
Director, Presidential
Task Force on
Regulatory Relief;
Director, Federal
Trade Commission's
Bureau of Economics.
Director of the
Chicago Mercantile
Exchange; Enron
Corporation; IBP,
Inc.; State Farm
Insurance Company;
Independent Women's
Forum; International
Republic Institute;
and the Republican
Women's Federal Forum.
KENNETH T. Presently retired. 1993 9.5490 (2), (3),
KING, DIRECTOR, Formerly, Chairman of (5), (6),
AGE 73 the Board, The Capitol (7)
Life Insurance
Company, Providence
Washington Insurance
Company, and Director
of numerous U.S.
subsidiaries thereof.
Formerly, Chairman of
the Board, The
Providence Capitol
Companies in the
United Kingdom and
Guernsey. Until 1987,
Chairman of the Board,
Symbion Corporation.
38
<PAGE>
NUMBER OF
EUROPEAN
SMALL
COMPANY FUND
SHARES
DIRECTOR BENEFICIALLY
OR OWNED
PRINCIPAL OCCUPATION EXECUTIVE DIRECTLY OR
NAME, POSITION AND BUSINESS OFFICER OF INDIRECTLY MEMBER
WITH SPECIALTY EXPERIENCE (DURING THE SPECIALITY ON DEC. 31, OF
FUNDS, AND AGE PAST FIVE YEARS) FUNDS SINCE 1998 (1) COMMITTEE
- -------------- ---------------------- ----------- ------------ ---------
JOHN W. Presently retired. 1995 9.5490 (2), (3),
MCINTYRE, Formerly, Vice (5), (7)
DIRECTOR, AGE 68 Chairman of the
Board of The Citizens
and Southern
Corporation; Chairman
of the Board and Chief
Executive Officer of
The Citizens and
Southern Georgia
Corporation; Chairman
of the Board and Chief
Executive Officer of
The Citizens and
Southern National
Bank. Trustee of
INVESCO Global Health
Sciences Fund, Gables
Residential Trust,
Employee's Retirement
System of Georgia,
Emory University,
University, and the
J.M. Tull Charitable
Foundation; Director
of Kaiser Foundation
Health Plans of
Georgia, Inc.
DR. LARRY SOLL, Presently retired. 1997 9.5490 (4), (8)
DIRECTOR, AGE 56 Formerly, Chairman of
the Board (1987-1994),
Chief Executive
Officer (1982-1989 and
1993-1994) and
President (1982-1989)
of Synergen, Inc.
Director of Synergen,
Inc. since
incorporation in 1982.
Director of Isis
Pharmaceuticals, Inc.
Trustee of INVESCO
Global Health Sciences
Fund.
39
<PAGE>
*Because of his affiliation with INVESCO, with European Small Company Fund's
investment adviser, or with companies affiliated with INVESCO, this individual
is deemed to be an "interested person" of Specialty Funds as that term is
defined in the 1940 Act.
(1) As interpreted by the SEC, a security is beneficially owned by a person if
that person has or shares voting power or investment power with respect to
that security. The persons listed have partial or complete voting and
investment power with respect to their respective Fund shares.
(2) Member of the Audit Committee
(3) Member of the Executive Committee
(4) Member of the Management Liaison Committee
(5) Member of the Valuation Committee
(6) Member of the Compensation Committee
(7) Member of the Soft Dollar Brokerage Committee
(8) Member of the Derivatives Committee
The Board has audit, management liaison, soft dollar brokerage, and
derivatives committees consisting of Independent Directors, and compensation,
executive, and valuation committees consisting of both Independent Directors and
non-independent directors. The Board does not have a nominating committee. The
audit committee, consisting of four Independent Directors, meets quarterly with
Specialty Funds' independent accountants and executive officers of Specialty
Funds. This committee reviews the accounting principles being applied by
Specialty Funds in financial reporting, the scope and adequacy of internal
controls, the responsibilities and fees of the independent accountants, and
other matters. All of the recommendations of the audit committee are reported to
the full Board. During the intervals between the meetings of the Board, the
executive committee may exercise all powers and authority of the Board in the
management of Specialty Funds' business, except for certain powers which, under
applicable law and/or Specialty Funds' by-laws, may only be exercised by the
full Board. All decisions are subsequently submitted for ratification by the
Board. The management liaison committee meets quarterly with various management
personnel of INVESCO in order to facilitate better understanding of management
and operations of Specialty Funds, and to review legal and operational matters
that have been assigned to the committee by the Board, in furtherance of the
Board's overall duty of supervision. The soft dollar brokerage committee meets
periodically to review soft dollar transactions by European Small Company Fund,
and to review policies and procedures of European Small Company Fund's adviser
with respect to soft dollar brokerage transactions. The committee then reports
on these matters to the Board. The derivatives committee meets periodically to
review derivatives investments made by European Small Company Fund. The
committee monitors derivatives usage by European Small Company Fund and the
procedures utilized by European Small Company Fund's adviser to ensure that the
use of such instruments follows the policies on such instruments adopted by the
Board. The committee then reports on these matters to the Board.
Each Independent Director receives an annual retainer of $56,000 for their
service to the INVESCO Funds. Additionally, each Independent Director receives
$3,000 for in-person attendance at each Board meeting and $1,000 for in-person
attendance at each committee meeting. The chairmen of the audit and management
liaison committee each receive an annual fee of $4,000 for serving in such
capacity.
40
<PAGE>
During the past fiscal year, the Board met four times, the audit committee
met three times, the compensation committee met once, the management liaison
committee met three times, the soft dollar brokerage committee met once, and the
derivatives committee met twice. The executive committee did not meet. During
Specialty Funds' last fiscal year, each Director attended 75% or more of the
Board meetings and meetings of the committees of the Board on which he or she
served.
The Independent Directors nominate individuals to serve as Independent
Directors, without any specific nominating committee. The Board ordinarily will
not consider unsolicited director nominations recommended by European Small
Company Fund shareholders. The Board, including its Independent Directors,
unanimously approved the nomination of the foregoing persons to serve as
directors and directed that the election of these nominees be submitted to
European Small Company Fund's shareholders.
The following table sets forth information relating to the compensation
paid to directors during the last fiscal year:
COMPENSATION TABLE
AMOUNTS PAID DURING THE MOST RECENT
FISCAL YEAR BY SPECIALTY FUNDS TO DIRECTORS
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM SPECIALTY
AGGREGATE BENEFITS FUNDS AND THE
COMPENSATION ACCRUED AS ESTIMATED OTHER 14
FROM PART OF ANNUAL INVESCO FUNDS
NAME OF PERSON, SPECIALITY SPECIALITY BENEFIT UPON PAID TO
POSITION FUNDS(1) FUNDS EXPENSES(2) RETIREMENT(3) DIRECTORS(1)
- -------- -------- ----------------- ------------- ------------
FRED A. DEERING, $6,892 $862 $553 $103,700
VICE CHAIRMAN OF
THE BOARD AND
DIRECTOR
DR. VICTOR L. $6,845 $815 $640 $80,350
ANDREWS, DIRECTOR
BOB R. BAKER, $6,920 $727 $858 $84,000
DIRECTOR
LAWRENCE H. $6,793 $815 $640 $79,350
BUDNER, DIRECTOR
DANIEL D. $6,852 $880 $478 $70,000
CHABRIS,(4) DIRECTOR
DR. WENDY L. $6,700 $0 $0 $79,000
GRAMM, DIRECTOR
KENNETH T. KING, $6,753 $895 $502 $77,050
DIRECTOR
JOHN W. MCINTYRE, $6,744 $0 $0 $98,500
DIRECTOR
DR. LARRY SOLL, $6,744 $0 $0 $96,000
DIRECTOR ------ ------ ------ --------
TOTAL $61,243 $4,994 $3,671 $767,950
======= ====== ====== ========
AS A PERCENTAGE 0.0131%(5) 0.0011%(5) 0.0035%(6)
OF NET ASSETS
41
<PAGE>
(1) The Vice Chairman of the Board, the chairmen of the audit, management
liaison, derivatives, soft dollar brokerage and compensation committees, and
Independent Director members of the committees of each Fund 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 Specialty Funds' share of the estimated annual
benefits payable by the INVESCO Complex (excluding INVESCO Global Health
Sciences Fund which does not participate in this retirement plan) upon the
directors' retirement, calculated using the current method of allocating
director compensation among the INVESCO Funds. These estimated benefits assume
retirement at age 72 and that the basic retainer payable to the directors will
be adjusted periodically for inflation, for increases in the number of funds in
the INVESCO Complex, and for other reasons during the period in which retirement
benefits are accrued on behalf of the respective directors. This results in
lower estimated benefits for directors who are closer to retirement and higher
estimated benefits for directors who are farther from retirement. With the
exception of Drs. Soll and Gramm, each of these directors has served as director
of one or more of the INVESCO Funds for the minimum five-year period required to
be eligible to participate in the Defined Benefit Deferred Compensation Plan.
Although Mr. McIntyre became eligible to participate in the Defined Benefit
Deferred Compensation Plan as of November 1, 1998, he will not be included in
the calculation of retirement benefits until November 1, 1999.
(4) Mr. Chabris retired as a director effective September 30, 1998.
(5) Total as a percentage of Specialty Funds' net assets as of July 31, 1998.
(6) Total as a percentage of the net assets of the 15 INVESCO Funds in the
INVESCO Complex as of December 31, 1998.
Specialty Funds pays its Independent Directors, Board vice chairman, and
committee chairmen and members the fees described above. Specialty Funds also
reimburses its Independent Directors for travel expenses incurred in attending
meetings. Charles W. Brady, Chairman of the Board, and Mark H. Williamson,
President, Chief Executive Officer, and Director, as "interested persons" of
Specialty Funds and of other INVESCO Funds, receive compensation and are
reimbursed for travel expenses incurred in attending meetings as officers or
employees of INVESCO or its affiliated companies, but do not receive any
director's fees or other compensation from Specialty Funds or other INVESCO
Funds for their services as directors.
The overall direction and supervision of European Small Company Fund is
the responsibility of the Board, which has the primary duty of ensuring that
European Small Company Fund's general investment policies and programs are
adhered to and that European Small Company Fund is properly administered. The
officers of European Small Company Fund, all of whom are officers and employees
of and paid by INVESCO, are responsible for the day-to-day administration of
European Small Company Fund. INVESCO, as investment adviser for Specialty Funds,
is primarily responsible for providing each series of Specialty Fund with
various administrative services and supervising the daily business affairs of
each series. IAML, as sub-adviser to the Fund, is primarily responsible for
making investment decisions on behalf of European Small Company Fund. These
investment decisions are reviewed by the investment committee of INVESCO.
42
<PAGE>
All of the officers and directors of Specialty Funds hold comparable
positions with the following INVESCO Funds: INVESCO Bond Funds, Inc. (formerly,
INVESCO Income Funds, Inc.), INVESCO Growth Funds, Inc. (formerly INVESCO Growth
Fund, Inc.), INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO
Flexible Funds, Inc. and INVESCO Multiple Asset Funds, Inc.), INVESCO
Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO
Industrial Income Fund, Inc., INVESCO International Funds, Inc., INVESCO Money
Market Funds, Inc., INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic
Portfolios, Inc.), INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds,
Inc. and INVESCO Capital Appreciation Funds, Inc.), INVESCO Tax-Free Income
Funds, Inc., and INVESCO Variable Investment Funds, Inc. All of the directors of
Specialty Funds also serve as trustees of INVESCO Value Trust and INVESCO
Treasurer's Series Trust.
The Boards of the Funds managed by INVESCO have adopted a Defined Benefit
Deferred Compensation Plan (the "Plan") for the non-interested directors and
trustees of the Funds. Under the Plan, each director or trustee who is not an
interested person of the Funds (as defined in Section 2(a)(19) of the 1940 Act)
and who has served for at least five years (a "Qualified Director") is entitled
to receive, upon termination of service as director (normally at retirement age
72 or the retirement age of 73 or 74, if the retirement date is extended by the
Boards for one or two years, but less than three years) continuation of payment
for one year (the "First Year Retirement Benefit") of the annual basic retainer
and annualized board meeting fees payable by the Funds to the Qualified Director
at the time of his or her retirement (the "Basic Benefit"). Commencing with any
such director's second year of retirement, and commencing with the first year of
retirement of any director whose retirement has been extended by the Board for
three years, a Qualified Director shall receive quarterly payments at an annual
rate equal to 50% of the Basic Benefit. These payments will continue for the
remainder of the Qualified Director's life or ten years, whichever is longer
(the "Reduced Benefit Payments"). If a Qualified Director dies or becomes
disabled after age 72 and before age 74 while still a director of the Funds, the
First Year Retirement Benefit and Reduced Benefit Payments will be made to him
or her or to his or her beneficiary or estate. If a Qualified Director becomes
disabled or dies either prior to age 72 or during his or her 74th year while
still a director of the Funds, the director will not be entitled to receive the
First Year Retirement Benefit; however, the Reduced Benefit 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 Funds in a manner determined to be fair and equitable by the
committee. The Funds began making payments to Mr. Chabris as of October 1, 1998
under the Plan. The Funds have no stock options or other pension or retirement
plans for management or other personnel and pays no salary or compensation to
any of its officers.
The Independent Directors have contributed to a deferred compensation
plan, pursuant to which they have deferred receipt of a portion of the
compensation which they would otherwise have been paid as directors of certain
of the INVESCO Funds. The deferred amounts have been invested in shares of
certain INVESCO Funds. Each Independent Director may, therefore, be deemed to
have an indirect interest in shares of each such INVESCO Fund, in addition to
any Fund shares that they may own directly or beneficially.
43
<PAGE>
REQUIRED VOTE. Election of each nominee as a director of Specialty Funds
requires, in the aggregate, the vote of a plurality of all the outstanding
shares of European Small Company Fund present at the Meeting in person or by
proxy, and of the outstanding shares of other series of Specialty Funds present
at concurrent meetings of shareholders of those series.
THE BOARD, INCLUDING THE INDEPENDENT
DIRECTORS, UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" EACH
OF THE NOMINEES IN PROPOSAL 4
44
<PAGE>
PROPOSAL 5. TO RATIFY OR REJECT THE SELECTION OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS OF EUROPEAN
SMALL COMPANY FUND
The Board of Specialty Funds, including all of its Independent Directors,
has selected PricewaterhouseCoopers LLP to continue to serve as independent
accountants of European Small Company Fund, subject to ratification by European
Small Company Fund's shareholders. PricewaterhouseCoopers LLP has no direct
financial interest or material indirect financial interest in European Small
Company Fund. Representatives of PricewaterhouseCoopers LLP are not expected to
attend the Meeting, but have been given the opportunity to make a statement if
they so desire, and will be available should any matter arise requiring their
presence.
The independent accountants examine annual financial statements for
European Small Company Fund and provide other audit and tax-related services. In
recommending the selection of PricewaterhouseCoopers LLP, the directors reviewed
the nature and scope of the services to be provided (including non-audit
services) and whether the performance of such services would affect the
accountants' independence.
REQUIRED VOTE. Approval of Proposal 5 requires the affirmative vote of a
majority of the votes present at the Meeting, provided that a quorum is present.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" PROPOSAL 5
OTHER BUSINESS
The Board knows of no other business to be brought before the Meeting. If,
however, any other matters properly come before the Meeting, it is the intention
that proxies that do not contain specific instructions to the contrary will be
voted on such matters in accordance with the judgment of the persons designated
in the proxies.
INFORMATION CONCERNING ADVISER, SUB-ADVISER, DISTRIBUTOR AND
AFFILIATED COMPANIES
INVESCO, a Delaware corporation, serves as European Small Company Fund's
investment adviser, and provides other services to European Small Company Fund
and Specialty Funds. IAML, an English corporation, serves as European Small
Company Fund's sub-adviser. IDI, a Delaware corporation, serves as European
45
<PAGE>
Small Company Fund's distributor. INVESCO is a wholly owned subsidiary of
INVESCO North American Holdings, Inc. ("INAH"). INAH, IAML, and IDI are indirect
wholly owned subsidiaries of AMVESCAP PLC.(1)
INVESCO's and IDI's offices are located at 7800 East Union Avenue, Denver,
Colorado 80237. IAML's offices are located at 11 Devonshire Square, London, EC2M
4YR, England. INAH's offices are located at 1315 Peachtree Street, N.E.,
Atlanta, Georgia 30309. The corporate headquarters of AMVESCAP PLC are located
at 11 Devonshire Square, London, EC2M 4YR, England. INVESCO currently serves as
investment adviser of 14 open-end investment companies having approximate
aggregate net assets in excess of $21.1 billion, as of December 31, 1998.
The principal executive officers and directors of INVESCO and their
principal occupations are:
Mark H. Williamson, Chairman of the Board, President, Chief Executive
Officer and Director, also President and Chief Executive Officer of IDI; Charles
Mayer, Director and Senior Vice President, also, Senior Vice President and
Director of IDI; Ronald L. Grooms, Senior Vice President and Treasurer, also
Director, Senior Vice President and Treasurer of IDI; Richard W. Healey,
Director and Senior Vice President, also, Director and Senior Vice President of
IDI; Timothy J. Miller, Director and Senior Vice President, also, Director and
Senior Vice President of IDI; and Glen A. Payne, Senior Vice President,
Secretary and General Counsel, also Senior Vice President, Secretary and General
Counsel of IDI.
The address of each of the foregoing officers and directors is 7800 East
Union Avenue, Denver, Colorado 80237.
IAML serves as sub-adviser to European Small Company Fund. INVESCO, as
investment adviser, has contracted with IAML for providing portfolio investment
advisory services to European Small Company Fund. IAML also acts as sub-adviser
to INVESCO Emerging Markets Fund, INVESCO European Fund, INVESCO International
Growth Fund, INVESCO Latin American Growth Fund, and INVESCO Pacific Basin Fund.
The principal executive officers and directors of IAML and their principal
occupations are:
Tristan Hillgarth, Chief Executive Officer; Dennis Elliot, Director;
Jeremy Lambourne, Director; Dallas McGillivray, Director; Anthony Myers,
Director; Graeme Proudfoot, Director; Riccardo Ricciardi, Director; Martin
Trowell, Director; Hugh Ward, Director; Roger Yates, Director; Michael Perman,
Secretary; and Robert Cachett, Secretary.
The address of each of the foregoing officers and directors is 11
Devonshire Square, London, EC2M 4YR, England.
- ---------------------
(1) The intermediary companies between INAH and AMVESCAP PLC are as follows:
INVESCO, Inc., AMVESCAP Group Services, Inc., AVZ, Inc. and INVESCO North
American Group, Ltd., each of which is wholly owned by its immediate parent.
46
<PAGE>
Pursuant to an Administrative Services Agreement between Specialty Funds
and INVESCO, INVESCO provides administrative services to Specialty Funds,
including sub-accounting and recordkeeping services and functions. For such
services, the Fund pays INVESCO a fee consisting of a base fee of $10,000 per
year, plus an additional incremental fee computed at the annual rate of 0.015%
per year of the average net assets of the Fund. INVESCO is also paid a fee by
the Fund for providing transfer agent services, including acting as Specialty
Funds' registrar, transfer agent and dividend disbursing agent. During the
fiscal year ended July 31, 1998, Specialty Funds paid INVESCO total compensation
of $1,713,771 for such services.
MISCELLANEOUS
AVAILABLE INFORMATION
Each Fund is subject to the information requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance with those requirements
files reports, proxy material and other information with the SEC. These reports,
proxy material and other information can be inspected and copied at the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, the Midwest Regional Office of the SEC, Northwest Atrium Center, 500 West
Madison Street, Suite 400, Chicago, Illinois 60611, and the Northeast Regional
Office of the SEC, Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can also be obtained from the Public Reference
Branch, Office of Consumer Affairs and Information Services, Securities and
Exchange Commission, Washington, D.C. 20459 at prescribed rates.
LEGAL MATTERS
Certain legal matters in connection with the issuance of European Fund
shares as part of the Reorganization will be passed upon by European Fund's
counsel, Kirkpatrick & Lockhart LLP.
EXPERTS
The audited financial statements of European Fund and European Small
Company Fund, incorporated herein by reference and incorporated by reference or
included in their respective Statements of Additional Information, have been
audited by PricewaterhouseCoopers LLP, independent accountants for the Funds,
whose reports thereon are included in the Funds' Annual Reports to Shareholders
for the fiscal year or period ended October 31, 1998 with respect to European
Fund and July 31, 1998 with respect to European Small Company Fund. The
financial statements audited by PricewaterhouseCoopers LLP have been
incorporated herein by reference in reliance on their reports given on their
authority as experts in auditing and accounting matters.
47
<PAGE>
APPENDIX A
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of each Fund's
outsanding equity securities as of March 12, 1999 by each beneficial owner of 5%
or more of a Fund's outstanding equity securities.
AMOUNT AND NATURE
NAME AND ADDRESS OF OWNERSHIP PERCENTAGE
- ---------------- --------------- ----------
EUROPEAN SMALL COMPANY FUND
- ---------------------------
Charles Schwab & Company, Inc. 1,378,778.7440 31.38%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 224,601.5790 5.11%
The Exclusive Benefit of Customers
One World Financial Center
Attn: Kate - Recon
200 Liberty Street, 5th Floor
New York, NY 10281-5500
EUROPEAN FUND
- -------------
Charles Schwab & Company, Inc. 14,087,664.4950 33.21%
Special Custody Account for the Record
Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 3,687,716.0920 8.69%
The Exclusive Benefit of Customers Record
One World Financial Center
Attn: Kate - Recon
200 Liberty Street, 5th Floor
New York, NY 10281-5500
A-1
<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of March 21, 1999, between INVESCO Specialty Funds, Inc., a Maryland
corporation ("Corporation T"), on behalf of INVESCO European Small Company Fund,
a segregated portfolio of assets ("series") thereof ("Target"), and INVESCO
International Funds, Inc., a Maryland corporation ("Corporation A"), on behalf
of its INVESCO European Fund series ("Acquiring Fund"). (Acquiring Fund and
Target are sometimes referred to herein individually as a "Fund" and
collectively as the "Funds," and Corporation A and Corporation T are sometimes
referred to herein individually as an "Investment Company" and collectively as
the "Investment Companies.") All agreements, representations, actions, and
obligations described herein made or to be taken or undertaken by either Fund
are made and shall be taken or undertaken by Corporation A on behalf of
Acquiring Fund and by Corporation T on behalf of Target.
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended ("Code"). The reorganization will involve the transfer to
Acquiring Fund of Target's assets in exchange solely for voting shares of common
stock in Acquiring Fund, par value $0.01 per share ("Acquiring Fund Shares"),
and the assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of the Acquiring Fund Shares PRO RATA to the holders
of shares of common stock in Target ("Target Shares") in exchange therefor, all
on the terms and conditions set forth herein. The foregoing transactions are
referred to herein collectively as the "Reorganization."
Each Fund issues a single class of shares, which are substantially similar
to each other. Each Fund's shares (1) are offered at net asset value ("NAV"),
(2) are subject to a management fee of up to 0.75% of its net assets, and (3)
are subject to a service fee at the annual rate of 0.25% of its net assets
imposed pursuant to a plan of distribution adopted in accordance with Rule 12b-1
promulgated under the Investment Company Act of 1940, as amended ("1940 Act")
(though Target Shares issued before November 1, 1997 are not subject to any such
fee).
In consideration of the mutual promises contained herein, the parties
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION
1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and fractional
(rounded to the third decimal place) Acquiring Fund Shares,
determined by dividing the net value of Target (computed as set
forth in paragraph 2.1) by the NAV of an Acquiring Fund Share
(computed as set forth in paragraph 2.2), and
B-1
<PAGE>
(b) to assume all of Target's liabilities described in paragraph 1.3
("Liabilities"). Such transactions shall take place at the
Closing (as defined in paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement.
Notwithstanding the foregoing, Target agrees to use its best efforts to
discharge all its known Liabilities before the Effective Time.
1.4. At or immediately before the Effective Time, Target shall declare
and pay to its shareholders a dividend and/or other distribution in an amount
large enough so that it will have distributed substantially all (and in any
event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and substantially all of its
realized net capital gain, if any, for the current taxable year through the
Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall distribute the Acquiring Fund Shares received by it
pursuant to paragraph 1.1 to Target's shareholders of record, determined as of
the Effective Time (each a "Shareholder" and collectively "Shareholders"), in
constructive exchange for their Target Shares. Such distribution shall be
accomplished by Corporation A's transfer agent's opening accounts on Acquiring
Fund's share transfer books in the Shareholders' names and transferring such
Acquiring Fund Shares thereto. Each Shareholder's account shall be credited with
the respective PRO RATA number of full and fractional (rounded to the third
decimal place) Acquiring Fund Shares due that Shareholder. All outstanding
Target Shares, including any represented by certificates, shall simultaneously
be canceled on Target's share transfer books. Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares issued in connection with
the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, but in all events within twelve
months after the Effective Time, Target shall be terminated as a series of
Corporation T and any further actions shall be taken in connection therewith as
required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in
a name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
B-2
<PAGE>
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a)
the value of the Assets computed as of the close of regular trading on the New
York Stock Exchange ("NYSE") on the date of the Closing ("Valuation Time"),
using the valuation procedures set forth in Target's then-current prospectus and
statement of additional information ("SAI") less (b) the amount of the
Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund Share
shall be computed as of the Valuation Time, using the valuation procedures set
forth in Acquiring Fund's then-current prospectus and SAI.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of INVESCO Funds Group, Inc. ("INVESCO").
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office on
June 18, 1999, or at such other place and/or on such other date as to which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the close of business on the date thereof or at such
other time as to which the parties may agree ("Effective Time"). If, immediately
before the Valuation Time, (a) the NYSE is closed to trading or trading thereon
is restricted or (b) trading or the reporting of trading on the NYSE or
elsewhere is disrupted, so that accurate appraisal of the net value of Target
and the NAV of an Acquiring Fund Share is impracticable, the Effective Time
shall be postponed until the first business day after the day when such trading
shall have been fully resumed and such reporting shall have been restored.
3.2. Corporation T's fund accounting and pricing agent shall deliver at
the Closing a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by Target to Acquiring
Fund, as reflected on Acquiring Fund's books immediately following the Closing,
does or will conform to such information on Target's books immediately before
the Closing. Corporation T's custodian shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Assets held by the
custodian will be transferred to Acquiring Fund at the Effective Time and (b)
all necessary taxes in conjunction with the delivery of the Assets, including
all applicable federal and state stock transfer stamps, if any, have been paid
or provision for payment has been made.
3.3. Corporation T shall deliver to Corporation A at the Closing a list
of the names and addresses of the Shareholders and the number of outstanding
Target Shares owned by each Shareholder, all as of the Effective Time, certified
by the Secretary or Assistant Secretary of Corporation T. Corporation A's
transfer agent shall deliver at the Closing a certificate as to the opening on
Acquiring Fund's share transfer books of accounts in the Shareholders' names.
Corporation A shall issue and deliver a confirmation to Corporation T evidencing
the Acquiring Fund Shares to be credited to Target at the Effective Time or
provide evidence satisfactory to Corporation T that such Acquiring Fund Shares
B-3
<PAGE>
have been credited to Target's account on Acquiring Fund's books. At the
Closing, each party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts, or other documents as the other party
or its counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
4.1.1. Corporation T is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland;
and a copy of its Articles of Incorporation is on file with the Secretary
of the State of Maryland;
4.1.2. Corporation T is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.1.3. Target is a duly established and designated series of
Corporation T;
4.1.4. At the Closing, Target will have good and marketable title
to the Assets and full right, power, and authority to sell, assign,
transfer, and deliver the Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, Acquiring Fund will acquire
good and marketable title thereto;
4.1.5. Target's current prospectus and SAI conform in all material
respects to the applicable requirements of the Securities Act of 1933, as
amended ("1933 Act"), and the 1940 Act and the rules and regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
4.1.6. Target is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Maryland law or any
provision of Corporation T's Articles of Incorporation or By-Laws or of
any agreement, instrument, lease, or other undertaking to which Target is
a party or by which it is bound or result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Target is a party or by which it is bound,
except as previously disclosed in writing to and accepted by Corporation
A;
4.1.7. Except as otherwise disclosed in writing to and accepted by
Corporation A, all material contracts and other commitments of or
B-4
<PAGE>
applicable to Target (other than this Agreement and investment contracts,
including options, futures, and forward contracts) will be terminated, or
provision for discharge of any liabilities of Target thereunder will be
made, at or prior to the Effective Time, without either Fund's incurring
any liability or penalty with respect thereto and without diminishing or
releasing any rights Target may have had with respect to actions taken or
omitted or to be taken by any other party thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by
Corporation A, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or (to
Target's knowledge) threatened against Corporation T with respect to
Target or any of its properties or assets that, if adversely determined,
would materially and adversely affect Target's financial condition or the
conduct of its business; Target knows of no facts that might form the
basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.1.9. The execution, delivery, and performance of this Agreement
have been duly authorized as of the date hereof by all necessary action on
the part of Corporation T's board of directors, which has made the
determinations required by Rule 17a-8(a) under the 1940 Act; and, subject
to approval by Target's shareholders, this Agreement constitutes a valid
and legally binding obligation of Target, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
4.1.10. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934, as amended ("1934 Act"), or the 1940 Act for the execution or
performance of this Agreement by Corporation T, except for (a) the filing
with the Securities and Exchange Commission ("SEC") of a registration
statement by Corporation A on Form N-14 relating to the Acquiring Fund
Shares issuable hereunder, and any supplement or amendment thereto
("Registration Statement"), including therein a prospectus/proxy statement
("Proxy Statement"), and (b) such consents, approvals, authorizations, and
filings as have been made or received or as may be required subsequent to
the Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
B-5
<PAGE>
from the Proxy Statement made in reliance on and in conformity with
information furnished by Corporation A for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary
course of its business; and there are no Liabilities other than
liabilities disclosed or provided for in Corporation T's financial
statements referred to in paragraph 4.1.19 and liabilities incurred by
Target in the ordinary course of its business subsequent to July 31, 1998,
or otherwise previously disclosed to Corporation A, none of which has been
materially adverse to the business, assets, or results of Target
operations;
4.1.14. Target is a "fund" as defined in section 851(g)(2) of the
Code; it qualified for treatment as a regulated investment company under
Subchapter M of the Code ("RIC") for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings
and profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
times through the Effective Time in a manner that ensures compliance with
the foregoing;
4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock and securities of any one issuer, and not more than 50% of
the value of such assets is invested in the stock and securities of five
or fewer issuers;
4.1.17. Target will be terminated as soon as reasonably practicable
after the Effective Time, but in all events within twelve months
thereafter;
4.1.18. Target's federal income tax returns, and all applicable
state and local tax returns, for all taxable years to and including the
taxable year ended July 31, 1997, have been timely filed and all taxes
payable pursuant to such returns have been timely paid; and
4.1.19. The financial statements of Corporation T for the year ended
July 31, 1998, to be delivered to Corporation A, fairly represent the
financial position of Target as of that date and the results of its
operations and changes in its net assets for the year then ended.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. Corporation A is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland;
and a copy of its Articles of Incorporation is on file with the Secretary
of the State of Maryland;
4.2.2. Corporation A is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
B-6
<PAGE>
4.2.3. Corporation A has 500,000,000 authorized shares of common
stock, par value $0.01 per share, 100,000,000 shares of which were
allocated to the Acquiring Fund, of which 4,800,168 shares were
outstanding as of October 31, 1998. Because Corporation A is an open-end
investment company engaged in the continuous offering and redemption of
its shares, the number of outstanding Acquiring Fund Shares may change
prior to the Effective Time;
4.2.4. Acquiring Fund is a duly established and designated series
of Corporation A;
4.2.5. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
4.2.6. The Acquiring Fund Shares to be issued and delivered to
Target hereunder will, at the Effective Time, have been duly authorized
and, when issued and delivered as provided herein, will be duly and
validly issued and outstanding shares of Acquiring Fund, fully paid and
non-assessable;
4.2.7. Acquiring Fund's current prospectus and SAI conform in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations thereunder and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
4.2.8. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Maryland law or any
provision of Corporation A's Articles of Incorporation or By-Laws or of
any provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Acquiring Fund is a party or
by which it is bound, except as previously disclosed in writing to and
accepted by Corporation T;
4.2.9. Except as otherwise disclosed in writing to and accepted by
Corporation T, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or (to
Acquiring Fund's knowledge) threatened against Corporation A with respect
to Acquiring Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect Acquiring Fund's
financial condition or the conduct of its business; Acquiring Fund knows
of no facts that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially or adversely affects its business or its
ability to consummate the transactions contemplated hereby;
4.2.10. The execution, delivery, and performance of this Agreement
have been duly authorized as of the date hereof by all necessary action on
B-7
<PAGE>
the part of Corporation A's board of directors (together with Corporation
T's board of directors, the "Boards"), which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and this Agreement
constitutes a valid and legally binding obligation of Acquiring Fund,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights
and by general principles of equity;
4.2.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by Corporation A, except
for (a) the filing with the SEC of the Registration Statement and a
post-effective amendment to Corporation A's registration statement on Form
N1-A and (b) such consents, approvals, authorizations, and filings as have
been made or received or as may be required subsequent to the Effective
Time;
4.2.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by Corporation T for use therein;
4.2.13. Acquiring Fund is a "fund" as defined in section 851(g)(2)
of the Code; it qualified for treatment as a RIC for each past taxable
year since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year;
Acquiring Fund intends to continue to meet all such requirements for the
next taxable year; and it has no earnings and profits accumulated in any
taxable year in which the provisions of Subchapter M of the Code did not
apply to it;
4.2.14. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, except to the extent it is
required by the 1940 Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of that business;
4.2.15. Following the Reorganization, Acquiring Fund (a) will
continue Target's "historic business" (within the meaning of section
1.368-1(d)(2) of the Income Tax Regulations under the Code), (b) use a
significant portion of Target's historic business assets (within the
meaning of section 1.368-1(d)(3) of the Income Tax Regulations under the
Code) in a business, (c) has no plan or intention to sell or otherwise
dispose of any of the Assets, except for dispositions made in the ordinary
course of that business and dispositions necessary to maintain its status
as a RIC, and (d) expects to retain substantially all the Assets in the
same form as it receives them in the Reorganization, unless and until
B-8
<PAGE>
subsequent investment circumstances suggest the desirability of change or
it becomes necessary to make dispositions thereof to maintain such status;
4.2.16. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or a business trust or any
"fund" thereof (within the meaning of section 851(g)(2) of the Code)
following the Reorganization;
4.2.17. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock and
securities of any one issuer and (b) not more than 50% of the value of
such assets will be invested in the stock and securities of five or fewer
issuers;
4.2.18. Acquiring Fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target;
4.2.19. Acquiring Fund's federal income tax returns, and all
applicable state and local tax returns, for all taxable years to and
including the taxable year ended October 31, 1997, have been timely filed
and all taxes payable pursuant to such returns have been timely paid;
4.2.20. The financial statements of Corporation A for the year ended
October 31, 1998, to be delivered to Corporation T, fairly represent the
financial position of Acquiring Fund as of that date and the results of
its operations and changes in its net assets for the year then ended; and
4.2.21. If the Reorganization is consummated, Acquiring Fund will
treat each Shareholder that receives Acquiring Fund Shares in connection
with the Reorganization as having made a minimum initial purchase of
Acquiring Fund Shares for the purpose of making additional investments in
Acquiring Fund Shares, regardless of the value of the Acquiring Fund
Shares so received.
4.3. Each Fund represents and warrants as follows:
4.3.1. The aggregate fair market value of the Acquiring Fund
Shares, when received by the Shareholders, will be approximately equal to
the aggregate fair market value of their Target Shares constructively
surrendered in exchange therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of
their Target Shares before the Reorganization to any person related
(within the meaning of section 1.368-1(e)(3) of the Income Tax Regulations
under the Code) to either Fund or (ii) any portion of the Acquiring Fund
Shares to be received by them in the Reorganization to any person related
(as so defined) to Acquiring Fund, (b) does not anticipate dispositions of
those Acquiring Fund Shares at the time of or soon after the
Reorganization to exceed the usual rate and frequency of dispositions of
shares of Target as a series of an open-end investment company,
(c) expects that the percentage of Shareholder interests, if any, that
B-9
<PAGE>
will be disposed of as a result of or at the time of the Reorganization
will be DE MINIMIS, and (d) does not anticipate that there will be
extraordinary redemptions of Acquiring Fund Shares immediately following
the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto (in addition to the assets and liabilities
Acquiring Fund then held or was subject to), plus any liabilities and
expenses of the parties incurred in connection with the Reorganization;
4.3.5. The fair market value of the Assets on a going concern basis
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
its Reorganization expenses and to make redemptions and distributions
immediately before the Reorganization (except (a) redemptions not made as
part of the Reorganization and (b) distributions made to conform to its
policy of distributing all or substantially all of its income and gains to
avoid the obligation to pay federal income tax and/or the excise tax under
section 4982 of the Code) will be included as assets held thereby
immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who is
an employee of or service provider to Target will be separate
consideration for, or allocable to, any of the Target Shares held by such
Shareholder; none of the Acquiring Fund Shares received by any such
Shareholder will be separate consideration for, or allocable to, any
employment agreement; investment advisory agreement, or other service
agreement; and the consideration paid to any such Shareholder will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services;
4.3.9. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the meaning
of section 304(c) of the Code; and
4.3.10. Neither Fund will be reimbursed for any expenses incurred by
it or on its behalf in connection with the Reorganization unless those
B-10
<PAGE>
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1
C.B. 187) ("Reorganization Expenses").
5. COVENANTS
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being understood
that:
(a) such ordinary course will include declaring and paying customary
dividends and other distributions and such changes in operations
as are contemplated by each Fund's normal business activities
and
(b) each Fund will retain exclusive control of the composition of
its portfolio until the Closing; provided that (1) Target shall
not dispose of more than an insignificant portion of its
historic business assets during such period without Acquiring
Fund's prior consent and (2) if Target's shareholders' approve
this Agreement (and the transactions contemplated hereby), then
between the date of such approval and the Closing, the
Investment Companies shall coordinate the Funds' respective
portfolios so that the transfer of the Assets to Acquiring Fund
will not cause it to fail to be in compliance with all of its
investment policies and restrictions immediately after the
Closing.
5.2. Target covenants to call a shareholders' meeting to consider and act
on this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist Corporation A in obtaining such
information as Corporation A reasonably requests concerning the beneficial
ownership of Target Shares.
5.5. Target covenants that its books and records (including all books and
records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to Corporation A at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring Fund
Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
B-11
<PAGE>
5.8. Acquiring Fund covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to
be taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all its obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by the Boards and shall have been approved by
Target's shareholders in accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Investment Company to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on the assets or properties of either Fund, provided that either
Investment Company may for itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. Corporation T shall have received an opinion of Kirkpatrick &
Lockhart LLP substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of Corporation
A, a corporation duly organized, validly existing, and in good standing
under the laws of the State of Maryland with power under its Articles of
Incorporation to own all its properties and assets and, to the knowledge
of such counsel, to carry on its business as presently conducted;
B-12
<PAGE>
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by Corporation A on behalf of Acquiring Fund and (b) assuming
due authorization, execution, and delivery of this Agreement by
Corporation T on behalf of Target, is a valid and legally binding
obligation of Corporation A with respect to Acquiring Fund, enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium,
and similar laws relating to or affecting creditors' rights and by general
principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and distributed to
the Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable;
6.4.4. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
materially violate Corporation A's Articles of Incorporation or By-Laws or
any provision of any agreement (known to such counsel, without any
independent inquiry or investigation) to which Corporation A (with respect
to Acquiring Fund) is a party or by which it is bound or (to the knowledge
of such counsel, without any independent inquiry or investigation) result
in the acceleration of any obligation, or the imposition of any penalty,
under any agreement, judgment, or decree to which Corporation A (with
respect to Acquiring Fund) is a party or by which it is bound, except as
set forth in such opinion or as previously disclosed in writing to and
accepted by Corporation T;
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order
of any court or governmental authority is required for the consummation by
Corporation A on behalf of Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934
Act, and the 1940 Act and such as may be required under state securities
laws;
6.4.6. Corporation A is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding,
or investigation of or before any court or governmental body is pending or
threatened as to Corporation A (with respect to Acquiring Fund) or any of
its properties or assets attributable or allocable to Acquiring Fund and
(b) Corporation A (with respect to Acquiring Fund) is not a party to or
subject to the provisions of any order, decree, or judgment of any court
or governmental body that materially and adversely affects Acquiring
Fund's business, except as set forth in such opinion or as otherwise
disclosed in writing to and accepted by Corporation T.
In rendering such opinion, such counsel may (1) rely, as to matters governed by
the laws of the State of Maryland, on an opinion of competent Maryland counsel,
(2) make assumptions regarding the authenticity, genuineness, and/or conformity
of documents and copies thereof without independent verification thereof, (3)
limit such opinion to applicable federal and state law, and (4) define the word
B-13
<PAGE>
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
6.5. Corporation A shall have received an opinion of Kirkpatrick &
Lockhart LLP substantially to the effect that:
6.5.1. Target is a duly established series of Corporation T, a
corporation duly organized, validly existing, and in good standing under
the laws of the State of Maryland with power under its Articles of
Incorporation to own all its properties and assets and, to the knowledge
of such counsel, to carry on its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by Corporation T on behalf of Target and (b) assuming due
authorization, execution, and delivery of this Agreement by Corporation A
on behalf of Acquiring Fund, is a valid and legally binding obligation of
Corporation T with respect to Target, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
materially violate Corporation T's Articles of Incorporation or By-Laws or
any provision of any agreement (known to such counsel, without any
independent inquiry or investigation) to which Corporation T (with respect
to Target) is a party or by which it is bound or (to the knowledge of such
counsel, without any independent inquiry or investigation) result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Corporation T (with respect to
Target) is a party or by which it is bound, except as set forth in such
opinion or as previously disclosed in writing to and accepted by
Corporation A;
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order
of any court or governmental authority is required for the consummation by
Corporation T on behalf of Target of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act, and
the 1940 Act and such as may be required under state securities laws;
6.5.5. Corporation T is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding,
or investigation of or before any court or governmental body is pending or
threatened as to Corporation T (with respect to Target) or any of its
properties or assets attributable or allocable to Target and
(b) Corporation T (with respect to Target) is not a party to or subject to
the provisions of any order, decree, or judgment of any court or
B-14
<PAGE>
governmental body that materially and adversely affects Target's business,
except as set forth in such opinion or as otherwise disclosed in writing
to and accepted by Corporation A.
In rendering such opinion, such counsel may (1) rely, as to matters governed by
the laws of the State of Maryland, on an opinion of competent Maryland counsel,
(2) make assumptions regarding the authenticity, genuineness, and/or conformity
of documents and copies thereof without independent verification thereof, (3)
limit such opinion to applicable federal and state law, and (4) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
6.6. Each Investment Company shall have received an opinion of
Kirkpatrick & Lockhart LLP, addressed to and in form and substance satisfactory
to it, as to the federal income tax consequences mentioned below ("Tax
Opinion"). In rendering the Tax Opinion, such counsel may rely as to factual
matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters addressed to such
counsel) and the certificates delivered pursuant to paragraph 3.4. The Tax
Opinion shall be substantially to the effect that, based on the facts and
assumptions stated therein and conditioned on consummation of the Reorganization
in accordance with this Agreement, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange
solely for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares pro rata to
the Shareholders constructively in exchange for the Shareholders' Target
Shares, will constitute a reorganization within the meaning of section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
6.6.2. Target will recognize no gain or loss on the transfer to
Acquiring Fund of the Assets in exchange solely for Acquiring Fund Shares
and Acquiring Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to the Shareholders in constructive exchange
for their Target Shares;
6.6.3. Acquiring Fund will recognize no gain or loss on its receipt
of the Assets in exchange solely for Acquiring Fund Shares and its
assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the same as
the basis thereof in Target's hands immediately before the Reorganization,
and Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's aggregate basis for the Acquiring Fund
Shares to be received by it in the Reorganization will be the same as the
aggregate basis for its Target Shares to be constructively surrendered in
exchange for those Acquiring Fund Shares, and its holding period for those
B-15
<PAGE>
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding subparagraphs 6.6.2 and 6.6.4, the Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder with respect to any asset as to which any unrealized gain or loss is
required to be recognized for federal income tax purposes at the end of a
taxable year (or on the termination or transfer thereof) under a mark-to-market
system of accounting.
At any time before the Closing, either Investment Company may waive any of the
foregoing conditions (except that set forth in paragraph 6.1) if, in the
judgment of its Board, such waiver will not have a material adverse effect on
its Fund's shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
7.2. Except as otherwise provided herein, 50% of the total Reorganization
Expenses will be borne by INVESCO and the remaining 50% will be borne partly by
each Fund.
8. ENTIRE AGREEMENT; NO SURVIVAL
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.
9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before August 31, 1999; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1(c) or 9.2, there shall be
no liability for damages on the part of either Fund, or the directors or
officers of either Investment Company, to the other Fund.
B-16
<PAGE>
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as may
be mutually agreed upon in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Maryland; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation other
than the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
11.3. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other party hereto. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officers as of the day and year first
written above.
ATTEST: INVESCO SPECIALTY FUNDS, INC.,
on behalf of its series,
INVESCO European Small Company Fund
_________________________ By:________________________________
Secretary President
ATTEST: INVESCO INTERNATIONAL FUNDS, INC.,
on behalf of its series,
INVESCO European Fund
_________________________ By:________________________________
Secretary President
B-17
<PAGE>
APPENDIX C
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
This AGREEMENT AND PLAN OF CONVERSION AND TERMINATION ("Agreement") is
made as of March 21, 1999, between INVESCO Specialty Funds, Inc., a Maryland
corporation ("Specialty Funds"), on behalf of INVESCO European Small Company
Fund, a segregated portfolio of assets ("series") thereof ("Old Fund"), and
INVESCO International Funds, Inc., a Maryland corporation ("International
Funds"), on behalf of its INVESCO European Small Company Fund series ("New
Fund"). (Old Fund and New Fund are sometimes referred to herein individually as
a "Fund" and collectively as the "Funds"; Specialty Funds and International
Funds are sometimes referred to herein individually as an "Investment Company"
and collectively as the "Investment Companies.") All agreements,
representations, actions, and obligations described herein made or to be taken
or undertaken by either Fund are made and shall be taken or undertaken by
Specialty Funds on behalf of Old Fund and by International Funds on behalf of
New Fund.
Old Fund intends to change its identity -- by converting from a series of
Specialty Funds to a series of International Funds -- through a reorganization
within the meaning of section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended ("Code"). Old Fund desires to accomplish such conversion by
transferring all its assets to New Fund (which is being established solely for
the purpose of acquiring such assets and continuing Old Fund's business) in
exchange solely for voting shares of common stock in New Fund ("New Fund
Shares") and New Fund's assumption of Old Fund's liabilities, followed by the
constructive distribution of the New Fund Shares PRO RATA to the holders of
shares of common stock in Old Fund ("Old Fund Shares") in exchange therefor, all
on the terms and conditions set forth in this Agreement (which is intended to
be, and is adopted as, a "plan of reorganization" for federal income tax
purposes). All such transactions are referred to herein as the "Reorganization."
In consideration of the mutual promises herein contained, the parties
agree as follows:
1. PLAN OF CONVERSION AND TERMINATION
1.1. Old Fund agrees to assign, sell, convey, transfer and deliver all of
its assets described in paragraph 1.2 ("Assets") to New Fund. New Fund
agrees in exchange therefor--
(a) to issue and deliver to Old Fund the number of full and
fractional (rounded to the third decimal place) New Fund Shares equal to
the number of full and fractional Old Fund Shares then outstanding, and
(b) to assume all of Old Fund's liabilities described in paragraph
1.3 ("Liabilities"). Such transactions shall take place at the Closing (as
defined in paragraph 2.1).
C-1
<PAGE>
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Old Fund's books, and other property owned by Old Fund at the
Effective Time (as defined in paragraph 2.1).
1.3. The Liabilities shall include all of Old Fund's liabilities, debts,
obligations, and duties of whatever kind or nature, whether absolute, accrued,
contingent, or otherwise, whether or not arising in the ordinary course of
business, whether or not determinable at the Effective Time, and whether or not
specifically referred to in this Agreement.
1.4. At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Share issued pursuant to paragraph 4.4 shall be
redeemed by New Fund for $1.00 and (b) Old Fund shall distribute the New Fund
Shares it received pursuant to paragraph 1.1 to its shareholders of record,
determined as of the Effective Time (each a "Shareholder" and collectively
"Shareholders"), in constructive exchange for their Old Fund Shares. Such
distribution shall be accomplished by International Funds' transfer agent's
opening accounts on New Fund's share transfer books in the Shareholders' names
and transferring such New Fund Shares thereto. Each Shareholder's account shall
be credited with the respective PRO RATA number of full and fractional (rounded
to the third decimal place) New Fund Shares due that Shareholder. All
outstanding Old Fund Shares, including those represented by certificates, shall
simultaneously be canceled on Old Fund's share transfer books. New Fund shall
not issue certificates representing the New Fund Shares in connection with the
Reorganization.
1.5. As soon as reasonably practicable after distribution of the New Fund
Shares pursuant to paragraph 1.4, but in all events within twelve months after
the Effective Time, Old Fund shall be terminated as a series of Specialty Funds
and any further actions shall be taken in connection therewith as required by
applicable law.
1.6. Any reporting responsibility of Old Fund to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.7. Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder on Old Fund's books of the Old Fund
Shares constructively exchanged therefor shall be paid by the person to whom
such New Fund Shares are to be issued, as a condition of such transfer.
2. CLOSING AND EFFECTIVE TIME
2.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office on
June 18, 1999, or at such other place and/or on such other date as to which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the close of business on the date thereof or at such
other time as to which the parties may agree ("Effective Time").
C-2
<PAGE>
2.2. Specialty Funds' fund accounting and pricing agent shall deliver at
the Closing a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by Old Fund to New Fund,
as reflected on New Fund's books immediately following the Closing, does or will
conform to such information on Old Fund's books immediately before the Closing.
Specialty Fund's custodian shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Assets held by the custodian will be
transferred to New Fund at the Effective Time and (b) all necessary taxes in
conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
2.3. International Funds' transfer agent shall deliver at the Closing a
certificate as to the opening on New Fund's share transfer books of accounts in
the Shareholders' names. International Funds shall issue and deliver a
confirmation to Specialty Funds evidencing the New Fund Shares to be credited to
Old Fund at the Effective Time or provide evidence satisfactory to Specialty
Funds that such New Fund Shares have been credited to Old Fund's account on such
books. At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts, or other documents as the
other party or its counsel may reasonably request.
2.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES
3.1. Old Fund represents and warrants as follows:
3.1.1. Specialty Funds is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland; and a
copy of its Articles of Incorporation is on file with the Secretary of State of
Maryland;
3.1.2. Specialty Funds is duly registered as an open-end management
investment company under the Investment Company Act of 1940, as amended ("1940
Act"), and such registration will be in full force and effect at the Effective
Time;
3.1.3. Old Fund is a duly established and designated series of
Specialty Funds;
3.1.4. At the Closing, Old Fund will have good and marketable title
to the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, New Fund will acquire good and marketable
title thereto;
3.1.5. New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms hereof;
C-3
<PAGE>
3.1.6. Old Fund is a "fund" as defined in section 851(g)(2) of the
Code; it qualified for treatment as a regulated investment company under
Subchapter M of the Code ("RIC") for each past taxable year since it commenced
operations and will continue to meet all the requirements for such qualification
for its current taxable year; and it has no earnings and profits accumulated in
any taxable year in which the provisions of Subchapter M did not apply to it.
The Assets shall be invested at all times through the Effective Time in a manner
that ensures compliance with the foregoing;
3.1.7. The Liabilities were incurred by Old Fund in the ordinary
course of its business and are associated with the Assets;
3.1.8. Old Fund is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within the
meaning of section 368(a)(3)(A) of the Code;
3.1.9. Not more than 25% of the value of Old Fund's total assets
(excluding cash, cash items, and U.S. government securities) is invested in the
stock and securities of any one issuer, and not more than 50% of the value of
such assets is invested in the stock and securities of five or fewer issuers;
3.1.10. As of the Effective Time, Old Fund will not have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Old Fund Shares;
3.1.11. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Old Fund's
shareholders; and
3.1.12. Old Fund will be terminated as soon as reasonably
practicable after the Effective Time, but in all events within twelve months
thereafter.
3.2. New Fund represents and warrants as follows:
3.2.1. International Funds is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland; and a
copy of its Articles of Incorporation is on file with the Secretary of State of
Maryland;
3.2.2. International Funds is duly registered as an open-end
management investment company under the 1940 Act, and such registration will be
in full force and effect at the Effective Time;
3.2.3. Before the Effective Time, New Fund will be a duly
established and designated series of International Funds;
3.2.4. New Fund has not commenced operations and will not do so
until after the Closing;
C-4
<PAGE>
3.2.5. Prior to the Effective Time, there will be no issued and
outstanding shares in New Fund or any other securities issued by New Fund,
except as provided in paragraph 4.4;
3.2.6. No consideration other than New Fund Shares (and New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in the
Reorganization;
3.2.7. The New Fund Shares to be issued and delivered to Old Fund
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, will be duly and validly issued and
outstanding shares of New Fund, fully paid and non-assessable;
3.2.8. New Fund will be a "fund" as defined in section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a RIC
for its taxable year in which the Reorganization occurs;
3.2.9. New Fund has no plan or intention to issue additional New
Fund Shares following the Reorganization except for shares issued in the
ordinary course of its business as a series of an open-end investment company;
nor does New Fund have any plan or intention to redeem or otherwise reacquire
any New Fund Shares issued to the Shareholders pursuant to the Reorganization,
except to the extent it is required by the 1940 Act to redeem any of its shares
presented for redemption at net asset value in the ordinary course of that
business;
3.2.10. Following the Reorganization, New Fund (a) will continue Old
Fund's "historic business" (within the meaning of section 1.368-1(d)(2) of the
Income Tax Regulations under the Code), (b) use a significant portion of Old
Fund's historic business assets (within the meaning of section 1.368-1(d)(3) of
the Income Tax Regulations under the Code) in a business, (c) has no plan or
intention to sell or otherwise dispose of any of the Assets, except for
dispositions made in the ordinary course of that business and dispositions
necessary to maintain its status as a RIC, and (d) expects to retain
substantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances suggest the
desirability of change or it becomes necessary to make dispositions thereof to
maintain such status;
3.2.11. There is no plan or intention for New Fund to be dissolved
or merged into another corporation or a business trust or any "fund" thereof
(within the meaning of section 851(g)(2) of the Code) following the
Reorganization; and
3.2.12. Immediately after the Reorganization, (a) not more than 25%
of the value of New Fund's total assets (excluding cash, cash items, and U.S.
government securities) will be invested in the stock and securities of any one
issuer and (b) not more than 50% of the value of such assets will be invested in
the stock and securities of five or fewer issuers.
C-5
<PAGE>
3.3. Each Fund represents and warrants as follows:
3.3.1. The aggregate fair market value of the New Fund Shares, when
received by the Shareholders, will be approximately equal to the aggregate fair
market value of their Old Fund Shares constructively surrendered in exchange
therefor;
3.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of their
Old Fund Shares before the Reorganization to any person related (within the
meaning of section 1.368-1(e)(3) of the Income Tax Regulations under the Code)
to either Fund or (ii) any portion of the New Fund Shares to be received by them
in the Reorganization to any person related (as so defined) to New Fund, (b)
does not anticipate dispositions of those New Fund Shares at the time of or soon
after the Reorganization to exceed the usual rate and frequency of dispositions
of shares of Old Fund as a series of an open-end investment company, (c) expects
that the percentage of Shareholder interests, if any, that will be disposed of
as a result of or at the time of the Reorganization will be DE MINIMIS, and (d)
does not anticipate that there will be extraordinary redemptions of New Fund
Shares immediately following the Reorganization;
3.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
3.3.4. Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares and will own such shares
solely by reason of their ownership of Old Fund Shares immediately before
the Reorganization;
3.3.5. Immediately following consummation of the Reorganization, New
Fund will hold the same assets -- except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization -- and be subject
to the same liabilities that Old Fund held or was subject to immediately
prior to the Reorganization, plus any liabilities for expenses of the
parties incurred in connection with the Reorganization. Such excepted
assets, together with the amount of all redemptions and distributions
(other than regular, normal dividends) made by Old Fund immediately
preceding the Reorganization, will, in the aggregate, constitute less than
1% of its net assets;
3.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount; and
3.3.7. Neither Fund will be reimbursed for any expenses incurred by
it or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1
C.B. 187) ("Reorganization Expenses").
4. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all its obligations to be performed hereunder at or before the
C-6
<PAGE>
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
4.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by the each Investment Company's board of
directors and shall have been approved by Old Fund's shareholders in accordance
with applicable law.
4.2. All necessary filings shall have been made with the Securities and
Exchange Commission ("SEC") and state securities authorities, and no order or
directive shall have been received that any other or further action is required
to permit the parties to carry out the transactions contemplated hereby. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Investment Company to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on the assets or properties of either Fund, provided that either
Investment Company may for itself waive any of such conditions.
4.3. Each Investment Company shall have received an opinion of
Kirkpatrick & Lockhart LLP, addressed to and in form and substance satisfactory
to it, as to the federal income tax consequences mentioned below ("Tax
Opinion"). In rendering the Tax Opinion, such counsel may rely as to factual
matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters addressed to such
counsel) and the certificates delivered pursuant to paragraph 2.4. The Tax
Opinion shall be substantially to the effect that, based on the facts and
assumptions stated therein and conditioned on consummation of the Reorganization
in accordance with this Agreement, for federal income tax purposes:
4.3.1. New Fund's acquisition of the Assets in exchange solely for
New Fund Shares and New Fund's assumption of the Liabilities, followed by Old
Fund's distribution of those shares PRO RATA to the Shareholders constructively
in exchange for the Shareholders' Old Fund Shares, will constitute a
reorganization within the meaning of section 368(a)(1)(F) of the Code, and each
Fund will be "a party to a reorganization" within the meaning of section 368(b)
of the Code;
4.3.2. Old Fund will recognize no gain or loss on the transfer to
New Fund of the Assets in exchange solely for New Fund Shares and New Fund's
assumption of the Liabilities or on the subsequent distribution of those shares
to the Shareholders in constructive exchange for their Old Fund Shares;
4.3.3. New Fund will recognize no gain or loss on its receipt of the
Assets in exchange solely for New Fund Shares and its assumption of the
Liabilities;
4.3.4. New Fund's basis for the Assets will be the same as the basis
thereof in Old Fund's hands immediately before the Reorganization, and New
Fund's holding period for the Assets will include Old Fund's holding period
therefor;
C-7
<PAGE>
4.3.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Old Fund Shares solely for New Fund Shares
pursuant to the Reorganization;
4.3.6. A Shareholder's aggregate basis for the New Fund Shares to be
received by it in the Reorganization will be the same as the aggregate basis for
its Old Fund Shares to be constructively surrendered in exchange for those New
Fund Shares, and its holding period for those New Fund Shares will include its
holding period for those Old Fund Shares, provided they are held as capital
assets by the Shareholder at the Effective Time; and
4.3.7. For purposes of section 381 of the Code, New Fund will be
treated as if there had been no Reorganization. Accordingly, the Reorganization
will not result in the termination of Old Fund's taxable year, Old Fund's tax
attributes enumerated in section 381(c) of the Code will be taken into account
by New Fund as if there had been no Reorganization, and the part of Old Fund's
taxable year before the Reorganization will be included in New Fund's taxable
year after the Reorganization;
4.4. Prior to the Closing, International Funds' directors shall have
authorized the issuance of, and New Fund shall have issued, one New Fund Share
to Specialty Funds in consideration of the payment of $1.00 to vote on the
matters referred to in paragraph 4.5; and
4.5. International Funds (on behalf of and with respect to New Fund)
shall have entered into a management contract, a sub-advisory agreement, a
distribution and service plan pursuant to Rule 12b-1 under the 1940 Act, and
such other agreements as are necessary for New Fund's operation as a series of
an open-end investment company. Each such contract, agreement, and plan shall
have been approved by International Funds' directors and, to the extent required
by law, by such of those directors who are not "interested persons" thereof (as
defined in the 1940 Act) and by Specialty Funds as the sole shareholder of New
Fund.
At any time before the Closing, either Investment Company may waive any of the
foregoing conditions (except that set forth in paragraph 4.1) if, in the
judgment of its board of directors, such waiver will not have a material adverse
effect on its Fund's shareholders' interests.
5. BROKERAGE FEES AND EXPENSES
5.1 Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
5.2 Except as otherwise provided herein, 50% of the total Reorganization
Expenses will be borne by INVESCO and the remaining 50% will be borne partly by
each Fund.
6. ENTIRE AGREEMENT; NO SURVIVAL
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.
C-8
<PAGE>
7. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Old Fund's shareholders:
7.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before August 31, 1999; or
7.2. By the parties' mutual agreement.
In the event of termination under paragraphs 7.1(c) or 7.2, there shall be
no liability for damages on the part of either Fund, or the directors or
officers of either Investment Company, to the other Fund.
8. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Old Fund's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
9. MISCELLANEOUS
9.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Maryland; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
9.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation other
than the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
9.3. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other party hereto. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
C-9
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officers as of the day and year first
written above.
ATTEST: INVESCO SPECIALTY FUNDS, INC.,
on behalf of its series,
INVESCO European Small Company Fund
________________________ By:_______________________
Secretary President
ATTEST: INVESCO INTERNATIONAL FUNDS, INC.,
on behalf of its series,
INVESCO European Small Company Fund
________________________ By:________________________
Secretary President
C-10
<PAGE>
INVESCO EUROPEAN FUND
(A SERIES OF INVESCO INTERNATIONAL FUNDS, INC.)
INVESCO EUROPEAN SMALL COMPANY FUND
(A SERIES OF INVESCO SPECIALTY FUNDS, INC.)
7800 E. UNION AVENUE
DENVER, COLORADO 80237
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates specifically to the
proposed Reorganization whereby INVESCO European Fund ("European Fund") would
acquire the assets of INVESCO European Small Company Fund ("European Small
Company Fund") in exchange solely for shares of European Fund and the assumption
by European Fund of European Small Company Fund's liabilities. This Statement of
Additional Information consists of this cover page and the following described
documents, each of which is incorporated by reference herein:
(1) The Statement of Additional Information of European Fund, dated
March 1, 1999.
(2) The Statement of Additional Information of European Small Company
Fund, dated December 1, 1998.
(3) The Annual Report to Shareholders of European Fund for the fiscal
year ended October 31, 1998.
(4) The Annual Report to Shareholders of European Small Company Fund for
the fiscal year ended July 31, 1998.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Prospectus/Proxy Statement dated March 23,
1999 relating to the above-referenced matter. A copy of the Prospectus/Proxy
Statement may be obtained by calling toll-free 1-800-646-8372. This Statement of
Additional Information is dated March 23, 1999.
<PAGE>
[LOGO] INVESCO FUNDS
INVESCO FUNDS GROUP, INC.
7800 E. UNION AVE.
DENVER, COLORADO 80237
INVESCO EUROPEAN SMALL COMPANY FUND
INVESCO SPECIALTY FUNDS, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
MAY 20, 1999
This proxy is being solicited on behalf of the Board of Directors of
INVESCO Specialty Funds, Inc. ("Company") and relates to the proposals with
respect to the Company and to INVESCO European Small Company Fund ("Fund"), a
series of the Company. The undersigned hereby appoints as proxies Fred A.
Deering and Mark H. Williamson, and each of them (with power of substitution),
to vote all shares of common stock of the undersigned in the Fund at the Special
Meeting of Shareholders to be held at 10:00 a.m., Mountain Standard Time, on May
20, 1999, at the offices of the Company, 7800 E. Union Avenue, Denver, Colorado
80237, and any adjournment thereof ("Meeting"), with all the power the
undersigned would have if personally present.
The shares represented by this proxy will be voted as instructed. Unless
indicated to the contrary, this proxy shall be deemed to grant authority to vote
"FOR" all proposals relating to the Company and to the Fund with discretionary
power to vote upon such other business as may properly come before the Meeting.
Please sign exactly as name appears hereon. If stock is held in the name
of joint owners, each should sign. Attorneys-in-fact, executors, administrators,
etc. should so indicate. If shareholder is a corporation or partnership, please
sign in full corporate or partnership name by authorized person
YOUR VOTE IS IMPORTANT. IF YOU ARE NOT VOTING BY PHONE, FACSIMILE, OR INTERNET,
PLEASE DATE AND SIGN THIS PROXY BELOW AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
TO VOTE BY TOUCH-TONE PHONE OR THE INTERNET, PLEASE CALL 1-800-690-6903 TOLL
FREE OR VISIT HTTP://WWW.PROXYVOTE.COM. TO VOTE BY FACSIMILE TRANSMISSION,
PLEASE FAX YOUR COMPLETED PROXY CARD TO 1-800-733-1885.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
INVESCO EUROPEAN SMALL COMPANY FUND
VOTE ON DIRECTORS
<S> <C> <C>
4. Election of the Company's Board of FOR WITHHOLD FOR ALL To withhold authority to
Directors: (1) Charles W. Brady; (2) Fred A. ALL ALL EXCEPT vote, mark "For All Except
Deering; (3) Mark H. Williamson; / / / / / / and write the nominee's
(4) Dr. Victor L. Andrews; (5) Bob R. Baker; number on the line below.
(6) Lawrence H. Budner; (7) Dr. Wendy Lee
Gramm; (8) Kenneth T. King; (9) John W. --------------------------
McIntyre; and (10) Dr. Larry Soll.
</TABLE>
<TABLE>
<CAPTION>
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. Approval of an Agreement and Plan of Reorganization and Termination / / / / / /
under which INVESCO European Fund ("European Fund"), a series of
INVESCO International Funds, Inc. ("International Funds"), would
acquire all of the assets of the Fund, a series of the Company, in
exchange solely for shares of European Fund and the assumption by
European Fund of all of the Fund's liabilities, followed by the
distribution of those shares to the shareholders of the Fund, all as
described in the accompanying Prospectus/Proxy Statement;
FOR AGAINST ABSTAIN
2. Approval of an Agreement and Plan of Conversion and Termination under / / / / / /
which the Fund would be converted from a series of the Company to a
series of International Funds, as described in the accompanying
Prospectus/Proxy Statement;
FOR AGAINST ABSTAIN
ALL ALL ALL
3. Approval of changes to the fundamental investment restrictions; / / / / / /
/ / To vote against the proposed changes to one or more of the specific
fundamental investment restrictions, but to approve others, PLACE AN
"X" IN THE BOX AT LEFT and indicate the letter(s) (as set forth in
the proxy statement) of the investment restriction or restrictions
you do not want to change on the reverse side. IF YOU CHOOSE TO VOTE
DIFFERENTLY ON INDIVIDUAL RESTRICTIONS, YOU MUST MAIL IN YOUR PROXY
CARD. IF YOU CHOOSE TO VOTE THE SAME ON ALL RESTRICTIONS PERTAINING
TO YOUR FUND, TELEPHONE AND INTERNET VOTING ARE AVAILABLE.
FOR AGAINST ABSTAIN
5. Ratification of the selection of PricewaterhouseCoopers LLP as the / / / / / /
Fund's Independent Public Accountants.
<PAGE>
- ----------------------------------------------------------------------- ------------------------------------------
Signature (please sign within box) Date
- ----------------------------------------------------------------------- ------------------------------------------
Signature (Joint Owners) Date
</TABLE>
[BACK]
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
To vote against the proposed changes to one or more
of the specific fundamental investment
restrictions, indicate the letter(s) (as set forth
in the proxy statement) of the investment
restriction or restrictions you do not want to
change on the line at the right. IF YOU CHOOSE TO
VOTE DIFFERENTLY ON INDIVIDUAL RESTRICTIONS, YOU
MUST MAIL IN YOUR PROXY CARD. IF YOU CHOOSE TO VOTE
THE SAME ON ALL RESTRICTIONS PERTAINING TO YOUR
FUND, TELEPHONE AND INTERNET VOTING ARE AVAILABLE. 3.
-----------------------
